The European Union has warned Fiji that it is not preparing sufficiently for 2007 when the country will lose its sugar price subsidies, endangering the future of the island's sugar industry.

The current situation sees Fiji selling around 165,000 tonnes of its annual raw sugar output of 400,000 to the EU for twice as much as general world sugar prices. But European Development Commissioner Poul Nielson has said that the subsidies, which amount to €50-60m (US$48.9-58.7m) per year, will not continue past 2007.

"We foresee a necessary, quite demanding process of structural adjustment for Fiji, especially for the sugar industry… I hope they will be able to cope with the situation because basically we don't see a possibility of continuing with schemes of special subsidies," Nielson said.

Fiji's sugar industry has suffered from years of neglect and has been adversely affected by uncertainty over whether leases held by ethnic Indian farmers on indigenous Fijian land would be renewed. Sugar production costs are particularly high in Fiji - US$28 per tonne compared with $5-6 per tonne in Australia and Brazil.

In 2000 the country's economy was badly affected by the latest in a series of coups since Fiji gained independence from Britain in 1970. Nielson said that the EU has emphasised the importance of good governance and land reform if Fiji's sugar industry is to survive.

The EU is moving away from preferential trade towards free trade when dealing with poor countries such as Fiji, reported Reuters News.