Brussels is looking to cut EU sugar prices - which are currently around three times world prices - by over 40 per cent and quotas by around 16 per cent, according to a draft proposal by the European Commission.
The proposal, put forward by the EU agriculture commissioner Franz Fischler, is now under discussion internally between the different directorates of the Commission, with the finished proposal to be released on 14 July.
"Danisco Sugar will not make any decisions regarding our future production and structure until we have a better knowledge of the conditions under which we'll be operating after 2006 when the new sugar market regulation takes effect," said Mogens Granborg, executive vice president at sugar and ingredients firm Danisco.
"I would like to emphasise that the reports we're receiving at the moment are of a highly preliminary nature," he added.
The draft is an internal Commission document, although details circulated in the European press this week. "This draft document is not in the public domain," a spokesperson for the Commission told FoodNavigator.com recently.
The Danish firm, along with UK company Associated British Foods which owns British Sugar, stands to be hit by the reform as their stocks have the biggest profit exposure to EU sugar, Danisco with 46 per cent and ABF with 34 per cent.
UK sugar and sweeteners supplier Tate & Lyle is also vulnerable, although less exposed because it produces its sugar from imported cane at a lower cost; currently Danisco and ABF use EU grown sugar beet, according to investment bank Goldman Sachs. But change is inevitable.
"What I can say is that we're still convinced that efficient sugar beet growers in Northern Europe have a future, and that we'll probably have to reorganise 15-25 per cent of our sugar production to cane sugar refinement - something we're geared to do," said Granborg.
The firm recently said it will phase out its activities in oil and protein crops in order to focus on sugar beet seed. Spinning off its small winter oilseed rape and mustard business to €125 million seed group Svalöf Weibull, Danisco Seed - part of Danisco Sugar - said the decision was 'based on challenges' faced in the firm's main business area, sugar beet seed.
Danisco indicated last year that proposals to change the 35 year old subsidised sugar regime could lead to a 30 per cent reduction in EU sugar prices and a 10 per cent reduction in beet volumes. Analysts at Goldman Sachs predict that if this scenario occurs, sugar profits for Danisco could drop by as much as 40 per cent.
Food manufacturers are backing change to the heavily supported European sugar market in favour of a liberal equivalent. In the UK, food manufacturers, who collectively use 70 per cent of all the sugar sold there, want to see an end to the status quo.
With British Sugar the key supplier of sugar from beet and Tate & Lyle the equivalent for cane sugar, UK food manufacturers buy the majority their sugar - 70 per cent - from these two companies. A situation that, critics claim, leaves them vulnerable to pricing from the two sugar giants