Cadbury's £70m in sugar-coated savings

Cadbury Schweppes could reap savings of as much as £70m a year under European Union plans to slash the price of sugar.

Cadbury Schweppes could reap savings of as much as £70m a year under European Union plans to slash the price of sugar.

On Wednesday, the EU is set to announce proposals - which would come into effect in July 2006 - that would cut European sugar prices by as much as 39 per cent over two years.

Despite political pressure from sugar beet farmers in Europe to limit the cuts, analysts say the EU has no choice. A recent leaked report said it would reduce the support price of white sugar by 39 per cent. It had earlier proposed 33 per cent.

The EU has to act because of pressure from the World Trade Organisation, which has bran- ded many of the EU's sugar exports illegal. It has also agreed to more sugar imports from the developing world, leaving the inflated price of European sugar unsustainable. "They recognise they've got to do something," said Sanford Bernstein analyst Andrew Wood.

Cadbury Schweppes is a heavy user of sugar in products such as soft drinks and chocolate. Mr Wood reckons that the company spends around £180m a year on sugar from the EU, so a 39 per cent cut in prices would reduce that bill by as much as £70m a year.

If the prices were reduced by the lower figure of 33 per cent, Cadbury Schweppes would still make savings of £60m a year.

Mr Wood said the company would not be forced to pass the savings on to consumers, even though Cadbury Schweppes management have claimed otherwise. Chocolate prices have not been cut in 2004-05, despite a fall in cocoa prices, he said.

While the sugar price cuts are good news for Cadbury Schweppes, they are bad news for Associated British Foods.

Its subsidiary, British Sugar, was responsible for around a quarter of the group's operating profits in its last set of results. Lehman Brothers said, in a recent report, that cuts in the sugar price could result in a £32m reduction in ABF's 2007 operating profits.