The World Trade Organisation ruled yesterday that sugar industry subsidies are illegal and harm the rest of the world’s sugar producers.

Phil Bloomer, head of Oxfam’s make trade fair campaign, said: "Today’s ruling confirms that the EU has been breaking WTO law and seriously harming developing countries in the process."

Australia’s trade minister welcomed the ruling saying that it will be a boon for Australian sugar cane businesses.

Yesterday’s decision had an impact on the prices of sugar cane companies’ stock. The share price of the sugar group Tate & Lyle tumbled 15.5p to 453p. The EU had pledged to reform its sugar business, although campaigners say the reforms are not serious enough.

Michael Mann, the European commission’s agriculture spokesman, said: "Obviously we’re not happy with what they found against us on these two points but we will of course comply with our international obligations."

The Uruguay round of trade discussions stipulates that the EU can export only 1.2m tonnes of subsidised sugar. The WTO now ruled that the sugar exported without direct subsidies is also subsidized.

Pay-outs to sugar farmers will now drop €2 billion a year, although campaigners are not satisfied with this level.