Food from Britain admitted it would be forced to scale back its support for UK manufacturers after learning its £5m annual budget from Defra would be pulled in three years.
The promotional body, which champions British food abroad to drive exports, had expected government funding would be cut back. But news it would lose it altogether had come as a total shock, said chief executive John Adams,
"We were expecting less, but not as little as this," he said. "The prospect of getting nothing in the next few years has been a bolt from the blue and it's a case of picking up the pieces as best we can."
FFB currently has an annual expenditure of £8m. The Defra grant will be scaled back to £4m this year and reduced to nothing by 2011.
Food from Britain would have to consider stopping some activities unless it could find other backers, said Adams.
Other public sector bodies, such as UK Trade & Investment and regional development agencies, were possible sources of alternative funds because they already subsidised some Food From Britain activities. The possibility of private sector backers would also be considered, he said.
Crisps producer Tyrrells Potato Chips, which has entered 30 new international markets in the past year with help from Food from Britain, said the news was a huge blow.
"I am very angry about it because Food from Britain has done a fantastic job," said export manager Alan Jack. "Small companies bring a lot back into the country and it is going to curtail a lot of activity that helps small businesses balance the books."
At least £1.2m of Tyrrell's £1.7m export turnover was directly attributable to work done by Food from Britain, he added.
Defra defended its move, however. "During this time of tough public sector spending, Defra will no longer provide direct support for individual businesses," it said. "There is a need for industry to support itself and for market forces to dictate useful business support. Defra is also redirecting spending towards environmental priorities."