According to an USDA model-based analysis of the implications of EU sugar-sector reforms, the process underway will result in ‘cuts in prices and production quotas … lower EU sugar production, lower prices for consumers and higher consumption’. EU sugar exports will also decline ‘as a result of a combination of lower production, lower export subsidies, and restrictions on exports of non-quota sugar’. EU sugar imports meanwhile will rise.
The decline in total EU sugar production is expected to be greater than the quota reductions under the buy-out scheme. It addition ‘domestic market prices will not necessarily fall as much (or proportionally) as the cut in the intervention price, partly due to increased mark-ups charged by sugar firms’. The report also highlights ‘the accelerated restructuring and consolidation of EU sugar processors’, which is under way.
The report argues that ‘given the market structure ... of the EU sugar industry, cutting the intervention price alone may not have the desired effect on production and market prices ... the reform’s trade effects are more significant for preferential than for non-preferential exporters to the EU’, although the ‘implementation of tariff-cutting measures in 2009 and the sugar reform in 2006 will dampen potential gains for LDCs ... preferential exporters are likely to experience income loss (from preference erosion) despite possible increases in sugar exports to the EU’.
‘World sugar prices are expected to shift upward due to the EU sugar reform’. Significantly the model used sought to take into account the ‘imperfect competition and oligopolistic behaviour of the EU sugar industry and how these attributes affect the expected responses to the policy reform’.
Summary of The EU sugar policy regime and implications of reform, USDA ERS, July 2008
http://ers.usda.gov/Publications/ERR59/ERR59_ReportSummary.pdf
Full text of The EU sugar policy regime and implications of reform, USDA ERS, July 2008
http://ers.usda.gov/Publications/ERR59/ERR59.pdf
The USDA analysis alludes to the concentrated nature of the EU sugar industry in its observation that domestic market prices are unlikely to fall as much as the intervention price cut would suggest. Indeed it explicitly refers to the oligopolistic behaviour of the EU sugar industry, an oligopolistic control which is likely to intensify in the coming period as ownership in the sector is further concentrated following the buy outs and take-overs which are under way across internal EU borders. This oligopolistic control, despite the liberalisation of EU import-licensing arrangements is likely to increase competition between ACP suppliers on the EU market, exerting further downward pressure on prices paid for ACP sugar.