Conflict between political and efficiency targets in the reform of EU sugar markets

Borbély, Ákos

Keywords: sugar reform, sugar market, quota regulation, program for structural change, efficiency

Beyond sketching the background to EU sugar reform the present report concerns the relationships between efficiencies in accomplishing quota reductions. One of the main reasons for reforming the European sugar sector was efficiency, which could not be significantly improved because of national regulations based on rigid quotas. Other reasons were the separation of price support from production and the need to control overproduction because of international trading commitments required the EU to reduce sugar exports radically and increase sugar imports significantly. To achieve planned reduction in production the Community proposed a program of structural change bringing about the exclusion of the lesser competitive producers. On the basis of EU’s estimated sugar supply function it is possible to compare various possibilities for quota reductions using the methods of social welfare economics. In this way it can be shown that a system of simple liner quota reductions would bring about an annual loss of half billion euro in efficiency as compared with a program of voluntary structural change. The basic question in the sugar reform being presently enforced is whether or not it will be possible to exploit the theoretical value of efficiency in practice. We have come to the conclusion that without the full exploitation of efficiencies planned there is no chance of achieving the market prices of sugar projected in the reform.

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