2205 final report.pdf - Agra CEAS Consulting

IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES
Table 5.6: Welfare impacts 1 of the ‘liberalisation’ option
Baseline
‘Liberalisation’ option
deviation from baseline
€ million € million % change
Agriculture 136,353 -3,315 -2.4%
Sugar industry 1,438 -1,410 -98.0%
Consumers/food industry 631,234 5,713 0.9%
EU budget 45,237 1,043 2.3%
General welfare - 2,030 -
Source: Witzke, H. P. and Kuhn, A. (2003). Assessing reform options for the Sugar Common Market Organisation -
quantitative analyses with interlinked models. http://www.eurocare-bonn.de/profrec/sugar/sugar03r.pdf
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where welfare impacts are measured in terms of changes in activity levels, market balances and income in agriculture and
in terms of estimated profit for the sugar industry. Consumer and food industry impacts are equivalent variations in
percent of total final consumer expenditure. Budgetary impacts are mainly savings in export refunds.
5.2. Conclusions
Looking at the impact on the supply of industrial sugar for the sugar using industry, only the complete
market ‘liberalisation’ option would lead to a significant and rapid change in EU sugar supply
conditions. Analysis suggests that ‘liberalisation’ would lead to a reduction in EU production to
around one third of present levels and the EU would become a net importer of sugar from countries
with a competitive advantage for sugar production (e.g. Brazil). This would potentially have
important adverse effects for the sugar-using sector, as the regularity and consistency of supply may
be impacted by weather-induced production fluctuations as well as economic and political problems
in these countries.
Nevertheless, the complete market ‘liberalisation’ option is expected to provide industrial sugar
users with the ‘lowest’ price for industrial sugar, as the internal market price would be allowed to
adjust itself to the price of non-preferential imports. This would create a level playing field between
the UK and both the EU and non-EU industrial users, with regard to the price of sugar. However,
under the ‘liberalisation’ option, there would be a greater risk of price volatility for industrial sugar
users as the market will no longer be ‘protected’.
Under the ‘price reduction’ option, the UK sugar using sector will also benefit from a reduced price
for industrial sugar as tariff protection would diminish and the gap between the internal EU price and
the world price would close. However, unlike the ‘liberalisation’ option, the EU market would retain
some protection from the volatility of industrial sugar prices on the world market.
The UK industrial sugar using sector would have most protection against price volatility on the world
market in the two policy options with quotas (i.e. ‘status quo’ and ‘fixed quota’ options). But this
would come at a high cost to the sugar using sector. This is because the industrial sugar price will be
maintained at a relatively high price level, vis-à-vis the world market price, and production quotas will
limit the UK’s ability to expand production, even though it is one of the most cost competitive
producers of sugar beet in the EU. With the continuation of production quotas, barriers to entry for
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