Modelling the EU Sugar Policy - A preliminary study of policy reform scenarios

In this paper we present and model in an applied global general equilibrium framework (GTAP) the EU sugar policy, and undertake a few illustrative policy reform scenarios. Particular attention is given to the modelling of the quite complex quota regime and the calibration of the model, including the determination of the marginal cost of producing sugar beets, in the EU member countries. Three scenarios are analysed using the developed model and database. The chosen scenarios are all motivated by the recent reform proposal by the EU Commission. They include 1) a 25 per cent reduction in intervention prices with no direct compensatory payments, 2) a 25 per cent price reduction with compensatory payments to land, and finally 3) a 8 per cent reduction in the sugar quota. This paper reports work in progress, and all the results presented are therefore to be considered as preliminary. It is concluded that the results depend critically on the chosen calibration of the model and, in particular, the identification of the individual member countries as either high, medium or low cost sugar beet producers. Nevertheless, given such a categorisation of the member countries, the model results – being quite rich in terms of interesting qualitative and quantitative results - clearly illustrate the very different regional impacts of a given reform scenario. The impacts of price cuts versus quota reductions will also be very different across the EU member states.