Potential Effects of Policy Reform on the European Community Sugar Market and World Sugar Prices

The emergence of a single, fully competitive market in the European Community (EC) by the end of 1992 is a major goal of EC policy reform known as the EC- 1992 initiative. The philosophy underlying this initiative favors competitive markets for all goods, services, and assets. The production quotas that characterize the EC sugar program may be considered assets. Although no proposals have been made by the EC Commission to establish markets for these quotas, this possibility has been discussed by persons inside the EC sugar industry and by sugar market analysts. The potential effects that markets for sugar quotas might have on world prices are evaluated in comparison with eliminating the EC sugar program. Simulations suggest that quota markets within national borders would have reduced net EC sugar exports by 2.3 million metric tons and increased normal world sugar prices by 8 percent during 1982- 86. Intra—EC quota trading would have decreased net exports by 3.7 million metric tons and increased world prices by 13 percent. In contrast, elimination of the program would have increased world prices by 16 percent