Effects of the EU Sugar Reform on Developing Countries

The European Union’s sugar policy is one of the most distorting policies within the common agricultural policy. It includes import control, production quota, and export refunds to support producer price within the EU at levels high above international prices. The main beneficiaries of the support system are the EU sugar industries and EU beet growers, but they are not the only producers benefiting from the high EU sugar price. Under the Sugar Protocol a number of former European colonies in Africa, the Caribbean and the Pacific, in addition to India, have preferential access to the EU market for their sugar exports. And new entrants are standing in line. The least developed countries have been granted preferential access for sugar through the EU Everything but Arms initiative which will be fully implemented in 2009. In 2006, the Commission launched a sugar reform of which a core element was a price reduction of the protected EU price. The purpose of this report is to analyze the consequences of the reform for the developing countries and the EU. Using the CAPRI modelling system, a main impact of the sugar reform for the developing countries is found to be that the Community price cut reduces the future values of preferential agreements for the favored producers. However, both consumers and the processing industry in the developing countries are better off with the reform. The reform results in a clear welfare gain for the EU, although the sugar producers are hit by the lower price. Finally, it is found that trade preferences in combination with the common market order for sugar is an inefficient way to transfer resources to the developing countries