Reforming the European Union Sugar Program: What Are the Market and Trade Implications?

The European Union sugar policies, in place for over 49 years, underwent a first major reform in 2005, yielding to mounting pressures coming from the EU 2004 enlargement, the recent EBA initiative to least developed countries and the recent WTO-panel ruling on EU sugar export subsidies. The reform package consists of lowering administrative prices as well as modifying the structure of production quotas leading to lower sugar production and bringing down subsidized export to within WTO limits. However, these reforms do not address other components of the EU sugar policies such as non-preferential tariffs, quota reallocation across regions, or opening up the competitive structure of the EU sugar industry. This makes it difficult to assess the economic and trade implications of the reform package. This paper offers a dual-modeling approach to examine the impact of the EU sugar policy reform on sugar production and prices in the EU, and the trade implications for third countries with particular distinction between preferential and non-preferential exporters.