Vertical integration and trade policy: The case of sugar

The degree of vertical integration in the U.S. sugar industry between raw-sugar processing and sugar refining cannot be explained using theories of vertical integration based only on transaction costs. We graphically decompose the economic rents accruing to each level participant in the marketing channel. Different strategies of several major sugar producing, processing, and refining entities with regard to sugar quota policy are explored. Firms that are integrated from sugar production through to sugar marketing are less impacted by freer trade than are those that concentrate solely on production. We contrast the sugarcane industry in Florida and Louisiana with sugar beet production and processing in the northern plains. The sugar industry in Florida, because of the high degree of vertical integration, is much more capable of dealing with expanded sugar imports than either sugarcane producers in Louisiana or sugar beet growers in the northern plains where integration is not as pronounced. [Econ-Lit citations: Q18, Q11] © 2002 Wiley Periodicals, Inc.