Liberalising the EU sugar market: what are the effects on third countries?*

This paper examines the consequences of a liberalisation of the EU sugar policy on Australia and other third countries. Four scenarios are simulated showing the trade and production effects of a gradual phasing-out of EU domestic support measures and EU import tariffs using two partial equilibrium models linked to each other. Compared with previous work, tariff rate quotas are represented in great detail, going beyond the classical single-origin, single-destination approach. Furthermore, supply functions of EU sugar processors are calibrated based on empirical data on production costs to overcome the problem of non-observed production costs due to the existence quota rents. Results suggest that, in particular, sugar production in Balkan countries is adversely affected by a liberalisation of the EU sugar regime. Moreover, the simulation shows that preferential LDC-ACP exporters, among them Fiji and Papua New Guinea, are displaced from the EU market leading to a decline in production. An elimination of EU import tariffs benefits in particular the Ukraine and the world's largest sugar producers, such as Australia, all with currently only limited preferential market access to the EU. During periods of low global sugar prices, these countries even increase sugar production, if the EU sugar market is completely liberalised.