The impact of European Union sugar policy reform on developing and least developed countires (from the Commodity Market Review)
Radical changes in the Common Market Organization for sugar have recently been agreed by the EU agricultural ministers. These will interact with preferential trade initiatives and with the need to comply with the outcome of the trade dispute on export subsidies. Apart from EU sugar producers, the reform will affect developing countries and least developed countries that depend on the preferential treatment they enjoy for sugar exports to the EU. This paper focuses on the impact of the EU sugar policy reform and the Everything But Arms initiative on the African, Caribbean and Pacific countries, the least developed countries and the European Union. We develop an empirical model structure comprising a partial equilibrium model for the sugar market and a gravity model to replicate least developed countries’ bilateral trade with Europe. Domestic support and other policy instruments are included in the partial equilibrium model, whilst gravity is used to model the abolition of import tariffs for sugar originating in least developed countries subject to trade costs. Results suggest that sugar production in the European Union will contract, leading to a significant decrease in unsubsidised exports. African, Caribbean and Pacific countries will experience significant reduction in their export revenue, whilst the initial impact on least developed countries may be limited, but increasing in the medium run.