How a change in Brazil's sugar policies would affect the world sugar market

Although Brazil is the world's largest sugarcane producer, only one-third of the cane it grows is used to produce sugar; the rest is used to produce ethanol as fuel for automobiles. Still, Brazil is the world's fourth largest sugar producer. This paper asks what it would mean for Brazil and for the world sugar market if Brazil were to shift largely away from ethanol to sugar production. This question is of keen interest for the world sugar market because such a shift -- although politically difficult -- is possible. Brazil's system of controlling the sugarcane and sugar industries to ensure enough ethanol for domestic fuel needs is costly. The author concludes that although Brazil could influence world sugar prices significantly in the short run, it could not influence them to its short- or long-term advantage by restricting production. Indeed, to the extent that Brazil could make world prices more stable by allowing its producers increased flexibility in production, removing existing production controls could provide not only substantial economic gains (in terms of increased exports to Brazil), but also more stable world prices. For other producers, there could be a tradeoff in terms of lower but more stable income.Environmental Economics&Policies,Economic Theory&Research,Access to Markets,Markets and Market Access,Consumption

EU Bananarama III

On July 1, 1993 the European Union (EU) adopted a unified banana policy that is even more distortionary and costly than some of the disparate national policies it replaced. Before, some EU countries gave preferred market access and high prices to banana producers from selected developing countries in Africa, the Caribbean, and the Pacific, and from EU territorial suppliers. This preferential status was regarded as a form of aid to countries with historical ties to certain EU countries (France, Great Britain, Italy, Portugal, and Spain). Other EU countries (Belgium, Denmark, Germany, Ireland, Luxembourg, and the Netherlands) granted no preferences and either had free trade policies or imposed only low tariffs. The earlier quota-based national policies were inefficient because the main benefits of the quotas and high prices were enjoyed by importers, wholesalers, and retailers in the quota-restricted countries. Under the unified EU policy, quotas, high prices, and preferential access provide aid to preferred suppliers, but cost EU consumers dearly and the quota restrictions hurt nonpreferred suppliers (mainly Latin American countries). But the main problem with the new policy is that it extends protection (and consequent inefficiencies) to countries where it didn't exist before. As the costs of the new EU policy become better understood, new forces are emerging that will probably create pressure for change over the next decade. Banana producers who now receive aid through preferential access to the EU banana market are likely to lose those preferences. This could deal a hefty blow to several small Caribbean island economies and some African countries. But much more efficient alternative mechanisms exist through which the European Union could grant aid to these economies. The European Union and the favored Caribbean countries could all gain much by shifting from banana aid to formalized, targeted general development aid.Environmental Economics&Policies,Gender and Law,Markets and Market Access,Access to Markets,Gender and Law

A survey of the costs of world sugar policies

This paper provides a framework for assessing the prospects for trade reform in the sugar market. It begins by explaining the main features of the policy formation processes affecting the sugar market. The discussion draws heavily on a recent model of the world market developed by Wong, Sturgiss and Borrell (1989), and some parts of this paper summarize that work directly. Some of the key features of existing policies are discussed and the findings of a number of empiricalstudies are highlighted to draw attention to the economic costs and welfare effects of such policies. The paper concludes with an assessment of the prospects for reform.Access to Markets,Economic Theory&Research,Agribusiness&Markets,Environmental Economics&Policies,Markets and Market Access

Sugar policy and reform

Reviewing cross-country experience with sugar policies, and policy reform, the authors conclude that long-standing government interventions - rooted in historical trade arrangements, fear of shortages, and conflicting interests between growers, and sugar mills - often displace both the markets, and the institutions required to produce efficient outcomes. Arrangements rooted in colonial eras, still shape policies, and trade in the United States, the European Union (EU), and many developing countries. Once policies, and institutions are put in place, households, and the value of investments grow dependent on them, even as their usefulness fades. Firms and households make decisions that are costly to reverse. And the result is a legacy of path-dependent policies, in which approaches, and instruments are greatly influenced by past agreements, and previous interventions. The cumulative effects of these interventions are embodied in livelihoods, political institutions, capital stocks, and factor markets - which not only dictate the starting point for reform, but also determine which reform paths are feasible. Experiments with public ownership, common in many countries, have not succeeded. So most countries have initiated some measure of market reform. And events relating to NAFTA, Lome, and expansion of the EU, may bring about significant changes in the EU, and US sugar regimes, with cascading effects on other countries. Common problems in the sector include determining cane quality, finding methods for fairly sharing revenues from joint production, finding ways to take advantage of preferential trade arrangements with minimal negative consequences, finding ways to finance, and encourage research, and other activities with common benefits, identifying practices that facilitate equitable, sustainable privatization, and determining the relationship between sugar market reform, and markets in land, water, credit, and other inputs.Food&Beverage Industry,Environmental Economics&Policies,Agribusiness,Agribusiness&Markets,Economic Theory&Research,Environmental Economics&Policies,Agribusiness&Markets,Economic Theory&Research,Agribusiness,Agricultural Trade

EC Bananarama 1992 : the sequel - the EC Commission proposal

Some European Community (EC) countries give preferred market access and high prices to bananas from selected developing countries or EC regional suppliers. This preferential status is regarded as a form of aid to these countries, most of which are developing small island economies. EC marketers of bananas from these preferred suppliers also benefit because of the high retail prices. Nonpreferred suppliers - mainly developing countries of Latin America - are hurt by the policies because access is denied or restricted and the lower demand depresses the world price for bananas. The Community's commitment to establish a single unified EC banana market on December 31, 1992 provides a timely opportunity to reform existing distortionary trade policies. The recently announced proposal of the Commission of ECs to regulate banana trade within a unified market relies on quotas to control imports. The proposal is extremely complicated. It is designed to severely restrict competition and to maintain the advantages of selected groups. The authors update their earlier analysis of world banana trade to reflect the market in 1993. They evaluate the implications of the Commission's proposal alongside existing and alternative policies. They find that current policies cost EC consumers about $1.6 billion annually to transfer a net benefit of$0.3 billion a year to preferred suppliers. So, it costs EC consumers about $5.30 to transfer$1.00 of aid toselect developing countries or regions. Additionally, every dollar of aid reaching preferred suppliers costs other developing country suppliers $0.32. EC marketers are the main beneficiaries. Of the$5.30 cost to EC consumers, over $3.00 is collected as excessive marketing margins by protected importers and wholesalers. About$1.00 is lost in outright waste. Several plausible versions of the Commission's proposal are modelled. At best they are found to be slightly less costly than existing policies and at worst, considerably more costly. A 3.5 percent reduction in the quota allocation is estimated to lead to a 30 percent increase in the cost of the proposal. The authors conclude that the Commission's proposal for a unified EC banana policy appears to be little more than a way of replacing existing distortionary national policies with an almost equally distortionary single policy and market. The only difference: the costs would be borne by consumers in all EC countries rather than consumers in only some countries. Worse still, costs could increase. Markets that now gain the benefits of mostly open and competitive marketing such as Germany would face closed and uncompetitive conditions. For developing countries exporting bananas, the proposal offers little. At best conditions may be no worse than they are now. At worst the policy could hurt Latin American suppliers even more than current policies and introduce considerable confusion about the level of support to preferred suppliers. Under the proposed quota system aid will not be well targeted. A more efficient way of achieving the EC's aid commitment is through a small tariff of about 17 percent, used to fund a system of well-targeted deficiency payments or direct aid. The only reason for choosing the Commission's proposal over simpler, tariff-based options seems to be to maintain the vested interests of protected EC markteters. But this is contrary to the objectives of unification, which are to seek gains from increased competition and trade.Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research,Consumption

EC Bananarama 1992

The disparate banana import policies currently operating in member states of the European Community (EC) are inconsistent with the Community's objective of full economic integration in 1992. Under separate national legislation, widely varying banana prices apply across different member states, varying duties and import quotas apply to the external (world) market, and internal trade is virtually excluded. The inconsistencies are obvious and politically they are highly transparent. Community imports make up about a third of world trade and more than 40 percent of the trade occurs under preferential trade agreements. The special arrangements confer sizable subsidies on some African and Caribbean banana producers and disadvantage other exporting countries -- mainly other Latin American producers. Adoption of a'common'banana regime in the Community in 1992 could potentially alter the pattern of world trade, the world price for bananas, and the welfare of exporting and consuming countries. The purpose of this study is to assess the main economic effects of existing policies and of various policy alternatives. A detailed review of recent trends in the banana market and of existing national policies is provided. A comparative-static model of the EC and world banana markets is used to illustrate the broad trade, welfare and price implications of current and alternative policies, and a simulation model estimates the impact of a range of policies for the Community after 1992.Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Markets and Market Access,Access to Markets

The Mexican sugar industry : problems and prospects

The Mexican sugar industry operates under strict government controls. The sugar parastatal, AZUCAR, and other state agencies govern virturally all aspects of pricing and, until recently, AZUCAR controlled virtually all aspects of marketing. The purpose of this study is to make transparent the main economic effects of existing sugar policies. Three broad measures are used to estimate the resource misallocation effects of intervention: the nominal rate of protection, the effective rate of assistance and the net subsidy equivalent. Theoretical arguments are also used to demonstrate other potential inefficiencies in resource use. To estimate the effects of efficiency-improving policies, an economic model of Mexican production, demand, stock demand and cane-pricing arrangements is constructed. This model is linked to a model of the world sugar market to evaluate the trade and other economic opportunities which should arise from policy reforms.Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Access to Markets,Water and Industry

Brazil's sugarcane sector : a case of lost opportunity

The Brazilian sugar and ethanol story goes like this: direct market intervention overrides market forces. Markets undergo dramatic change. Intervention establishes vested interests. Rent-seeking blocks adjustment to market change. Economic objectives become blurred behind political objectives. Opportunities go begging. Industry profitability suffers. And national income is forgone. The authors use a simple economic model of the Brazilian sugarcane sector and policy interventions to measure the costs of existing policies and to develop better policies. Brazil is an efficient producer of sugar, but policy intervention has caused: (a) underproduction of sugar cane (too much ethanol, not enough sugar); (b) missed opportunities to market ethanol in high-value uses (as an octane enhancer and clean fuel); (c)missed opportunities to make the world sugar market more competitive. Adopting more market-based policies could be worth billions of additional dollars annually to Brazil.Environmental Economics&Policies,Crops&Crop Management Systems,Economic Theory&Research,Transport and Environment,Access to Markets

Abolishing green rates : the effects on cereals, sugar, and oilseeds in West Germany

In 1987 the European Community began the ambitious task of forging a single market for goods and services across the national borders of its member states by 1992. Substantive reform of the Community's Common Agricultural Policy - necessary for the full integration of existing markets - has not yet been accomplished and has proven difficult to achieve. Creating a truly"common"agricultural policy in the European Community requires, at a minimum, eliminating price differences resulting from country- and commodity-specific exchange rates, known as"green rates."The authors discuss the various policy instruments that complicate the effects of these policy-determined price differences on crop production and the demand for inputs. They present a model that estimates the cross-commodity biases created by multiple policy instruments and that quantifies the effects of removing green-rate differentials in what was West Germany. The effects of price changes on domestic production are statistically significant in the model, although quantitatively small. This result suggests that eliminating green rates would lead primarily to a decline in farm income and a devaluation of fixed agricultural assets - which complicates the difficult task of attaining reform.Environmental Economics&Policies,Economic Theory&Research,Access to Markets,Markets and Market Access,Crops&Crop Management Systems