Coupled support for sugar beet in the European Union: Does it lead to market distortions?

Abstract

AbstractUnder the EU Common Agriculture Policy, only 11 of 19 sugar beet producing EU Member States provide coupled direct payments for sugar beet. This paper analyses the market effects of this uneven implementation of an agricultural policy instrument along the sugar supply chain, focusing in particular on changes in sugar production in individual EU Member States. In addition to previous literature, the effects on the production of competing crops to sugar beet are also presented. Moreover, the effects of coupled support are investigated under two different yield levels to account for yield uncertainties arising from an application ban on certain insecticides that came into force in the EU in 2018. The simulation was carried out using the partial equilibrium model AGMEMOD. Results suggest that the market‐distorting effect of coupled support for sugar beet remains limited and tends to be higher under an optimistic yield development. Assuming unchanged yield growth, the simulated increase in sugar production of EU countries providing coupled support totals 258,000 tonnes of sugar (+5.7%), while sugar production in EU countries without coupled payments declines by only 21,000 tonnes (−0.2%) resulting in an overall increase in EU sugar production of 236,000 tonnes (+1.3%). Despite these rather limited market‐distorting effects, providing coupled support to sugar beet cannot be supported from an economic point of view because it contradicts the objective of a stronger market‐orientation of EU agricultural production.