Multilateral Trade and Agricultural Policy Reforms in Sugar Markets

Abstract

AbstractWe analyse the impact of trade liberalisation, removal of production subsidies and elimination of consumption distortions in world sugar markets using a partial‐equilibrium international sugar model calibrated on 2002 market data and current policies. The removal of trade distortions alone induces a 27% price increase while the removal of all trade and production distortions induces a 48% increase in 2011/2012 relative to the baseline. Aggregate trade expands moderately, but location of production and trade patterns change substantially. Protectionist Organisation for Economic Co‐operation and Development (OECD) countries (the EU, Japan, the US) experience an import expansion or export reduction and a significant contraction of production in unfettered markets. Competitive producers in both OECD countries (Australia) and non‐OECD countries (Brazil, Cuba), and even some protected producers (Indonesia, Turkey), expand production when all distortions are removed. Consumption distortions have marginal impacts on world markets and the location of production. We discuss the significance of these results in the context of mounting pressures to increase market access in highly protected OECD countries and the impact on non‐OECD countries.