Abstract
CAP regulation of sugar sector has frequently been questioned because of its potential effect on competition. In 2006 the CAP reform of the sugar sector established a relevant break in policy trend with potential albeit untargeted effects on price transmission. In 2012 DG AGRI commissioned a study to assess the effects of the 2006 reform of the EU sugar regime on the price transmission within the sugar sector. This paper highlights the effects of the new CAP sugar regime on sugar retail price and on the degree of competition and concentration in the sugar industry. Vertical price transmission is tested through econometric models. The relationship between concentration and competition is analysed putting in relation the concentration index and a modified version of the Lerner index. Results of empirical investigation show that vertical price transmission asymmetries still exist after the reform, which in turn contributed to increase sugar sector concentration, partly confirming the validity of the Structure-Conduct-Performance assumptions. The sugar market is far from efficient and the reform only created more favourable conditions for its improvement.
Highlights
Price transmission measures how the price variation of a good in a market is transmitted to derived goods in other markets
Vertical price transmission (VPT) is affected by the reduction of the minimum price for quota sugar beets: downward variations of sugar beet prices still face an absolute limit after the reform; the variation floor has been lowered, showing a clear direct influence of the reform on upstream VPT
The assessment we carried out provided empirical evidence, which partly confirmed the actual occurrence of the expected effects of the reform on price transmission in the sugar sector
Summary
Price transmission measures how the price variation of a good in a market is transmitted to derived goods in other markets. The relevant point within the sugar industry is how sugar price variations are transmitted downstream to the price of sugar for consumption or goods containing sugar. Sugar beet processors play a special role in the implementation of the Common Market Organisation (CMO) which directly targets industrial products (sugar and its derivatives) to sustain sugar beet producers. The exertion of market power might theoretically hit beet producers (e.g. in case industrial oligopsony with market power occurs), reducing the effectiveness of Common Agricultural Policy (CAP) measures on the setting of sugar beet price. Consumer welfare and policy effectiveness are the main social and economic concerns related to the exertion of market power within the sugar supply chain
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