The potential impact of trade policy changes on Caribbean sugar

Abstract

This study of the Caribbean Sugar Industry summarizes its sugar trading activities and evaluates the potential impact of changes in preferential trading arrangements with the European Union (EU) on the six countries that makes up the Sugar Association of the Caribbean, namely: Jamaica, Barbados, Belize, Guyana, St. Kitts-Nevis, and Trinidad & Tobago. The trading policies that govern sugar trade between these countries and developed countries such as the EU, the United States of America (US) and to a limited extent trade among them is discussed. The report briefly describes how the Caribbean sugar industry is organized, including supply and demand determinants, marketing of its sugar via the EU Sugar Protocol, and the US tariff rate quota system, and safeguards within the Caribbean Common Market (Caricom) from extra-regional sugar producers. The study then analyses the impact of price changes based on different price scenarios that may occur after preferential prices disappear. Data and estimated model specifications are described, elasticities of dependent variables responses to independent variables changes are calculated, and these results, in addition to different price simulations are presented. The analysis shows that modest decreases in prices to Caribbean sugar producers would not result in huge changes in the structure of the Caribbean sugar industry since responses of production, consumption, imports and exports are inelastic to prices changes in the short-run. This could be due of asset fixity within the industry. This industry requires huge capital investments, thus, after these investments are made producer are forced to operate at full capacity to minimize fix costs. Secondly, the industry within this region is a mass employer of labor and a huge contributor to their country's Gross Domestic Product (GDP), therefore, any major changes with this industry could result in massive social instability.