Bridging Micro- and Macro-Analyses of the EU Sugar Program: Methods and Insights



competition in most sectors and a neo-classical closure. Investment is savings driven and balance of
payments equilibrium is ensured by financial flows. A Social Accounting Matrix (SAM) was
constructed for the EU, using original data for the year 1995. The sectoral coverage distinguishes 75
products, including 18 products in the arable crops sector, 29 products in the animal sector. There are
three primary factors (capital, labor and land), whose quantities remain constant, but which are mobile
across sectors. The EU is a large country whose trade affects other regions' exports prices through a
series of export supply and demand functions. The model has four main original features, which are:
i) the use of flexible forms which globally satisfy regularity conditions for production technology,
household preferences and factor mobility ii) a detailed disaggregation of the agricultural sector; iii) a
detailed representation of all instruments of the CAP; iv/ the use of Mixed Complementarity
Programming (MCP) methods in order to represent changes in regimes such as production shifts under
a quota. The specification used to represent preferences, technologies and factor mobility makes use
of latent separability. The model is described in Gohin and Latruffe (2006).

The modeling of the sugar sector. The sugar sector includes the sugar beet activity which supplies
"A&B beets", i.e. in-quota beets, "C beets" and the sugar processing sector which offers "A&B sugar",
"C sugar", "pulps", "molasses". The in-quota and out-of-quota beets (respectively sugar) are distinct
products, but perfect substitutes. They differ in terms of prices, levies and constraints. Isoglucose is
modeled as a substitute for sugar. Sugar beets are assumed to be nontradable. Sugar is modeled as an
homogenous product. Accordingly, a net trade (rather than an Armington) specification is used so that
the difference between EU sugar exports (A&B and C sugar) minus preferential imports meets a net
export demand function from non-EU countries. EU imports are limited by tariff quotas, which
generate rents, assumed to be retained by the exporting countries. The processing sector is represented
in the model. Raw sugar is the only type of sugar imported, while only white sugar is exported. The
difference in price between raw and refined sugar is kept constant, so that the products behave like
perfect substitutes. The modeling of the beet and processing sectors allows for a cross-subsidy
between A&B and C productions at both stages. The A&B beet and sugar are linked through a
Leontieff technology, and assumptions must be made regarding the share of the rent passed to the farm
sector and retained by the processing sector. The convention that is adopted here is the one used by
Frandsen et al (2003), with a constant proportion of price decrease between the two sectors as long as
there remains some positive rents at the two stages.

The costs of production estimates presented in Table 1 characterize supply response at the national
(country) level and as mentioned before, we only rely on the average in the EU model. Here, a full
blown model of each EU country would be required in order to take into account the differences in
domestic production costs. However, one may always argue that the heterogeneous sugar production
conditions in the EU require a region specific model, or even a farm level model (Mahler, 1994;
Revoredo, 2005). Here, we need to combine country specific information on supply and an EU-wide

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