rules of origin requirements will eventually limit the EBA concessions of full and unlimited access
(Talks, 2005). In addition, uncertainty persists regarding the ability of LDCs to become major
suppliers to the EU market due to the lower EU prices and supply side constraints. EBA sugar may
also displace ACP imports. However, during the transition period, LDCs have shown that they were
already making full use of their tariff rate quotas (74 185 tons of white-sugar equivalent in 2001/2002
supposed to aise to 197 355 tons in 2008/2009, July to June marketing year). This suggests that some
significant imports could take place, perhaps some 2.2 million tons, after 2009 according to some
estimates (EU Commission 2005). These imports would need to be offset by a corresponding
reduction in EU production. Clearly, the 2005 reform would need, in that case, to be complemented
by either a significant cut in quota, or a considerable cut in prices, that would bring the EU sugar
prices much closer to the world price.
In brief, there is large uncertainty on whether LDCs would be able to export sugar if the EU domestic
price decreased. There is also a considerable uncertainty regarding the possible non food utilization of
sugar beets or cane, and the resulting world market price. However, unless the EU finds some WTO
compatible ways to dispose surplus (which should exclude export subsidies), it is likely that further
adjustment in domestic price or in quotas will be required after the 2005 reform.
6. Conclusion
The various assessments of the effects of a liberalization of world sugar markets are quite inconsistent.
We believe that a significant explanation of the observed differences in results lies in the specification
of the supply response of the EU, and in particular relates to the assumption regarding C sugar
production. The supply of C sugar can be affected by the support provided to in-quota sugar through
three channels: i/ the existence of fixed costs covered by the in-quota sugar, that may explain that C
sugar can be sold at prices that cover only marginal (variable) costs; ii/ "overshooting" behavior, as
insurance against poor yields; iii/ the production of C sugar as "reference building" in view of
expected reforms.
Microeconomic analysis of the determinants of EU sugar supply do not lead to conclude that the in
quota sugar formally cross subsidizes the production of C sugar. Indeed, the fixed-costs effect cannot
explain a cross-subsidy in the long run, and under the "reference building" effect, the supply of C
sugar only responds to expected (future) in-quota prices. However, they are uncertainties about the
time horizon and the divisibility of inputs in the processing sector. The "overshooting effect" may also
make the supply of C sugar dependent on the level of the in-quota price. Overall, the positive impact
of the quota rent and the quota level on the supply of C sugar deserves to be taken into account in the
representation of the EU sugar supply. We introduce some interaction between the quota and the
supply of marginal sugar production in our model. We calibrate the supply of C beets and sugar using
21