Competition Authority, 2002). Moreover, the actual price received by producers depends on local
agreements and there are no reliable statistics on the price of beets within the A and the B quotas. Van
der Linde et al (2000), Eurocare (2003), LMC (2004) compiled some information on costs of
production. Estimates relying on budget generators and engineering data suggest that costs of
production are close to the intervention price for sugar and the administrative ("base") price for beets
(i.e. roughly 47 €/ton of beet until the implementation of the 2005 reform). However, econometric or
linear programming- based estimates of marginal costs or "opportunity costs" (i.e. the cost of
producing one unit of beet instead of alternative crops) are much lower (Bureau et al., 1997). Recent
estimates for France suggest that they were below 18 €/ton of beet before the June 2003 CAP reform
(see Rozakis and Sourie, 2005).
The EU production of C sugar has been significant over the last decade, representing 4 to 13% of the
18 to 20 million tons of sugar now produced in the EU-25, depending on the year. It is therefore
tempting to believe that, at least in the most efficient regions, producers respond to the world price.
However, an indirect implication of this assumption is that the resulting EU supply curve is such that a
fall in the intervention price would mainly erode rents, but not affect production. Even though this
seems consistent with the existence of production of C sugar for the world market, the assumption that
aggregate EU production responds to the marginal costs of the most efficient producers might lead to
an underestimation of the impact of reforms on EU output.
2. The microeconomics of EU sugar supply behavior
Cross-subsidization of out-of quota C sugar by A and B sugar is sometimes seen as driving C sugar
production. Three possible effects can be identified.
• Some authors, and obviously the members of the WTO panel, consider that the high supported
price for the production under A and B quotas covers fixed costs. This would allow
production of C sugar at low prices, given the need to recover only variable cost (Van der
Linde et al, 2000; Schmidt, 2003). If this is the case, it is not only marginal (variable) costs
that drive EU sugar production. A change in the in-quota price will affect the possibility of
recovering fixed costs (Chau and de Gorter, 2005).
• During the recent period, world prices of sugar have been very low. There is some empirical
evidence that this price hardly covers the cost of even variable inputs, such as intermediate
consumption (Rozakis and Sourie, 2005). This suggests that some producers, if not all, lose
money on some of the C sugar quantities they produce. A possible explanation is that some
producers grow C sugar beets as an insurance strategy against in-quota sugar revenues
foregone when there are poor harvests. Again, if it is the case, one cannot model EU supply
as a function of marginal cost only. It is necessary to work out more carefully the interaction