Ref. Ares(2015)5011813 - 11/11/2015
Modelling the Impacts of Sugar Quota Options in the CAP post-2013
1. This note sets out the projected impacts on European sugar markets of options
for the EU sugar regime. In particular, the note concentrates on the impacts of
extending the sugar quota regime1 and import provisions.
2. Extending the sugar quota regime beyond 2015 is projected to lead to European
sugar production being 4%-6% lower than it would otherwise have been, and
raise EU sugar prices by 6%-28%, relative to a scenario in which quotas expire.
The results depend crucially on the level of EU sugar imports.
3. The impact of the quota regime itself on European prices is modest compared to
the impact of EU imports. Since the last sugar reform, EU imports have remained
significantly below Commission estimates of around 3.5 million tonnes (MT)
published at the time of the reforms. Importantly, the quota regime exacerbates
the impact on prices from a lower level of EU imports because sugar production
in the EU cannot respond to the higher domestic sugar price brought about by
4. If quotas are extended, adverse price impacts can nevertheless be significantly
mitigated by allowing imports to reach the levels forecasted at the time of the last
5. In any event, prior to quota expiry in 2015
, the current shortage in EU sugar
imports is projected to lead to EU domestic sugar prices being on average 35%
higher than would otherwise be the case.
6. This analysis does not address the economic costs of disruption to food and drink
manufacturing, or production relocation, in response to insecure supplies of sugar
as an ingredient. This issue would benefit from further analysis.
7. The model we have used is the 2012 version of the OECD-FAO Aglink-Cosimo
model. The 2012 version is the latest available – published in July 2012 – and
contains updated projections for global agricultural commodity prices, including
raw and white sugar.
1 This note makes no attempt to assess changes in the Isoglucose market in any of the scenarios
considered. Latest OECD-FAO baseline projections for the Isoglucose market are used throughout. In
the baseline scenario i.e. sugar quota expiry in 2015, EU production of isoglucose rises from 690,000
tonnes to 845,000 tonnes in 2021.
8. The model projects annual production, consumption, prices and trade for all
major agricultural commodities and regions from 2012-2021. As regards the EU
sugar regime, quotas expire in 2015 in the model’s baseline or reference
9. The Commission used an older version (2010) of the same model in their initial
Impact Assessment of the CAP post-2013 proposals regarding the sugar regime.
As such, they were unable to incorporate the latest developments in both
agricultural commodity prices on world markets and in the EU trade balance
(particularly regarding the low level of sugar imports).
10. The following scenarios were run through the model:
Scenario 1: Projected impacts of extending sugar quotas3 and achieving the level of
sugar imports assumed by the Commission at the time of the last reforms
(‘Commission Import Assumptions’ in the following table).
Scenario 2: Projected impacts of extending sugar quotas and assuming import levels
from ACP/LDC countries remain as experienced in recent years (1.8 MT). (‘Actual
Import Levels’ in the following table).
Scenario 3: Projected impacts of extending sugar quotas and assuming reduced
import levels from ACP/LDC countries (1.1MT). (‘Reduced Import Levels’ in the
11. Results of each scenario are presented in the following table and chart.
Scenario 1: Commission Import
Scenario 2: Actual Import Levels
Reduced Import Levels
All Values Quotas
Maintained change in 2015
2 When quotas expire in the model’s baseline, EU exports of sugar are able to rise, increasing by
25% to 2021.
3 Extending sugar quotas refers to a scenario in which sugar quotas are maintained to 2021 in the
Projected Impacts of Extending Sugar Quotas beyond 2015
EU Sugar Price
EU Sugar Production
Actual Import Levels
Reduced Import Levels
12. If sugar imports were to increase to the levels envisaged at the time of the last
reform, extending the quota beyond 2015 has a relatively modest impact.
Nevertheless, by 2021, EU sugar production is 4% below the baseline scenario in
which quotas expire in 2015. Consequently, EU sugar prices are projected to be
6% above baseline levels where quotas are abolished.
13. Since the last reform, sugar imports have remained well-below the levels initially
forecast by the Commission and contained within our model’s baseline. A
scenario was therefore run to reflect the historical reality of lower-than-expected
import volumes. In this scenario we hold imports at the current level of 1.8 MT
from ACP/LDC countries over the course of the projection period.
14. Under the conditions set out in para (10), maintaining the quota regime beyond
2015 has a much greater impact; EU sugar production is projected 6% below the
baseline scenario by 2021 and EU sugar prices are 23% higher than in the
baseline scenario. This is because the quota prevents domestic EU sugar
production from expanding in response to higher EU sugar prices, themselves
brought about by a restricted level of imports.
15. A third scenario was run in the model to simulate the impact of EU sugar imports
below the levels seen recently. This could occur were there to be a reduction in
sugar refining capacity within the EU. We therefore reduce sugar imports to 1.1
MT (or 700,000 tonnes below the recently achieved levels) in this scenario.
Extending the quota regime beyond 2015 in this scenario is projected to raise EU
sugar prices by 28% above levels they would be were the quota to be abolished.
16. In summary, extending the sugar quota regime will exert upward pressure on EU
sugar prices. The modelling results suggest that unless imports are allowed to
meet previously forecasted levels, maintaining the EU sugar quota will exert far
greater upward pressure on EU sugar prices than would otherwise be the case -
at the detriment of both industrial users and consumers.
17. If quotas are extended beyond 2015, then in order to mitigate or minimize the
impact on prices and industrial users/consumers, adequate supplies need to be
available on the EU market. This means that sugar imports would need to rise to
(at least) the levels anticipated at the time of the last reform.
18. In any event, prior to quota expiry
, the current shortfall in EU sugar imports is
likely to be pushing domestic sugar prices up within the EU. In order to look into
this we ran three scenarios related to the period before quota expiry in the model
19. The first scenario assumes EU sugar imports as envisaged by the Commission in
their latest baseline. The second scenario, termed ‘actual import levels’ refers to
a scenario in which EU sugar imports are held at 1.8 MT from ACP/LDC
countries. The third scenario of ‘reduced import levels’ represents a situation in
which sugar imports fall further from currently levels to 1.1 MT. The results are
given in the following table.
E27 White Sugar Price
Actual Import Levels
Levels (Scenario 3)
% diff Scenario 1
% diff Scenario 1
20. Therefore, in the next few years and even before end of the quota regime, the
shortfall in sugar imports is projected to lead to EU domestic sugar prices being
on average 35% higher than would otherwise be the case. If imports drop even
further below the historic trend, then sugar prices are projected 58% higher.