European sugar policy reform and agricultural innovation

Abstract

In July 2006, the European Union's (EU) Common Market Organization (CMO) for sugar underwent the first radical reform since its establishment in 1968. In this article, we study the incentives for adoption of new technologies before and after the policy reform. We build a stochastic partial equilibrium model and use it to analyze the effect of the policy reform on the adoption incentives of genetically modified herbicide tolerant sugar beet. Our findings show that the adoption incentives of high-cost sugar beet farmers are significantly reduced under the new CMO. Medium-cost producers, in contrast, have greater incentives to adopt new technologies, while low-cost producers are largely left unaffected. The reduced adoption incentives of high-cost farmers lead to lower flexibility and competitiveness of these farmers and therefore coincides with the goals of the reform to crowd out high-cost producers and increase competitiveness of the European sugar market. © 2008 Canadian Agricultural Economics Society.