PRICE CUTS will deliver a more efficient sugar industry than quota cuts, though both will result in a smaller area of beet grown, according to a new report*.

Taking a baseline scenario of growers‘ incomes in 2002, the study from Cambridge University and the Royal Agricultural College looks at the effects of a 25% quota cut, a 25% price cut and a 40% price cut.

Under the 25% quota cut, even the most efficient farms will have to rein in their production, leading to an immediate 25% reduction in the area grown, if no restructuring occurs.

A 25% price cut would lead to a 7% drop in the grown area, but this could rise to 50% if net margins are not covered in the long run.

“With a price cut, in general the least profitable producers will exit the industry. Sugar beet productivity will increase significantly, due to the fact that only the most productive farms remain.”

These trends will be even more extreme in the case of a 40% price cut.

In all scenarios, income from sugar production drops, although restructuring could mitigate this.

“It is estimated that if low cost producers were able to expand sufficiently, then the UK‘s quota could be produced at an average cost of under £20/t (compared with £25/t currently).”

This “challenging but plausible scenario” would mean that about 80% of UK beet production would still be viable after a 25% price cut.

Compensation may also offset some of the effects of the reform, though the report concludes that there is little justification for coupled support.

*Economic, Social and Environmental Implications of EU Sugar Regime Reform.