Mozambique and the Reform of the EU Sugar Regime: A CGE Analysis of the Consequences for the Mozambican Economy

Abstract: The EU regulation concerning the sugar market will expire in July 2006. How the sugar regime will change is not yet decided and different options are being discussed. In the current situation some countries have preferential trade agreements with the EU, meaning that they are allowed to export a certain volume of sugar at the high EU price. A reform of the EU sugar regime could mean a substantial decrease in the price of sugar and thus an erosion of the preference these countries enjoy. One of these countries is Mozambique, where severe concerns about the reform of the EU sugar regime have arisen. There is a fear that a lower price in the EU would harm the sugar production and threat the country’s economic development. By using a Computable General Equilibrium model this thesis analyzes how Mozambique will be affected by a reform of the sugar regime. Two scenarios are evaluated: free access to the EU sugar market with a sustained and with a lowered price. The simulations show that although the average export price of sugar varies from a fall of 8 percent to a rise of 153 percent, the effects on the Mozambican economy are very small.