THE ALLOCATION OF SUGAR-BEET PRODUCTION CONTRACTS - AN APPLICATION OFCALIBRATED PRODUCTION EQUILIBRIUM MODELING

A key feature of the 1995 'mini-reform' of the EU sugar regime was a c ommitment by the Commission to review quota levels on an annual basis with a view to making reductions when there is a danger of breaching t he GATT export limits. How such reductions might be implemented and th e implications at farm level is clearly a matter of some concern. Econ omists in particular have pointed out that a simple administrative sol ution based on proportionate reductions could lead to a loss in econom ic welfare as both more efficient and less efficient producers reduced production. A carefully administered 'outgoer' scheme might generate a more efficient outcome. Economists would suggest that it is only mar ket-type mechanisms, principally those consistent with the notion of m arketable entitlements, which automatically allocate production to the most efficient producers, This would be an important aspect of ensuri ng that UK sugarbeet production could respond to the inevitable compet itive pressures arising from GATT. However, the relevance of these not ions for policy decision making will depend on the extent of the effic iency gains which might be achieved using the more complex procedures. This study illustrates one method through which the implications of a lternative allocation procedures might be assessed. Data on 1994/95 en terprise-level outputs and inputs for a sample of sugarbeet producers is used to construct a system of production functions and input demand relationships using the calibrated production equilibrium approach pi oneered by Howitt (1995, a, b). This detailed model of arable producti on on these farms (together with a simple representation of 'aggregate ' sample-level demand) is used to simulate the impact of alternative a llocation mechanisms on farm income, output and input levels on these farms. The potential of this approach to simulate the farm level impac ts of these policies is clearly shown here. The preliminary results su ggest that reallocation of existing production contracts between produ cers according to a market-type mechanism, can generate small positive benefits for the farmers in the sample investigated here. Should redu ctions in contracts be deemed necessary a marker-type mechanism can ac complish the necessary reallocation nt lower cost to the farmers than a uniform reduction of contracted tonnage across all farmers. It is po ssible that a self-financing 'outgoer' type scheme might generate bene fits similar to those associated with a market-type mechanism.