Can market regulation help the sugar trade? An economist’s view

An initial model of the world sugar economy shows that sugar prices are by nature very volatile. Contrary to received wisdom, market liberalization would in the end increase, rather than reduce, the range of price fluctuation. Since management is adverse to risk and inclined to cut production in the face of unstable prices, the average price level would be considerable higher with liberalization than without liberalization. Consequently, the benefit of efficient resource utilization will be undermined because of the one-sided competitive ad-vantages. As a result, policy-makers should be aware that in pursuing the objective of achieving a better division of labour among countries they could give rise to unwanted situations.