The Potential Impact of Trade Policy Changes on Caribbean Sugar
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Louisiana State University LSU Digital Commons LSU Master's Theses Graduate School 2004 The potential impact of trade policy changes on Caribbean sugar Delroy Anthony Armstrong Louisiana State University and Agricultural and Mechanical College, [email protected] Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_theses Part of the Agricultural Economics Commons Recommended Citation Armstrong, Delroy Anthony, "The potential impact of trade policy changes on Caribbean sugar" (2004). LSU Master's Theses. 3465. https://digitalcommons.lsu.edu/gradschool_theses/3465 This Thesis is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Master's Theses by an authorized graduate school editor of LSU Digital Commons. For more information, please contact [email protected]. THE POTENTIAL IMPACT OF TRADE POLICY CHANGES ON CARIBBEAN SUGAR A Thesis Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Master of Science in The Department of Agricultural Economics & Agribusiness by Delroy Anthony Armstrong B.S., Louisiana State University, 2000 August 2004 ACKNOWLEDGEMENTS The success of this paper would not have been possible without the input of a number of individuals. These include, Dr. Sung C. No, Assistant Professor of the College of Business, Southern University. Dr. No assisted me with his expertise in policy analysis and his vast experience in econometric procedures. Secondly, Dr. Michael E. Salassi my Graduate Advisor and Committee Chairperson; without Dr. Salassi’s input this paper would not have being possible, he provided me with expert guidance and exercised tremendous patience and gave a huge amount of his time in order to see the successful completion of this paper. Dr. P. Lynn Kennedy and Dr. Steve Henning, my other committee members both gave their critical analyses and support throughout the duration of this work. It is with humility that I express my gratitude, to these individuals and all other members of the Agricultural Economics and Agribusiness Department of the Louisiana State University that somehow contributed to the preparation of this document. Finally, it would be remiss of me if I neglect to mention my finance Philippa, and family, particularly my dad Kerold Armstrong, whose continuous encouragement, love and support provided me the motivation to remain focused during difficult times. ii TABLE OF CONTENTS ACKNOWLEDGEMENTS……..…………...…………………………………………ii LIST OF TABLES……………………………………………………………………….v LIST OF FIGURES………..…………………………………………………………..viii ABSTRACT………………………………..………………………………………….…ix CHAPTER 1. INTRODUCTION…….…………………………………………………1 1.1 Problem Statement…………………………………………………………………….5 1.2 Review of Literature…………………………………………………………………..7 1.3 Project Objectives……………………………………………………………………11 1.4 Specific Objectives…………………………………………………………………..11 1.5 Research Methodology………………………………………………………………12 1.6 Specific Objective.1…...…………………………………………………………….12 1.7 Specific Objective.2...………………………………………………………………..13 1.8 Specific Objective.3...………………………………………………………………..14 1.9 Specific Objective.4...………………………………………………………………..14 CHAPTER 2. CARIBBEAN SUGAR AND TRADING POLICIES…………...…...15 2.1 European Union (EU) Sugar Trade Policy…………………………………………..15 2.1.1 The Sugar Protocol…………………………………………………………….18 2.2 The United States (US) Sugar Trade Policy…………………………………………21 2.2.1 US Sugar and Tariff Rate Quotas……………………………………………..24 2.2.2 US Historical Allocation………………………………………………………24 2.2.3 Trade and Quota Holders……………………………………………………...25 2.3 Sugar Trade within the Caribbean Community……………..………………….……26 CHAPTER 3. ECONOMIC MODEL AND ECONOMETRIC PROCEDURES…..28 3.1 Economic Model and the Caribbean Sugar Market…..……………………………...28 3.1.1 Supply Section Economic Theory and Econometric Models…………..………….30 3.1.1.1 Hectares Harvested….……………………………………………………….30 3.1.1.2 Yield…………………………………………………………………………33 3.1.1.3 Production……………………………………………………………………34 3.1.2 Demand Section Economic Theory and Econometric Models……..……………...34 3.1.2.1 Domestic Demand…………………………………………………………...34 3.1.2.2 Exports……………………………………………………………………….36 3.1.2.3 Imports.………………………………………………………………………37 3.1.2.4 Ending Stocks….…………………………………………………………….38 3.2 The Data and Sources………..……………………………………………………....39 3.3 Descriptive Statistics…………………………………………………………………40 3.3.1 Supply Section Variables………………………………………………………40 3.3.2 Demand Section Variables……………………………………………………..47 3.4 Deflators……………………………………………………………………………...48 iii 3.5 Estimation Results…………………………………………………………………...49 3.5.1 Supply Section……………………….………………………………………….…60 3.5.1.1 Hectares Harvested………………………………………………………..60 3.5.1.2 Yield……………………………………………………………………….61 3.5.2 Demand Section…………………………………………………………………....62 3.5.2.1 Per Capita Consumption…………………………………………………...62 3.5.2.2 Exports……………………………………………………………………..63 3.5.2.3 Imports……………………………………………………………………..63 3.5.2.4 Ending Stocks (Stock Change)…………………………………………….64 3.6 Elasticities……………………………………………………………………………65 3.6.1 Supply Elasticities…..……………………………………………………………...65 3.6.1.1 Hectares Harvested………………………………………………………...65 3.6.1.2 Yield………………………………………………………………………..67 3.6.1.3 Production……………………………………………………………….…67 3.6.2 Demand Elasticities………………………………………………………………..67 3.6.2.1 Per Capita Domestic Consumption………………………………………...67 3.6.2.2 Exports…………………………………………………………………..…69 3.6.2.3 Stock Change………………………………………………………………70 3.6.2.4 Imports……………………………………………………………………..70 3.7 Economic Model and Econometric Procedures Closing Remarks…………………..71 CHAPTER 4. POLICY ANALYSIS REGARDING CHANGES IN PREFERENTIAL TREATMENT OF CARIBBEAN SUGAR BY THE EUROPEAN UNION…….………………………………………72 4.1 Application of Model to Various Scenarios of EU Sugar Prices…………..………...73 4.1.1 Scenario 1. Forecast at EU Prices with current Policy in Place…....………….77 4.1.2 Scenario 2. Forecast at US Prices after Policy Expiration…………………….84 4.1.3 Scenario 3. Forecast at World Prices after Policy Expiration………………....92 4.1.4 Scenario 4. Forecast at EU Prices Decreased by 15% after Policy Expiration……………………………………………………………………...99 CHAPTER 5. SUMMARY AND CONCLUSION…………………………………..106 5.1 Summary of Econometric Results and Elasticities…………………………………108 5.2 Conclusion....……………………………………………………………………….111 5.3 Limitations and Future Research…………………………………………………...112 REFERENCES….……………………………………………………………………..114 APPENDIX: SEEMINGLY UNRELATED REGRESSION (SUR) EQUATION MODEL RESULTS………………………………...………………….116 VITA………………...…………………………………………………………………120 iv LIST OF TABLES 3.1 Descriptive Statistics, Jamaica, 1961-2000……………………..…………………...41 3.2 Descriptive Statistics, Barbados, 1961-2000………………………………………...42 3.3 Descriptive Statistics, Belize, 1961-2000………………...…..…………………...…42 3.4 Descriptive Statistics, Guyana, 1961-2000…….……………..……………………...43 3.5 Descriptive Statistics, St. Kitts-Nevis, 1961-2000…...……….…………………...…43 3.6 Descriptive Statistics, Trinidad & Tobago, 1961-2000……....……………………...44 3.7 Correlation Coefficients for Variables in Jamaica’s Sugar Market: 1961-2000……..44 3.8 Correlation Coefficients for Variables in Barbados’ Sugar Market: 1961-2000…….45 3.9 Correlation Coefficients for Variables in Belize’s Sugar Market: 1961- 2000….…..45 3.10 Correlation Coefficients for Variables in Guyana’s Sugar Market: 1961-2000…....45 3.11 Correlation Coefficients for Variables in St. Kitts-Nevis’ Sugar Market: 1961- 2000………………………………………………………………………………...46 3.12 Correlation Coefficients for Variables in Trinidad & Tobago’s Sugar Market: 1961-2000…..……………………………………………………………………....46 3.13 Empirical Estimation Results for OLS Models, Jamaica………..…………………51 3.14 Empirical Estimation Results for OLS Models, Barbados………....………………52 3.15 Empirical Estimation Results for OLS Models, Belize……….....…………………53 3.16 Empirical Estimation Results for OLS Models, Guyana………...…………………54 3.17 Empirical Estimation Results for OLS Models St. Kitts-Nevis……………………55 3.18 Empirical Estimation Results for OLS Models, Trinidad & Tobago………..…..…56 3.19 Variables Definition and Units, Jamaica…………………………………………...57 3.20 Variables Definition and Units, Barbados..………………………………………...57 3.21 Variables Definition and Units, Belize...…………………………………………...58 v 3.22 Variables Definition and Units, Guyana…………………………………………....58 3.23 Variables Definition and Units, St. Kitts-Nevis..…………………………………...59 3.24 Variables Definition and Units, Trinidad & Tobago..……………………………...59 3.25 Short Run Elasticities of Caribbean Sugar Supply…………………………………66 3.26 Short Run Elasticities of Caribbean Sugar Demand..………………………………68 4.1 Empirical OLS Estimates for Jamaica ………………………………………………74 4.2 Empirical OLS Estimates for Barbados. …………………………………………….74 4.3 Empirical OLS Estimates for Belize. ………………………………………………..75 4.4 Empirical OLS Estimates for Guyana. ………………………………………………75 4.5 Empirical OLS Estimates for St. Kitts-Nevis. ………………………………………76 4.6 Empirical OLS Estimates for Trinidad & Tobago. ………………………………….76 4.7 Jamaica’s Forecast at EU Prices with Policy - Base Period 1961-2000……………..78 4.8 Barbados, Forecast at EU Prices with Policy - Base Period 1961-2000….……….....79 4.9 Belize’s Forecast at EU Prices with Policy - Base Period 1961-2000………..……...80 4.10 Guyana’s Forecast at EU Prices with Policy - Base Period 1961-2000…..…...…...81 4.11 St. Kitts Nevis’ Forecast at EU Prices with Policy - Base Period 1961-2000..…….82 4.12 Trinidad & Tobago’s Forecast at EU Prices with Policy -Base Period 1961- 2000…………………………………………..……………………………………..83