Capacidades en CTI para el sector en la región Andina

consumption of sugar over the 1940s and thm 195ns, to determine the

factors affecting sugar consumption and its rates of growth, and, on the basis of this analysis, to forecast sugar consumption in the 1960s.^

* See, for example, A.Viton and E.Pignalosa, Trends and Forces of World Sugar Consumption, Commodity Bulleting, Series No.32, Food and Agricultural Organisation, Rome 1961.

** A.Viton and F.Pignalosa, op.cit., p.1. In this study, the word "sugar" refers to refined sugar, and "prices" refers to prices of refined sugar at the retail level.

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The key variables analysed were prices and income as well as certain exogenous factors such as climatic conditions and tastes. The

important section and reference point for later studies was concerned with the relationship between sugar consumption and prices and income.

The authors observed a rather curious fact:

"The outstanding feature of retail and wholesale

prices throughout the world is the magnitude of | variation between countries. Price differences " are enormously greater for sugar than for any

other basic food."(*)

How could this "enormous" price variation be explained? The explanation

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for the "extremo width of the range of prices lies^of course,in the

great diversity of taxes, customs duties, administrative regulations and other arrangements which affect sugar pricds". Clearly, this

explanation is not altogether satisfactory because it leaves unexplained 1| Ï why sugar, and not other commodities, had to be regulated by the vast 1 array of economic and institutional measures.

The authors also observed that government regulation of sugar trade

and prices had become more general in the 1950s than in previous years, and that the general tendency was to further restrict trade in raw sugar

(a tendency that contrasted with the liberalization of trade in most commodities during those years). The most significant fact to emerge was that "since 1938 sugar has become cheaper (in real terms) with respect

(

to all other foods in 38 countries out of 50, and more expensive in 11", This finding, however, contradicts the expectation that trade restrictions

(w) would raise the relative price of sugar in the countries under study.

* ibid.5 p, 17

•5Ht _{ibid,, p.17}

*** _{ibid., p.19} Î! _{Unless trade}

^61

In order to determine which factors affected sugar consumption

levels across countries, the authors used a multicountry cross- correlation modal that tested the influence of price and income on consumption. Viton and Pignalosa were themselves critical of this

approach because of the statistical difficulties of developing com- |

parable income data for a large number of countries, and because they were unable to determine the relative price of sugar within each of the

t:

( ’H' 1

countries.' To test the reliability of their findings, they compared *'

the results of the multi-country analysis with correlations on time

series data for a small number of countries and correlations on the f

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data from family budget studies,

The general conclusions of the study were that income and prices explained (as indicated by the coefficient of multiple determination) about 60 to 80 per cent of the inter-country variation in consumption

(for the 55 to 50 countries studies in 1938, 1951 and 1956), that other

factors did not significantly affect sugar consumption, and that the

price and income elasticities of consumption tended to be of about the same size for most countries. In the decade of the 1950s, the price elasticities were between 0,55 and 0,75, and the income elasticity was

(•îfK-) about 0,60.

The results from the time series analyses and family budget studies differed from those of the multi-country study, but all the studies

tended to support the hypothesis that, for most countries, the coefficients

ibid., p,25,

ibid., p.36, Further subdivisions of the data indicate that average income elasticities ranged from 1.2 for "low-income" countries to

0,7 for "medium-income" countries and 0.4 for "high-income" countries*'

the corresponding price elasticities were —1.1, -0,9, and -0.4 respectively.

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of price and income elasticities were less than one and possibly close to zero» While the specific value of the elasticities obtained from

the multicountry cross-correlation model must be called into question because of the lack of reliable data for income statistics across countries and the difficulties of calculating relative prices, it is nevertheless significant that both time series and budget studies suppoiv* ted the general conclusion that sugar consumption was price and income inelastic. The importance of the Viton-Pignalosa study is accepted

on the basis of their seminal contribution; their conclusions and the specific values they derived for elasticities formed the basis of two

important subsequent studies, by Snape and Johnson. ( I

Snape’s study' ^ attempted to answer two important questions:

(l) What is the extent of protection of the, sugar industry in different countries of the world? and (2) What would have been the effect on

world consumption and trade in 1959 if all sugar had been available for

consumption at world free market price levels for raw sugar, allowing

for refining and distribution costs?' ‘

To answer the first question, Snape compared the price at which

raw sugar could be bought or sold on the world free market in 1959 with the average receipts of sugar producers (millers and cane or beet pro­ cessors) in various countries. He also included any direct subsidy that the sugar producers received from their home governments. Snapes measure

of protection was expressed as a percentage ratio of average receipts to the export or import parity price, depending on whether the country under

* ibid., p.36.

** RoH.Snape, "Some Effects of Protection in the World Sugar Industry", Economics, XXX, February 1963.

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study was a net exporter or importer of sugar; the ratio of 100% indicated no protection.

This measure of protection is subject to a number of limitations; firstly, it did not provide a measure of the "effective" protection

given to the various producers of sugar (to the extent that currencies

are controlled and differ from their "real" competitive values, the estimates of protection will be biased in different directions) ' Secondly, it did not compare the protection given to sugar producers relative to the average degree of protection given to other producers in the country. Thirdly, it did not take into account that systems of protection employed in different countries are very complex and some "hidden" subsidies are difficult to quantify' ', and hence almost impossible to include explicitly in the measurements of protection. Fourthly, it did not compare the average receipts of sugar producers with the (estimated) price which would have ruled in the free market in the absence of any protection of sugar production.

The first three limitations mentioned above no more than reflect the general and largely unavaoidable difficulties of constructing meaningful data series, but the last limitation could have been over­ come if Snape had constructed an empirical model of the world sugar

C

market. Of course, there are logi/ol and empirical objections to testing any contra-factual hypothesis, but without such a model, one cannot evaluate the usefulness or validity of some of the assumptions

F or a discussion of effective, nominal and net rates of protection, see W.M.Corden, "The Theory of Effective Protection, Oxford University Press, London 1972.

-)Bf See G.Curzon and V.Curzon, Hidden Barriers to International Trade, Trade Policy Research Centre, London 1972.

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contained in the study. For example, Snape argues, "although price in

the world free market will be lower with protection than without it,

we can do no more than guess by how much it will be lower; and we have

(it \

preferred to make no special adjustments." ' Clearly, one important factor is the price elasticity of supply in the sugar-exporting countries.

Such predictions, as the above quotation contains, are based upon static

models of the world, which leave unexplained how the market's partici­ pants adapt to changing circumstances over time, and assume that the

market could or would function in a similar manner without restrictions as it does with them.

We can, however, briefly examine Snape's study. He used the 1959

free-along-side ship (f.a.s.) Cuba price of 3 U.S. cents par pound of raw sugar as the export parity price, and the 1959 c.i.f. United Kingdom . price of 3.75 U.S. cents per pound as the import parity price. He then compared the average receipts of sugar producers with the appropriate parity price and reached a measure of protection for the sugar industries of various countries., For all but two countries (the Dominican Republic

(■)m)

and Taiwan) his measure of protection exceeded 100%. The awkwardness of this result is that it is difficult to understand the meaning of a "parity" price which is too low even for countries that sell at such a price (for example, the measure of protection for Cuba was 130%), Does this mean that Cuban producers would not have sold sugar at such a low price in the world free market if they had not been subsidized? Snape did recognise the problems that his parity price measure posed*

ibide, p.65. •jHf ibid., p.66,

.165.

the comparisons have been made with import and export parity as they were in 1959, while preferably they should be made with the) import and export parities that would have prevailed without any protection at all for sugar.

Though it is impossible to know what these would have been, one may guess that in these hypothetical circumstances, the long-run

equilibrium f.a.s. Cuba price might have been 4 to 4,50 cents/pound and the c.i.f. London price about 0.75 cents/pound more. This level corresponds to or exceeds the 1959 level of average gross receipts of mills in many of the major cane producing countries, in most of which production was restricted by various controls." (*)

To answer the second question, Snape tried to determine the extent of sugar consumption changes if the internal price of sugar in each

country had been allowed to fluctuate freely, while sugar producers were subsidized with deficiency payments (to replace the protection

granted by tariff and other non-tariff barriers). He first converted the import parity price for raw sugar (of 3.75 U.S. cents per pound) to an equivalent price for refined sugar at the retail level, and then used an average of the price elasticities of consumption calculated by Viton and Pignalosa' ^ to determine consumption changes. '

Snaps estimated that the removal of tariff barriers would have increased sugar consumption by 3,882,000 metric tons in 1959 for all non-Communist countries, an amount that is "about 30% of total net international trade in sugar and more than 70% of the net free market trade in 1959."' ^ Assuming that the expansion in demand was met by the net exporting countries, "exporters to the free market would secure

ibid., p,67. This quotation is a significant one; there is absolutely no justification whatsoever for "guessing" that the hypothetical long-run equilibrium prices would be of the magnitude suggested. See A.Viton and F.Pignalosa, op.cit., p.29.

*** Snaps, ibid., p.68. " ibid., p.71

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a substantial increase in receipts, both by way of larger sales and somewhat higher prices". These results therefore point out some of

the direct benefits of freer trade. Snape concluded that the price of sugar on the world free market would become more stable, because of the

( )

increase in the size of that market,‘ ^

Since Snaps's study made use of elasticity values obtained by Viton and Pignalosa, the same limitations apply, a fortiori. Further, Snape derived the import parity price from the export parity price (f.a.s,Cuba) which he suspected may have been below the long-run equi­ librium price. If this is the case, then the increase in consumption would be an overestimate.

The Johnson study is, in a sense, the culmination of the two / 'j

previous studies by Viton and Pignalosa, and by Snape.' ^ From Viton and Pignalosa, Johnson accepted the retail price elasticities of sugar consumption, as modified by Snape (who had averaged the coefficients from the different correlation studies). From Snape, Johnson accepted as "estimates" that (a) the parity prices of sugar under a system of deficiency payments would rise by 0.50 U.S.cents per pound above the 1959 price levels, and (b) that the export parity price of sugar under unprotected free trade would be in the neighbourhood of 4 to 4.50 U.S.

( " )

cents per pound. '

* ibid., p.72. ibid., p.72,

See H.G,Johnson, "Sugar Protectionism and the Export Earnings of Less Developed Countries; Variations on a Theme by R.H.Snaps", Economica, XXXIII, February 1966.

" Note that none of these prices were "estimated"; they were figures which Snape had simply "guessed". See snape, op.cit., p.67,

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jy

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The aim of the Johnson study was to determine the increase in -# % revenue and benefits that would accrue to exporters, and the benefits

1

- and costs that would accrue to importera, under a system of deficiency 4

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payments and unprotected free trade (again for the year 1959), He 'wf

considered, first, the situation where producers retained their pro­ tection through deficiency payments, but the internal price of sugar

in each country was allowed to fluctuate with the world free market

1

oneIce. Using assumption (a) above, and the fact that world consumption

' of sugar would expand in this case (as Snape had previously shown), t?

Johnson estimated the new value of trade in sugar. His calculations

showed that the increase in total earnings by exporting countries would 'if vary from #442,177,000 (for net total trade) to #357,410,000 (for net 4S;

free trade), Since these extra earnings cost sugar producers real % resources that were employed in alternative industries, Johnson then

a

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