A welfare analysis of the EC‐ACP sugar protocol

The Sugar Protocol, laid down in the Convention of Lome, has been an established instrument of commodity policy for nearly 20 years. Its basic rule is that the EC imports at guaranteed prices specified quantities of sugar from ACP countries. It is the objective of the article to provide an economic evaluation of the Sugar Protocol. Impacts on prices, trade, export earnings and economic welfare are elaborated. The Sugar Protocol's impacts on the level and instabilty of sugar export earnings are jointly evaluated by computing transfer and risk benefits along the lines of Newbery/Stiglitz. A major conclusion is that the policy has to be evaluated differently from the donor's and the recipient's point of view. The Sugar Protocol induces international income transfers that are untargeted in terms of per capita income. It causes, however, rather strong risk benefits compared with other instruments of international commodity policy and sizeable welfare gains for individual recipient countries.