Reallocating sugar beet contracts: can sugar production survive in Denmark?

The reform of the EU sugar regime involves significant price reductions for sugar and sugar beet. We examine whether the Danish sugar industry can maintain production and profit levels by reallocating production from less to more efficient farmers. The impact of alternative reallocation mechanisms is estimated using a DEA model of sugar beet production, together with information about processing capacity at the three Danish plants, beet transportation costs and alternative crop options. The analysis shows that the present allocation is far from efficient. With the new reform fully implemented and the quota efficiently reallocated, actual production will fall by only 25 per cent, although profit will be substantially lower.