IMPACT OF AGRICULTURAL BIOTECHNOLOGY IN THE EUROPEAN UNION'S SUGAR INDUSTRY

We develop a welfare framework, which explicitly recognizes that research protected by intellectual property rights generates monopoly profits. The result is a simulation model, shaped to the European sugar sector, and enabling to assess the size and distribution of the benefits of transgenic sugar beet adoption in the European Union (EU) and the Rest of the World (ROW). Our model results suggest that the ROW captures the largest share of the benefits (53 % of total welfare increase). The EU sugar industry absorbs the next largest share of the benefits (30 %), with the smallest share (17 %) accruing to seed suppliers and gene developers. Since EU intervention prices are exogenously fixed each year, EU consumers do not take part in the distribution of the gains from the innovation. However, consumers outside the EU necessarily gain due to the depressing effect of the technology on world sugar prices. The latter is costly for the cane growers in the ROW, while beet producers gain. Our results reveal an apparent contradiction. When modern (bio)technologies are introduced in commodity markets subject to obsolete trade policies, the natural flow of domestic benefits from the input industry, via farmers, to consumers is hampered and biased towards the producing sector (input industry, farmers, and processors), leaving domestic consumers unaffected. Remarkably, given the current Common Market Organization for sugar, consumers outside the EU gain while EU citizens continue to subsidize EU sugar production trough high sugar prices, despite the innovation.