European Sugar Market - Research Proposal Example

Research Proposal Executive Summary This paper is the prelude to the research that will be conducted in coming time. The topic of the research is to analyze the scenario of the European sugar market in 2017. This has become an important topic of discussion because the European Parliament has decided to abolish the quota in 2015. This will have serious impacts on the producers of the sugar industry as the European sugar market has been protected under a quota regime from the very onset. The abolition of quota will have a formidable impact on the producers and the consumers as well. In this context, the pattern of change in trading of sugar in 2017 is to be analyzed. This research also aims to find out changes in the price of the commodity, once the quotas expire. The existing literature review has also provided some insight about the gap in the research topic. It has been seen that existing research findings concentrate on the fact that inefficient producers will be eliminated from the market, after the quotas are abolished. This research will, therefore, concentrate on the reasons that provide some of the producers with a competitive advantage. Finally, the research also aims to understand the impact of unemployment that might be created, if small producers go out of business. The expected outcome of the research is discussed as well. The last section of the research proposal includes the Gantt chart that describes a time frame to conduct the research has been discussed. Contents Research Proposal 1 Executive Summary 2 3 Introduction 4 Rationale of the Research 5 Research Question 5 Framework 6 Literature Review 6 Research Methodology and Design 11 Ethical Considerations 12 Outcomes 13 Gantt chart 13 Reference List 15 Introduction The objective of this research paper is to evaluate the state of the European sugar market in 2017. This is to include the change in the pattern of trade that might occur in the sugar industry. The proposed title of the research is “The Change in the Scenario of the Sugar Market in EU in 2017”. The European sugar industry has come a long way from the 14th century to the present date. The major impacts on the sugar industry began in 1300s, when Europe had begun to import raw cane sugar for the purpose of supplying white sugar to the European masses. The industry went through a rapid change in the 17th century, when crystals of sugar were discovered by Oliver de Serrens in beet. The major breakthrough came in the 18th century, when sugar was first crystallized from beet by Sigismund. The political turmoil, which had begun in the end of this century, had led to the cease of raw imports of sugar from outside. It was at this point of time that the first sugar industry was set up in Europe by preparing sugar from beet. The key person behind the set-up of this industry was Franz Karl Achard and it was set up in Central Europe. This marked the first large scale domestic production of sugar in Europe and can be rightly considered as the stepping-stone to the modern sugar industry as is known today. From the 19th century to the present, the sugar industry has transformed itself from its initial nascent stage to become one of the highly competitive sectors of the European Market and one of the most important components of the European trade (CEFS, 2010). The collaboration of the European beet farmers and sugar producers makes sure that consumers receive high quality of edible sugar, which is reasonably priced, thereby ensuring a competitive nature for the industry. Currently, the import of sugar in the European Union presents about 15%-20% to meet the needs of the consumers (CEFS, 2010). The purpose of this research is to recognize impacts on the sugar industry in the coming years, with a vision of 2017 in mind, owing to actions taken by the government. In the recent times, the agricultural industry as a whole and the sugar industry in particular will undergo rapid changes because of the policies that are being adopted by the European Union. The passage of the Common Agricultural policy, after cumbersome rounds of negotiations among the European Council, European Union and the European parliament, will have some major impacts on the whole agricultural industry. The reforms under the policy are expected to be implemented from 1st January 2014. The implications on the sugar industry are expected to be huge because the quotas in the industry are to be abolished by 2017 and the competition in this sector is to be increased through mandatory inter-professional contracts and agreements (F.O.Lichts, 2013). The abolition of quotas will cease the protection of sugar producers from foreign competition, which has been in practice since 1968. The purpose of the research is to find out the consequences on the sugar industry, when the government decides to withdraw its support from the industry in order to make it self-sufficient. The issue of the research is to see whether this actually increases competitiveness in the industry and makes it self-sufficient as proposed or will it lead to negative consequences for the farmers and have ill effects. Rationale of the Research The rationale behind this research is to find the impacts of abolition of quota on the industry. It is believed that an industry, which has been under protection from a long time, has a heavy reliance on the support it receives. Such an action will impact not only the producers, but also the consumers. The abolition of quotas can impact the internal price of a commodity and alter its level of production within the country borders. This is the reason why it becomes important to study the impact of abolition of quotas, which is precisely the purpose of the research. Research Question The primary research questions that have been formulated for the purpose are: How will the trading of sugar change in 2017? Will the abolition of quota raise or reduce the prices in internal markets? Which are the factors to render some of the producers as efficient and others as inefficient? How will unemployment be affected when the inefficient producers goes out of business? These questions will have serious implications on both the producers and consumers of the country. The question of abolition gains significance as the sugar producers want an extended time period for adjusting and pleading the government to keep the quotas unchanged till 2020 (Rabobank, 2012). Framework Specific: The specific objective for the purpose of the research is to determine the extent to which change in regulatory environment will affect the trading pattern of sugar in the country and the associated changes in related aspects. Measurable: To measure the percentage of changes in market share of the key producers and their impacts on price of the product. Achievable: Reports from the European Commission on development relating to agricultural goods as well as data from government and non-government sources make the research an achievable prospect. Relevant: The end of protection of the sugar industry makes it a relevant topic to understand the impacts of abolition of quotas on the industry in the forthcoming years. Time Bound: The data of the last five years on the major parameters of the sugar industry will be considered to study the problem and arrive at conclusions. Literature Review A comprehensive literature review consists of two essential parts, namely the finished product that appears on the dissertation thesis and the process that is involved in conducting the research. Literature review of the paper will discuss the previous research works and theories that are relevant for the topic under study and then relate them to the area of research undertaken (Ridley, 2012). One of the most interesting aspects of the sugar industry is that it is one of the most volatile, yet heavily traded, commodities in the agricultural markets. Among the two traditional modes of production of sugar (beet sugar and cane sugar), cane sugar has a natural competitive advantage. However, the sugar industry in Europe is largely based on cane sugar, which gives them a competitive disadvantage, when compared to cane sugar (Garside, et al., n.d.). Owing to this critical situation, a large extent of study has been conducted on the sugar market of the European Union, when the government eventually phases out quota in the forthcoming years. The magnitude of study regarding the impact of sugar policy reforms ranges from the viewpoint of a single country to a global level involving the world markets (Moyo and Spreen, 2011). From the very beginning, the impact of CAP on the European Union had a significant contribution in keeping the sugar prices in the domestic market higher than that prevailing in the world markets. This was done to protect the farmers from foreign competition and help them achieve self-sufficiency, before battling the stiff competition in the world markets (Borrell and Hubbard, 2000). A significant amount of research by Borell and Hubbard (2000) has determined the cost of protection of the European Union and implementation of CAP on the economy of Europe and rest of the world. They had adopted the model developed by Hertel and had used the GTAP database to reach to the conclusions. The key findings of their research had indicated that prices received by the producers would fall, once the CAP is implemented, which would also have the effect of reducing the prices that consumers are supposed to pay. They had predicted that the fall in sugar prices in Europe will lower the sugar production there, as the farmers will be less interested in producing a commodity for which they receive lower price (Arnold, 2008). Even so, the consumers will increase consumption of the product which will raise the demand and this would prove advantageous for sugar exporting countries, thereby raising the world prices of sugar. In recent times, research done on the abolition of quotas has also produced significant insights on the impact of the change. In a research conducted by the European Commission, it appears that prospects of the sugar industry are mixed when CAP is implemented, primarily because the action is twofold (European Commission, 2012). On one hand, the rising demand for ethanol raises the demand of beet sugar production and on the other hand, the increasing popularity of isoglucose bears a high chance of curbing the demand of beet sugar. The research has also found that import of sugar will become a less lucrative option for the EU owing to domestic fall in the prices (European Commission, 2013). The study conducted by the commission has concluded that processing of sugar will remain unchanged at its current levels. After introduction of the reforms in 2006, it was observed that the European Union had a massive change in terms of trading sugar. Initially, it was a net exporter of sugar in the global markets, but implementation of the reforms had made it one of the net importers of sugar. The projections from the study have led to the conclusion that expiry of quotas will once again be able to make the continent one of the major exporters in the world market. In another independent research, conducted by Nolte, Buysse and Huylenbroeck (2011), it has been found that reaction of the member countries to the production of sugar will not be uniform. The reactions will surely be different. For reaching the results, they had applied a spatial price equilibrium model to understand the impact of removal of quotas on the internal prices, production and imports. In order to overcome the normative approach of the research, this research model was based on a non-linear cost term to the trade flows. The conclusions reached by the trio were in line with the conclusions that had been reached by EC. They found out that the production of sugar will increase after quotas are abolished and the projected estimate is 15.5 million tons by 2019-20 (Nolte, Buysse and Huylenbroeck, 2011). The reaction of the member countries to the abolition is, however, unique, with nine states reducing the production of sugar and ten increasing it. The impact on the world prices and domestic markets are such that higher the rise in world prices of sugar after abolition of quota, lesser is the import of sugar by EU. One common conclusion, that has been reached, is that under no circumstances would any of the member states stop producing sugar. In an international report, published by F. O. Licht’s, certain facts regarding the impact of expiry of quota on the sugar industry, by 2015, has been revealed (F.O.Lichts, 2013). This study has concluded that the competitiveness of production in sugar industry is likely to increase, after abolition of quotas. It is believed that the production of sugar will be allocated to the more competitive regions of the European Union, thereby increasing efficiency and volume of production. It is an established economic convention that if the units of production are allocated to areas which have competitive advantage over other areas, then the total output to be produced is more than that produced by inefficient allocation (Gravelle, 2007). This study, however, projects that imports will not necessarily decline with the removal of quotas and this will depend on the decision taken by other countries in the world market, regarding the adjustment of quotas there. The study has also found that the market share of domestic producers is estimated to increase with rise in the world price of sugar. This study has also confirmed that the removal of quotas will increase the volatility of agricultural markets in Europe, resulting in a difficult situation for the farmers and stakeholders alike. The situation is particularly challenging for the farmers as volatility of prices makes it difficult to formulate long-term planning. The research that has been conducted by Rabobank has provided a clear insight about the production of sugar and import of raw sugar for the purpose of refining, post-2015. The research findings about the production of sugar are dependent on assumptions that they have made. The assumption is that the European Union will maintain import protection through tariff on the non-preferential imports. With this background, the research has found out that only the group of efficient European beet producers will be able to retain their current level of production, while the inefficient group will face the heat of abolition of quotas and find their production halting. The price factor is a chief cause that will be of particular disadvantage to the inefficient producers. The assumptions regarding the price level of sugar has made the study conclude that even though existing efficient producers use the beet processing capacity to full extent, yet the creation of new processing plants will be difficult as the cost of investment will be too high. The estimates regarding the increase in consumption are moderate according to the research. However, the prospects regarding the growth of isoglucose are promising. Under these circumstances, the prospects of refining and import of raw sugar is not very strong (Rabobank, 2012). In another research, conducted by Rabobank, it has been found that the import barriers are likely to remain after the expiry of quota in 2015. It has been estimated that with minimum beet prices coupled with the barriers of import, prospects for the sugar industry is quite high. It has been figured that beet producers are likely to improve the quantity of production (Rabobank, 2013). One of the important findings of the study is that the Interprofessional Agreements between the sugar producers and beet growers will be a crucial factor in promoting growth of the industry. This aspect of coalition between the parties is important because it is the only factor that will contribute towards stabilizing the price of sugar and security for both of the parties. In a report, published by Goldman Sachs, it has been estimated that when the government goes ahead with the decision to abolish the quotas in 2015, the level of sugar supply is likely to be unaffected. However, the report has stated that the level of demand for sugar will fall as the production of isoglucose will increase rapidly on finding itself in a more advantageous position. The rationale behind the unchanged supply of sugar rests in the assumption that an increase in production will be crowded out by the reduction in the imports and withdrawal of inefficient producers from the business. So, the net effect will almost be unchanged as the increase in supply will be offset by the decline. Isoglucose, being an efficient product, will dominate the industry after the abolition (Goldman Sachs, 2013). There has been a common consensus in all the above-conducted studies. Though the research work has been done by independent organizations, yet the results obtained by them more or less point at the same direction of impacts. The clear picture that emerges, after the abolition of quotas, will definitely improve competitiveness of the sugar industry and efficiency of producers. The producers, who will be able to survive after expiry of the quota, are the efficient ones. Clearly, there will be no place for the inefficient producers. Another common finding is that the level of demand for sugar will decline, compared to the current level of production. There will be almost no changes on the side of supply, as the effect of the rise in supply will be offset by the fall in supply. However, one of the important implications of the findings is that they are dependent on assumptions that have been made regarding them. For instance, the research of Rabobank is dependent on the assumption made regarding tariff barriers of the sugar industry, which was an important determinant of the outcomes. The research conducted by the European Commission had predicted an uncertain future for the sugar industry, while Rabobank has concluded that the prospects are promising. Contrasting these features of the findings, it has now become important to reach a conclusive finding, the nature of which can be universally accepted. One of the research findings, conducted by the European Commission, has revealed that under the changed circumstances, the European Union will become a net exporter of sugar once again. The primary objective is to find out the change in the trading pattern of sugar in 2017 (after the quotas are abolished), though findings from the previous research conducted in this field shows that EU will become a net exporter. This research will also concentrate on factors that provide some of the producers with a competitive advantage and makes others inefficient. A proper model on the simulation of prices that can predict changes in domestic as well as world prices, through a proper econometric model, can provide a useful insight. The study that has been conducted shows that inefficient producers will go out of business. This study wants to understand the resulting degree of unemployment. The rise in unemployment can be of a serious concern to the economy as it is recovering from recession. Perhaps, this will become the most significant concern for the government. Also, this attribute of the research makes it a relevant topic. Research Methodology and Design The research methodology systematically describes the steps that should be taken in order to conduct the research (Kothari, 2004). So, the first step here is to state the type of research to be conducted. This research will be an analytical research, depending on the facts and information that is already available and analyze them to obtain a critical understanding of the topic (Sage, n.d.). As the topic is related to the understanding of future market condition, so the available data is an integral part of the research process. The research will be qualitative as well as quantitative in nature. The rationale behind choosing the qualitative aspect is that it will provide the researcher with an engaged approach and not an abstract one (Luton, 2010). This is important because engagement with the sugar producers will be crucial to understand why some of them are competitive, whereas others are inefficient. The problems faced by these farmers will provide a deeper knowledge about the problems and hence, to recommend methods to solve the crisis. Interview sessions need to be conducted with the two groups of producers and the questions should try to determine why some has competitive advantage, whereas others do not. Focus group interviews and close-ended questions can be appropriate methods to be used for underlining factors that contribute to the discrepancy. To do this, the representative sample must be carefully chosen and ‘stratified purposive sampling’ seems to be a plausible method of sampling (Patton and Cochran, 2002), as the purpose is to compare two subgroups and understand the reason for discrepancy. The sample should be carefully constructed in a manner that should represent the demographic as well social status of the people under study. This is important because the social factors and impediments need to be well-understood, which can happen only with proper interaction and involvement of the people. The topic is such that the research will not be able to provide a useful understanding, unless quantitative methodology is used as well. There are two important reasons for which the researcher has included this approach, namely reliability on the statistical findings and results obtained from this approach is projectable on the population (Nykiel, 2007). In order to understand the impacts on emerging trading pattern on account of abolition of quota, the unemployment structure of the EU as well as impact on prices changes, it will be inevitable to use econometric models for estimation of the impacts. Applying econometric tools, like, checking of data (using statistical tools to see whether the data suffers from any multicollinearity, autocorrelation and so on) and running multiple linear regression models would comprise the fundamental measures to conduct quantitative analysis. Therefore, the research methodology is a mixed one as it uses both qualitative and quantitative approach. The sample size is extremely important in determining the results of the research. It has been observed that for qualitative research, small sample size yields better results. So, for both the sub-groups, the sample size should be chosen equally and as randomly as possible to eliminate chances of any bias. As this research proposes to use a mixed method, so both primary and secondary data will be required to conduct the analysis. Primary data is the data collected by efforts of the researcher and secondary data includes all other sources of data, collected by the researcher, from existing statistics and various sources (Churchill and Iacobucci, 2009). The rationale behind this is that the questionnaire and focus group interviews would require primary sources of data to obtain useful information. For the quantitative part of the research, secondary data sources need to be utilized with special focus on the government data sources and other relevant publications on the agriculture industry. The method of collecting primary data is the daunting task at hand as it will involve direct visits and interaction with producers and obtaining relevant answers for the research purpose. The secondary data can be collected from internet databases of government and non-government organizations. The economics and statistics departments of the country can provide relevant information on the statistics of the agricultural sector. Ethical Considerations Every researcher has the responsibility of protecting the participants in a research by ensuring their privacy, taking consent and protecting them from any possible harm (Tedlie, 2009). As some aspects of this research are based on qualitative grounds, so it becomes extremely important to protect the privacy of the people participating in the process. As the research participants are expected to provide honest answers to the questions asked so protecting their privacy becomes a major responsibility of the researcher. One of the major ethical issues in conducting quantitative research is that researchers manipulate the data to suit the purpose of their study (Panter and Sterba, 2011). The manipulation of the data is expected to produce results that suit the existing theories instead of trying to understand the underlying factors. This research will not manipulate any secondary data to suit existing theories and will rely on authentic data sources only. Outcomes This research is expected to generate significant results, once it is completed. The change in the trading pattern of sugar is the key topic under study. The underlying factors, which provide uneven competitive advantage to the producers, have not been evaluated significantly. This research hopes to find out reasons that contribute to the existing divide between producers. The projected states of unemployment that can haunt the economy, once the quotas are abolished, are expected to be estimated on completion of the research. The fluctuation in the price of sugar is expected to be found as well, which will have significant impacts on import and export volumes of sugar of the countries. Gantt chart The Gantt chart will provide the chronological sequence of the tasks at hand of the researcher and the stipulated time to complete them. The correct employment and utilization of time becomes a crucial factor for successful completion of the research. Activity/ Time M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 Overall design of the study Collecting the Primary Data based on Questionnaire Survey Conducting the Focused Group Interviews Colleting the Secondary data from internet, journals, government publications Analysis of the data obtained Writing the thesis Reference List Arnold, R. A., 2008. Macroeconomics. New York. Cengage Learning. Borrell, B. and Hubbard, L., 2000. Global economic effects of the EU Common Agricultural Policy. Economic Affairs, 20(2), pp. 18-26. CEFS, 2010. The European Sugar Sector. [pdf] CEFS. Available at: [Accessed 16 January 2014]. Churchill, G. A. and Iacobucci, D., 2009. Marketing Research: Methodological Foundations. Connecticut : Cengage Learning. European Commission, 2013. Prospects for Agricultural Markets and Income in the EU 2013-2023. [pdf] European Commission. Available at: [Accessed 18 January 2014]. European Commission, 2012. Prospects for Agricultural Markets and Income in the EU 2012-2020. [pdf] European Commission. Available at: [Accessed 16 January 2014]. F.O.Lichts, 2013. The EU Sugar Market post 2017-What’s up? [pdf] F.O.Lichts. Available at: [Accessed 16 January 2014]. Garside, B., Hills, B., Marques. J. C., Seeger, C. and Thie, V., n.d. Who Gains from Sugar Quotas? [pdf] LSE Available at: [Accessed 16 January 2014]. Goldman Sachs, 2013. Europe, Middle East & Africa: Consumer Staples. [pdf] The Goldman Sachs Group. Available at: [Accessed 18 January 2014]. Gravelle, 2007. Microeconomics. New Delhi: Pearson Education India. Kothari, C. R., 2004. Research Methodology: Methods and Techniques. New Delhi: New Age International. Luton, S. L., 2010. Qualitative Research Approaches for Public Administration. New York: M.E. Sharpe. Moyo, S. and Spreen, T. H., 2011. An Update on the Consequences of EU Sugar Reform. International Journal on Food System Dynamics, [e journal] 2 (1). Available at: [Accessed 16 January 2014]. Nolte, S., Buysse, J. and Huylenbroeck, G. V., 2011. Modelling the effects of an abolition of the EU sugar quota on internal prices, production and imports. [pdf] Oxford University Press. Available at: [Accessed 16 January 2014]. Modelling the effects of Nykiel, R. A., 2007. Handbook of Marketing Research Methodologies for Hospitality and Tourism. Florida : Psychology Press. Panter, A. T. and Sterba, S. K., 2011. Handbook of Ethics in Quantitative Methodology. London: Taylor & Francis. Patton, M. Q. and Cochran, M., 2002. A Guide to Using Qualitative Research Methodology. [pdf] Medicins Sans Frontiers. Available at: [Accessed 18 January 2014]. Rabobank, 2012. Global Sugar to 2021. [pdf] Rabobank. Available at: [Accessed 16 January 2014]. Rabobank, 2013. EU sugar quota- Just Beet it! Rabobank. Available at: [Accessed 16 January 2014]. Ridley, D., 2012. The literature review: A step-by-step guide for students. New York: Sage. Sage, n.d. Research Methodology: An Introduction. [pdf] Sage Publications. Available at: [Accessed 18 January 2014]. Tedlie, C., 2009. Foundations of Mixed Methods Research: Integrating Quantitative and Qualitative Approaches in the Social and Behavioral Sciences. Berlin: SAGE Publications Inc. Read More