The European quota system results in a quota production that is lower than the demand for sugar. This shortage can be supplemented by import, the usage of storages and interventions by the European Commission. A large part of the forecasted import does not arrive on the European market. The sugar storages kept by the sugar producers are relatively low. They do not provide an extra source of supply for the European market. The European sugar policy results in a shortage of sugar which increases the price of sugar.
The mark-up of the Dutch sugar producer has increased the last few years. The increasing price is not caused by higher production costs. It is caused by the market structure. There is a trend of consolidation on the European sugar market. Since 2007 there is only one sugar producer in the Netherlands, Royal Cosun. The European market is strongly organized according to the national borders with national producers supplying the national industries. Furthermore, the national markets are very concentrated and there are high barriers to entry. Cross-border trade in the sugar market between the Member States appears relatively limited. As a result, the national sugar producers have a high market share on their national markets.
Theoretically, compensating buyers power from industrial users could counteract the bargaining power of sugar producers. However, as a result of the difficulties of switching to other sugar producers, the high barriers to import and the imperfect substitutes in practice there is no compensating buyers power.
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