AnalysisThe high price of sweetness: The twin challenges of efficiency and soil erosion in Fiji's sugar industry

The European Union's sugar subsidy since 1975 has kept attempts to reform Fiji's sugar industry at bay, until recently due to the expiry of the subsidy at the end of 2007. This paper looks at the high price at which Fiji's sugar has remained sweet, in particular, with regards to efficient production and soil erosion. When the extent of soil erosion was included in the production function, farms on average produced at about 69% of their potential output and this finding was robust to both parametric and nonparametric approaches. In addition, soil erosion was estimated to result in a 9% loss in cane output which translates to a loss of US$8 million in farm income and US$12 million in sugar sales to the industry. Lastly, empirical evidence supports the recommendation of an integrated package of policies related to land tenure and the adoption of soil conservation practice and management.