Industry Structure and the Reform of the Queensland Sugar Industry: A Computational Model

A computational model of pricing and profitability in the Queensland sugar industry is applied to a comparative analysis of likely alternative industry structures that may arise in the wake of industry reform. Implementation of proposals suggested by the sugar industry review working party and in some of the submissions to it are also examined. The model is a simple static optimisation model of the trade in sugarcane in a local mill area. Numerical results are presented to compare prices and profitability for both a representative mill and growers in a monopsony situation, a contestable market, and under the current institutional arrangement. The results indicate that although deregulation has the potential to lead to improved welfare for both growers and the mills, this will only be the case if mills price competitively, i.e. in the contestable market case where the threat of competition from neighbouring and competing mills is sufficient to force the incumbent mill to pay for cane at a competitive price to prevent the entry of potential competitors.