Internal Price Stabilization Tools in the Colombian Sugar Market: Do They Work?

Since 2001, local sugar prices in Colombia are subject to the Sugar Price Stabilization Fund (FEPA). The Colombian government designed FEPA to protect local producers from fluctuations in international sugar prices, complementing the existing Andean Price Band System (SAFP) of the Andean Community of Nations. This paper aims to determine whether the FEPA, joint with SAFP, have isolated the local price from fluctuations in the international sugar price. To this end, we determine whether or not a long-term relationship exists between international sugar prices and local prices in the three main cities of Colombia. Using monthly data for the period 2001-2015, we did not find evidence of cointegration between the international prices and the local prices in each of the studied cities. We then conclude that the FEPA and SAFP have succeeded in isolating the effect of international prices on domestic prices.

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