How Costa Rica's sugar industry structure drives up prices

A new study by the Commission for the Promotion of Competition (COPROCOM) shows that the price Costa Ricans pay for sugar and its byproducts is up to 50% higher than international market prices. The study, conducted by Fernanda Viecens, a consultant to the Inter-American Development Bank (IDB), is part of the changes that Costa Rica must implement after joining the Organization for Economic Co-operation and Development (OECD).

The study highlights that the main cause of these high prices is the current structure of sugar production in Costa Rica, which is completely controlled by the Sugar Cane Agricultural Industrial League (LAICA). LAICA is a non-governmental public entity that oversees the entire production, distribution and marketing chain of sugar in Costa Rica.

“Since there are no competitors and barriers to market entry are limited, the power to counteract LAICA's measures is almost zero. In addition, competitors would have no access to input sources (sugar cane) outside the LAICA system,” the study says.

The study concludes that the structure of LAICA inevitably leads to higher prices for consumers of sugar and all sugar cane products. The study also mentions that the role of LAICA in the sugar production process is unique to Costa Rica and does not occur in other countries.

LAICA sets the “quotas” for the sugar factories and determines how much each factory can process. It also sets the prices, which are influenced by the international market.

In addition, sugar cane producers in Costa Rica, like all mills, must be members of LAICA. Importing sugar from other countries is severely restricted due to high tariffs approved by the Assembly in the past, meaning everything must go through LAICA, which the study describes as a “sugar cartel.”

“Virtually the entire sugarcane ecosystem in Costa Rica is subject to strict government regulation, either through special laws or state monopolies,” the report says.

The study also concludes that the high prices in Costa Rica compared to international market prices disproportionately affect low-income households. The price of sugar consumed by the poorest households is 18 times higher than that paid by wealthier households.

This situation also exacerbates poverty and inequality, as the rising cost of processed foods containing sugar places an additional burden on low-income families. The study found that in addition to high prices, the sugar market in Costa Rica is also facing a decline in the area under cultivation and the number of producers active in the sector.

“If we make life more expensive for the poorest, we make them even poorer and widen the gap between rich and poor,” said economist Ricardo Monge, who was invited as a guest commentator at the presentation of the results.

In response to the study's results, LAICA stated that it would “conduct a review of the reported results to present our view on the information.”