RURDS Vol. 17, No. 2, July 2005 ECONOMIC IMPORTANCE OF THE SUGAR INDUSTRY FOR FIJI Paresh Kumar Narayan Griffith Business School, Department of Accounting, Finance and Economics, Griffith University (Gold Coast Campus), Queensland, Australia Biman Chand Prasad Department of Economics, The School of Social and Economic Development, The University of the South Pacific, Suva, Fiji Islands For more than a century, the sugar industry has been perceived as the backbone of the Fijian economy, given its contributions to gross domestic product (GDP) and employment generation. However, because of the non-renewal of land leases and the gradual withdrawal of preferential prices by the European Union, the industry is on the verge of collapse. We use the Fiji computable general equilibrium model to simulate the economy-wide impact of a 30% reduction in sugar production. Among our key results, we find that in the long run a 30% reduction in sugar production leads to a 2.1% fall in exports, and government expenditure and real consumption fall by 1.9% and 1.6%, respectively. These declines in the aggregate demand components are reflected in a fall of approximately 1.8% in Fiji’s GDP. The negative repercussion of declining economic growth is reflected in a 1.5% decline in real national welfare. 1. Introduction After independence in 1970, Fiji pursued an inward-looking import-substitution strategy for growth in agriculture and manufacturing, with sugar production being Fiji’s main export. Although Fiji has adopted a tourism and export-led manufacturing strategy over the last 15– 20 years as the basis for its economic growth, sugar exports still drive the rural economy where the bulk of the population resides. Currently, sugar exports constitute approximately 7% of gross domestic product (GDP) and generate approximately 22% of total exports. Sugar accounts for 8.5% of total foreign earnings and generates direct and indirect employment for approximately 51000 people (Government of Fiji, 2002). In its 2003–2005 strategic development plan, the government has put forward a number of policy objectives. These include:  restructuring the sugar industry into a commercially viable and efficient industry  improving milling efficiency and introducing a cane quality payment system  improving the efficiency of sugarcane production, diversifying production into a range of sugar byproducts and initiating long-term reforms to make the sugar sector internationally competitive (Government of Fiji, 2002). C  The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2005. Published by Blackwell Publishing Asia Pty Ltd.