The purpose of the article is to analyse the effect of Ukrainian sugar production policy on market equilibrium and understand how enforcement instruments of the production quota (A) affect sugar market and the industry. Research methods. We based out work on the partial-equilibrium approach of sugar supply and demand along with the elements of the welfare analysis. Using this methodology, we can understand how sugar market reaches equilibrium price and how exactly policy enforcement instruments affect it. Research results. We conclude that current sugar production quota in Ukraine is distributed on a non-competitive basis causing high domestic prices and largely negative effect on the sugar market and industry development. As efficient and competitive producers get access to low quota volumes, market setup provides little incentive to invest and improve competitiveness remaining sugar production at the level near sufficient for the domestic demand. Elements of scientific novelty. The research contributes to the literature on the partial-equilibrium analysis of agricultural policy instruments such as production quota. Novelty lays in the fact that Ukrainian case of the flexible production quota has never been described before and we propose a mechanism of explaining market effects of such agricultural policy. Practical significance. We suggest and justify alternative policies such as properly enforced production quota, tradable production quota and full liberalisation and discuss their implication for the market and industry. We demonstrate analytically that all three alternatives have a positive effect on the total welfare, lowering the price and increasing the production volumes. Tabl.: 1. Figs.: 5. Refs.: 26