Sugar Industry Business Model: Cronies + Tariffs + Big Sugar’s Sweet Spin = Flawed U.S. Trade Policies…

Sugar: Dirty little secrets that the sugar industry (Big Sugar) and the government would rather you not know… Sugar represents just 2% of the total value of U.S. crop production, but the industry accounts for 33% of ‘the crops industries’ total political campaign donations and 40% of ‘the crops industries’ total lobbying expenditures.

There is nothing illegal about sugar producers lobbying Congress, supporting political candidates… but, there is a problem when government intervenes in the economy supporting special interests… According to Senator Mike Lee;  the problem is not that there is too much money in politics, it’s that there’s too much politics in the economy… It’s time for government to stop protecting special interests through unfair trade rules…

According to Milton Friedman; no one can logically defend sugar trade quotas– they are indefensible… According to Will Rogers; if business thrives under a protective tariff, that doesn’t mean that it’s a good thing… it just means that the consumer pays more than they should; hence, a few get rich at the cost of the many…

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In 2013, U.S. consumed 12  million tons of refined sugar with the average price for raw sugar at 6 cents per pound higher than the  average world price. That means, based on 24 billion pounds of refined sugar usage U.S. paid an unnecessary $1.4 billion extra for sugar. That is equivalent to more than $310,000 per ‘sugar farm’ in the U. S. The  U.S. sugar program is a relic of the Great Depression with the Jones–Costigan Act in 1934. This act enabled the government to reduce imports of sugar by imposing tariffs.

Americans pay a big surcharge for sugar because the federal government guarantees a minimum price for sugar. To maintain this minimum price, the government restricts low-priced imports by establishing a quota that limits the amount of sugar U.S. can import at relatively low tariff rates. Any imports above this quota are subject to prohibitively high tariffs. Based on 2013 world sugar prices, the average above-quota tariff rate was 88% for raw sugar, and 73% for refined sugar.

Since the turn of the millennium, Americans have paid an average of 79% more for raw sugar and  87% for refined sugar compared to the  average world price… In April, the price of raw sugar in the U. S. was 43% higher than average world price, and price of refined sugar was 39% higher… Although the ‘North American Free Trade Agreement’ (NAFTA) eliminated tariffs between the U. S., Mexico, and Canada, a loophole allows domestic sugar producers to request anti-dumping duties to protect them from international competition.

Sugar beet and sugar cane farms account for about one-fifth of 1% of U.S. farms and sugar producers account for 1.3% of the value of total farm and livestock production. There are 2.2 million farms in U. S.  and of that total, there are just 3,913 sugar beet farms and 666 sugar cane farms. This relatively small sector of the economy is very politically engaged, and the special treatment that it gets from the government drives up the price of sugar, which jeopardizes overall export growth, and weakens the U.S. economy…

The U.S. Sugar Policy costs consumers and businesses up to $3.5 billion annually in the form of a hidden taxes; all to provide subsidies to already profitable U.S. sugar producers… According to Daniel Pearson; the sugar industry is rightfully considered to be the most protectionist segment of U.S. agriculture… According to Daniel J. Ikenson; sugar prices in the U. S. are on average 85% greater than the world average price, which adversely impacts all the U.S. industries that rely on sugar as an important ingredient in producing their output…

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In the article U.S. Sugar Policy: Bad for Consumers, Bad for Agriculture, Bad for U.S. by Bryan Riley writes: This Depression-era program, which was supposed to end in 1940 has outlived its intended life span, and It should be abolished… The U.S. government artificially inflates sugar prices by imposing quotas that cap the amount that food manufacturers and consumers can buy from producers in other countries, for example; when bakeries, candy companies… wants to import more sugar than is allowed under the government’s quota, it must pay a prohibitive tariff per pound for sugar. At current prices, that works out to be over 62%  tariff rate… But, when you examine the many arguments that the sugar industry uses to justify their quotas and you compare them with ‘the actual facts’– the results are, at best, misleading, for example:

  • Falsehood #1: Sugar program is a ‘no-cost’ policy. Fact: According to the U.S. Department of Agriculture, the price of raw sugar was 40% higher in the U. S. than in the rest of the world. Although the sugar program does not directly transfer funds from the federal government to sugar producers, it cannot accurately be called a ‘no-cost’ program, since it increases prices for everyone who buys sugar or sugar-containing products… As long as government has the ability to hand out favors to some industries and punish others, resources will be diverted away from productive private-sector activities to fund lobbying campaigns in Washington, D.C. This is true for all industries, not just sugar. However, sugar producers have invested heavily in lobbying activities, political donations relative to the size of their industry… This behavior can result in ‘crony capitalism’– a system in which business success depends on a close relationship with the government…
  • Falsehood #2: Sugar policy didn’t cost taxpayers a dime. Fact: U.S. sugar policy costs taxpayers millions of dimes per year. According to the U.S. International Trade Commission, the sugar program imposes a $49 million net cost on the economy. According to a study commissioned by the Sweetener Users Association; the program costs consumers $2.9 billion to $3.5 billion. According to a study by American Enterprise Institute; program costs consumers $2.4 billion per year with a net economic cost of $1 billion per year.
  • Falsehood #3: One-sided trade deals force U.S. to import sugar from 41 countries regardless of our needs. Fact: There is not a single person in the U. S. who is forced to import sugar from other countries. However, more than 313 million Americans are forced to pay inflated prices for sugar. Sugar industry lobbyists have repeatedly subverted U.S. trade policy and made it more difficult for trade negotiators to expand U.S. export opportunities…
  • Falsehood #4: U.S. sweetener industry has a positive annual impact of $21.1 billion on the U.S. economy, and adds 372,000 direct and indirect jobs in 42 states. Fact: According to a 2006 study by the U.S. Department of Commerce; for each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost… In general, trade barriers do not increase employment; they shift the composition of jobs away from competitive industries toward those favored by the government…

What should be done with sugar: According to the American Sugar Alliance; 71% of Americans prefer to buy homegrown sugar, even if foreign sugar is cheaper… So, consumers deserve the opportunity to prove whether this is true: The government should give Americans that choice by removing caps on sugar imports…

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In the U. S., once the government bestows political favors on one industry, others come to Washington to seek their own special treatment or to fend off special-interest requests from competing industries. The influx of special-interest-seeking businesses and lobbyists are draining billions of dollars from the U.S. economy… For example; U.S. sugar producers may have learned from tomato growers, who used the threat of anti-dumping duties to convince Mexico’s  tomato growers to ‘voluntarily’ increase the price they charge their U.S. customers. The Mexican tomato growers accepted the U.S. terms, which raised the reference prices substantially, in some cases more than double, and this accounts for the changes that have occurred in the tomato market since signing of the original agreement.

It’s relatively common policy for developed countries to restrict trade in many agricultural products, and many other industries to protect domestic producers… But how does a country decide when a protective tariff is appropriate– setting aside political cronyism, lobbyists..? If the government economists would calculate the costs and overall impact on the nation’s economy, and the general well-fare of the consumer… for each specific trade restriction, so that more informed decisions can be made, then that is be a good first step… for example; if the cost of the sugar import quota is costing the nation only $1 million per year, maybe than the  program is a cheap way to protect sugar farmers… But, if the cost is in the ‘billions of dollars’, maybe not…

According to Mark A. Groombridge; nowhere is there a larger gap between the U.S. government’s free-trade rhetoric and its protectionist practices, than in the sugar program. Through preferential loans and tariff-rate quotas, the U.S. government thwarts price competition to maintain an artificially high domestic price for sugar– a price that can be twice the world market price or higher… The U.S. sugar quotas pose a threat to multilateral and regional trade negotiations: U.S. trading partners routinely and rightly point to the sugar quota as being inconsistent with U.S. demands for more open markets abroad. The sugar program has become an obstacle to lowering foreign trade barriers for U.S. exports…

The U.S. sugar program is a classic case of concentrated benefits and dispersed costs: A very small number of sugar producers get enormous benefits, while the costs of those benefits are spread across the whole U.S. economy, including; consumers, confectioners, food producers…  According to economist Anne O. Krueger; fact that  protectionism  inflicts harm on ‘consumers’ is widely understood, but the impact of protectionism on ‘other producers’ and on the macro-economy as a whole is grossly under-estimated and is much greater than generally recognized…

The ability of special interests to manipulate political decision-making compounds the problems and serves to highlight both the need for institutional change at the national level, and importance of a multilateral approach to free trade…