American Sugar: How Economic Protectionism Has Few Sitting Sweet (repost from Tremr - 2015)
We all love sugar. According to the United States Department of Agriculture, the average American consumes anywhere between 150 to 170 pounds of the sweet stuff per year. But what if I told you that Americans pay nearly double the amount for sugar and its derivatives compared to the rest of the world? The average price for sugar at retail in the USA was around 56 cents a pound in October 2014, compared with 35 cents in Brazil and 28 cents in India according to data from Premise Data.
Why is it so?
The government dispenses loans to sugar producers every year which are linked to government calculations of what they can produce at a previously agreed upon price per pound of 18.75 cents for raw cane sugar and 24.09 cents for refined beet sugar. According to the agreement, if the market price for sugar stoops below the set price per pound, the sugar producers can just forfeit their crop to the government who in turns uses what they can or just dumps it somewhere. If the market price is up, they pay and make their profit, if not they don't pay at all. It's a win-win situation for business.
There are also strict import quotas on sugar and products which contain it. If anyone imports more than the quotas allows, they'll be taxed a tariff of 16 cents per pound of refined sugar. Not only sugar itself is taxed when imported, but cakes, sweets, and anything that contains sugar as a distinguishing ingredient. All this is to control supply levels thus keeping a level of scarcity that keeps prices double the international price per pound of sugar.
This helps the sugar cane and beetroot producers in sweet profits but does it help the government? It doesn't. According to the USDA, in 2013 the government's net cost to dispose of excess sugar from the supply was US$258 million. The Congressional Budget Office has estimated that the taxpayer will have to foot a bill of US$115 million over the next 10 years.
The economy suffers as well.
America's food and drink exports are less competitive when one of their main constituents is twice the international price. Because of this companies are unable to have their exports experience high demand due to a comparatively high price with their domestic counterparts elsewhere. According to a study by John Beghin and Amani Elobeid, if the sugar loan program were to be abolished, U.S. sugar prices would fall by roughly a third, saving consumers between $2.9 billion and $3.5 billion and employment in industries which produce goods that contain sugar as a primary input would go up by 17,000 to 20,000
If all of this is negative for the government
and the taxpayer, then why is it happening?
Well, the sugar lobbyists have the government officials in the palms of their hands.These sugar crop producers donate more than twenty times their percentage share in US crop production in lobbying expenditures. They donate to presidential and state elections in exchange for congress votes in their favor. Economics21.org states that lawmakers across the political divide support using taxpayer dollars to subsidize the American sugar industry. In the House, 46 percent of members—109 Democrats and 92 Republicans—received money from American Crystal Sugar during the 2014 election cycle.
Under the North American Free Trade Agreement ( NAFTA), Mexico was able to export sugar to the US tariff-free. However, this caused the prices for sugar to plummet to within two cents of the international sugar price. This did not last long. American sugar farmers complained that Mexico was "dumping" its sugar prop into the US Market. As a result, The US Commerce Department began to levy a 64.27% tariff on imports on Mexican sugar until Mexico agrees to voluntarily restrict their exports of sugar to the US. The move is justified by a loophole in the NAFTA agreement.
The sugar lobby has also lobbied against substitutes like high-fructose corn syrup ( which has no proven adverse side-effects worse than sugar), continuously deny that sugar is even contributing to obesity and diabetes, and fight against laws to label added sugar vs natural sugar on food products amongst other things.
All of this benefits a few families and companies who are living sweet off sucrose.
Will Rogers, a humorist and social commentator, said it best:
"If a business thrives under a protective tariff, that don't mean that it has been a good thing. It may have thrived because it made the people of America pay more for the object than they should have, so a few have got rich at the cost of the many."