US Sugar Policy: Not So Sweet for the Economy

Posted by Laurel Kays on Monday, August 13th, 2012, 12:32 PM PERMALINK

According the USDA estimates, the United States will use approximately 11,885,000 tons of sugar in fiscal year 2012-2013. Yet despite this incredibly large and ever increasing use of sugar, few Americans are aware of the economic price we pay for the government’s cartel-like control of the US sugar market. With Congress expected to reconsider the 2012 Farm Bill when it returns to DC in September, it is important to understand how this control operates and the economic harm it causes to US interests.

Sugar prices in the United States are kept artificially high through a 3-part system of economic controls. First, the government imposes a rigid quota system on sugar production. Currently, 54.35% of US produced sugar must be beet sugar, while the remaining 45.65% is produced from sugar cane. Each state and sugar company is then assigned a production quota based on a complicated formula decided upon by the USDA. This cartel structure makes it illegal for producers to sell sugar that exceeds their given quota. The government further controls the sugar market through a two-tiered tariff system that allows US growers to provide about 85% of the market and keeps prices artificially high. Quotas are set for both beet and cane sugar imports, and those selling under that quota are charged a lower tariff than those selling above it. Finally, the federal government operates a complicated loan system to ensure sugar prices do not fall below a government-mandated price floor. The USDA loans money to sugar processors, with the sugar being counted as collateral for the loan. Processors in turn agree to pay sugar growers a minimum price. If the market price of sugar rises, processors can sell their sugar on the market in order to repay the government loan. If it falls however, processors can forfeit their sugar to the government rather than repaying the loan. In this manner, the price of sugar is guaranteed for both growers and processors.

These market control methods work out very well for the approximately 4,700 United States sugar growers who benefit from them. For millions of US consumers, taxpayers, and workers however, the costs of these policies far outweigh any benefit. Analysts estimate that US consumers and businesses pay anywhere from $3.5 to $4.5 billion in higher costs due to the government’s inflation of sugar prices. Taxpayers too, shoulder the burden of the government’s intrusion in the sugar market. The Congressional Budget Office estimates that the surplus sugar the government buys and sells, at a loss, to ethanol producers, will cost taxpayers $374 million over the next decade. Such a figure does not include the cost of personnel and resources to oversee and manage the government loan, tariff, and quota programs. Despite these figures, proponents of current protectionist sugar policies claim that they are necessary to save jobs. Yet for every job in sugar production that would be lost without government programs, an estimated 3 jobs in manufacturing are lost due to the costs imposed on manufacturers by artificially high sugar prices.

As clear as the evidence is against current sugar programs, the 2012 Farm Bill does not seem to have any real promise of eliminating or decreasing government control of the sugar market. Rep. Bob Goodlatte introduced an amendment to the House Agriculture Committee which would have limited price supports and import restrictions on sugar. For example, higher tariff fees implemented in the 2008 Farm Bill for imports over USDA quotas would have been eliminated. Such a step towards a more free-market sugar industry however was defeated soundly before it even escaped committee. A similar amendment introduced in the Senate by Sen. Jeanne Shaheen was likewise voted down.