The sweet taste of subsidies
One of my regular readers recently asked me for my thoughts on sugar subsidies and protections on US sugar production. My short answer is that I’m not a fan. My long answer can be best summarized by looking at what someone else – one of my former students, Lori Sanders, who’s now working at the R Street think tank in Washington, DC – has to say about the subsidies. Here are some of her thoughts, which are taken from recent column of hers that appeared in The Blaze:
Created in the 1930s to prop up sugar farmers at a time when the Great Depression was wreaking havoc on the farm economy, the federal sugar program still serves as the main support to both cane sugar and beet sugar producers.
=To prop up this incredibly complicated scheme, the U.S. Department of Agriculture limits the amount of imported sugar by imposing a progressive tariff scheme. Below a certain amount, reset each year by USDA, sugar can be imported with a tariff of 0.625 cents per pound, but anything above the level set by USDA receives a tariff of 15.36 cents per pound for raw sugar and 16.21 cents per pound for refined sugar.
This, of course, puts the United States at odds with many trading partners, and adjustments have been made for countries with which we have free trade agreements. However, for those in favor of the program, free trade is noted as a challenge, not a blessing for consumers. According to the USDA’s Economic Research Center, the “main challenge to the program comes from sugar imports from Mexico that now enter duty-free under the terms of the North American Free Trade Agreement (NAFTA).”
In the end, the program simply boils down to a massive subsidy scheme aimed at benefitting a small number of farmers. The government guarantees prices through loans, and then bends over backwards to keep those loans good, both by controlling domestic supply and then buying unmarketable sugar for use in ethanol.
How many farms does it take to justify such a generous program? Less than 6,000. Currently, there are around 5,000 sugar beet farms and slightly less than 1,000 sugar cane farms. The farms support around 61,000, and, without federal support, it’s clear that those farmers would suffer due to world competition. So this very concentrated lobby gets its way each time the Farm Bill comes up in Congress – as we all know, it’s hard for Congressmen to look their constituents in the eye and admit that their actions might cost them their jobs.
The problem is the seen and unseen costs of the program. First, the program forces the consumer to pay significantly more for sugar than the world price, sometimes more than double the price. And despite the government’s best efforts to make the program costless by selling sugar for ethanol, the program does lose money at times, including a $295 million loss in 2000.
But beyond these immediate costs, the hidden effects are much more sinister. The program arguably supports some American jobs, but at the cost of others, in the form of decreased manufacturing employment. Numerous industries use sugar as an input, and the artificially high prices hurt their ability to hire workers.
According to the Coalition for Sugar Reform, an industry group dedicated to fairer sugar policy, nearly 127,000 jobs in sugar-using industries were lost between 1997 and 2011. A study by the International Trade Administration once estimated that each farming job saved costs three manufacturing jobs, an incredibly high price to pay. Furthermore, high sugar prices drive plants overseas, where input prices are lower.
These are the unfortunate consequences that arise when the government gets in the business of picking winners and losers…
Unfortunately, this year’s Farm Bill likely will leave the program unchanged. Both the House and Senate drafts offer no reform, and unless things change when the bills are debated on the floor, the taxpayer will be on the hook for this wasteful spending for years to come. It’s infuriating that at a time when taxpayers are being squeezed, the sequester is causing furloughs and unemployment remains high, Congress seems incapable of acting to eliminate wasteful, harmful programs. The taxpayer deserves the sweet deal, not Big Sugar.
*Scott Beaulier is Director of the Manuel H. Johnson Center for Political Economy at Troy University