Big Sugar and The Sugar Racket

Wall Street Journal -- Some of America's biggest food companies say the U.S. could "virtually run out of sugar" if the Obama administration doesn't ease import restrictions amid soaring prices for the key commodity. In a letter to Agriculture Secretary Thomas Vilsack, the big brands -- including Kraft Foods, General Mills, Hershey Co. and Mars -- bluntly raised the prospect of a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies, chewing gum and thousands of other products.

The companies threatened to jack up consumer prices and lay off workers if the Agriculture Department doesn't allow them to import more tariff-free sugar. Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year, except from Mexico, suppressing supplies from major producers such as Brazil.

The letter is the latest salvo fired in a long-simmering dispute between U.S. food companies and the sugar industry over federal policy that artificially inflates the domestic price of U.S.-produced sugar in order to support the incomes of politically savvy sugar-beet farmers on the Northern Plains and cane-sugar farmers in the South. Most years, the price food companies pay for U.S. sugar is twice the world level (bold added).

Phillip Hayes, a spokesman for the American Sugar Alliance (MP: aka "Big Sugar"), a trade group of cane and sugar-beet farmers, said farmers are "absolutely opposed" to expanding the sugar-import quota in part because it would cause the prices received by U.S. growers to sink.

MP: There's another possibility - Kraft, General Mills, Hershey and Mars will simply move their production of sugar-based products out of the U.S. into countries like Canada that don't restrict foreign sugar, which will result in a loss of Amercian jobs.

Exhibit A: In 2003, Kraft moved its LifeSavers production from Holland, Michigan to Canada, resulting in the loss of 600 jobs in Michigan. The reason?

According to the Mackinac Center for Public Policy:

Sugar is cheaper in Canada, which imports it at the lower, freely traded world price. The U.S., on the other hand, has protected its sugar industry with tariffs or quotas since 1922. The LifeSavers case provides an unusually vivid example of how the impulse to "protect jobs" with tariffs can backfire, actually costing some Americans their jobs. In this instance, sugar protection has put LifeSavers and all U.S. sugar-using industries (like cereals) at a serious disadvantage due to tariffs that raise the cost of sugar 2-to-2.5 times the world price. As a result, U.S. candy producers are exporting less than they could, closing plants, and relocating production to other countries.

Legislators who support protectionist measures portray themselves as sympathetic to workers, rarely admitting to the high costs that trade restrictions impose on consumers, taxpayers, and the industries that use the "protected" product (in this case, companies like Kraft). The ratio of jobs in the U.S. food-processing industry, which uses large amounts of sugar, to jobs in sugar production is at least 7 to 1. The best way to keep LifeSavers and other candy jobs in the United States is to end sugar protection, pure and simple.

Originally posted at Carpe Diem, not for re-posting on Death and Taxes.