Tuesday, August 25, 2009

Big Sugar's Sickeningly Sweet Deal


WASHINGTON POST -- Down on the farm, the latest dispute pits America's sugar producers against their biggest customers: food manufacturers that add the sweetener to everything from raisin bran to raspberry yogurt. The food makers are unhappy with a recent tightening of supplies that has pushed the wholesale price of refined sugar to 35 cents per pound (see sugar futures prices above at 28-year highs). Warning of higher grocery prices and lost jobs, the manufacturers want Agriculture Secretary Tom Vilsack to allow more imports. Domestic sugar growers insist that supplies are adequate, thanks in part to imports of Mexican raw sugar to U.S. refineries, which were allowed on a tariff-free basis for the first time last year as part of the North American Free Trade Agreement.

Since 1982, domestic sugar producers have lobbied for, and gotten, a government-guaranteed share of the market. Today, their guaranteed share is up to 85%; the rest gets divided up among some 40 countries lucky enough to hold quotas of varying sizes. The advent of free Mexican imports upset this scheme somewhat, which is why the 2008 farm bill promised that the government would offset them by purchasing excess U.S. sugar and shipping it to ethanol factories. In addition, the federal government guarantees minimum prices for both raw cane sugar and refined beet sugar. Pretty sweet.

To be sure, the various sugar programs don't involve the huge direct outlays of taxpayer money that other farm supports do. In a way, though, they're even worse, since the blatant protectionism operates as a non-transparent tax on every product that uses sugar as an input. Free trade in sugar would bring short-term disruptions for domestic refineries and the growers who own them but, ultimately, greater efficiency and fairness for U.S. consumers and our trading partners. Alas, we're probably stuck with the status quo -- and the wasteful inter-industry political battles it engenders -- at least until Congress writes a new farm bill in about four years.

MP: Couldn't we apply our current energy policy to sugar, and significantly restrict domestic sugar production and open up our borders to lower-priced world sugar?

Originally posted at Carpe Diem.

10 Comments:

At 8/25/2009 12:55 PM, Blogger Steve said...

"Couldn't we apply our current energy policy to sugar, and significantly restrict domestic sugar production and open up our borders to lower-priced world sugar?"

You wouldn't even need to restrict domestic production, just remove the guaranteed 85% market share from domestics. Global competition will take care of the appropriate domestic vs. foreign production levels.

---

In response to MP's implied assertion that we should do similar for oil, by lifting any restrictions on domestic production (even though those restrictions are not trade-related, but rather environmental):

Oil is a depleting resource (particularly cheaply produced & easily accessible oil of which supply is fairly fixed) that will get more expensive over time, while sugar is a renewable resource which is not long-term supply-limited.

If we have stockpiles of a commodity that is considered a long-term national security concern, which will be permanently increasing in price, and at the same time we can meet our current needs by using up someone else's supply, then it might make sense to REDUCE the current depletion of our domestic supply, and keep it in the backpocket for the times when we REALLY need it (in both supply and price).

Call it the Existential Petroleum Reserve.

 
At 8/25/2009 1:17 PM, Blogger OA said...

Interesting the government is buying up the excess and using it to make ethanol.

If prices were allowed to drift down to the lower world price, we could use sugar instead of corn and actually have an economically viable ethanol industry. The prior post on sugar says world prices are half the US price.

Corn takes an extra heating step (and energy) to turn it to ethanol so has only a marginal net energy gain if any. Ethanol from sugar is a clear net energy gain. And a clear net economic gain.

 
At 8/25/2009 1:20 PM, Blogger 1 said...

"even though those restrictions are not trade-related, but rather environmental"...

Environmental?!?! According to whom?

Its political wet dream come true driven by socialists...

We have lots of oil, coal, natural gas even in the lower 48 to the point we could possibly be major exporters of energy...

Examples:

U.S. Solid and Liquid Fuels Resources - Total endowment 9,033 billion bbls oil equivalent

Marcellus Shale

Bakken reserve largest in lower 48

 
At 8/25/2009 1:49 PM, Blogger Austin said...

Steve, you say that
"Oil is a depleting resource (particularly cheaply produced & easily accessible oil of which supply is fairly fixed) that will get more expensive over time... then it might make sense to REDUCE the current depletion of our domestic supply, and keep it in the backpocket for the times when we REALLY need it (in both supply and price)."

There is absolutely no reason that this be true, in real terms, considering the utilization of ever-more efficient technology. The fact that per capita consumption of petroleum is less today than it was 50 years ago while at the same time our standard of living has increased explodes such reasoning. See more here: http://www.eia.doe.gov/emeu/25opec/sld008.htm .

"Reducing current depletion of our domestic supply" also reduces our knowledge and utilization of the supplies that we know we have, and especially that which we do not know we have. We could end up shooting ourselves in the foot by not actively pursuing what's in our back yard. I'd say it's a more dangerous endeavor to attempt to let non-market forces ration the supply of anything, especially the lifeblood of this country, like you're proposing.

 
At 8/25/2009 3:58 PM, Blogger Steve said...

"'even though those restrictions are not trade-related, but rather environmental' ...Environmental?!?! According to whom?"

You're confusing the political arguments with scientific findings. Opposition to domestic drilling is, rightly or wrongly, based on environmental concerns, not trade-related concerns about domestic labor protection, foreign subsidies, etc.

So sugar restrictions appear to be trade-related, and oil restrictions appear to environment-related. Not that either reason is necessarily fair, accurate, or correct.


"Its political wet dream come true driven by socialists..."

Calm down - we're talking about sugar tariffs and private oil exploration rights on public land - what's that got to do with the public ownership of the core means of production?

[One might ask whose land it is, that you wish to drill on? If you intend to take public property and turn it into private profits, I have another loaded word in response: fascist. For oil on public land, I'd prefer the gov't simply hire Big Oil to do the E&D and production as a vendor, and any profits on the underlying national crude to go straight to Treasury]

--- ---

"I'd say it's a more dangerous endeavor to attempt to let non-market forces ration the supply of anything"

I guess my point is that there might be things for which short-term market forces are not the best long-term allocator. If a certain commodity is necessary for future national security, then I suggest there are non-market considerations that should impact the allocation of those resources. Perhaps the US Army should enter long-term hedges against rising oil prices? (guess what the perfect hedge is...oil in the ground you're standing on)

 
At 8/26/2009 4:11 AM, Blogger 1 said...

"Calm down - we're talking about sugar tariffs and private oil exploration rights on public land - what's that got to do with the public ownership of the core means of production?"...

I was talking about sugar too...

A good place to start is with Huey Long...

 
At 8/26/2009 8:40 AM, Anonymous Anonymous said...

"The prior post on sugar says world prices are half the US price."

The prior poster doesn't know what he is talking about. World sugar futures for Oct. is a bout 22 cents a lb. Domestic futures for Sept. is about 25 cents a lb.

 
At 8/26/2009 12:17 PM, Blogger sethstorm said...


Global competition will take care of the appropriate domestic vs. foreign production levels.

By funneling it to despotic regimes who consistently produce shoddy product.

Keep the 85% share going, stop the druglord sugar.

 
At 8/26/2009 3:56 PM, Blogger OA said...

Anonymous, the "prior poster" was the WSJ as referenced in this post:

http://mjperry.blogspot.com/2009/08/big-sugar-and-sugar-racket.html

"Most years, the price food companies pay for U.S. sugar is twice the world level"

 
At 8/26/2009 4:25 PM, Blogger 1 said...

"By funneling it to despotic regimes who consistently produce shoddy product"...

Hmmm, I guess you're talking about GM and Chrysler right sethstorm?

 

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