Monday, March 15, 2010

More on the Sickeningly Sweet Deal for Big Sugar


From today's WSJ front page:
The gap between what Americans and the rest of the world pay for sugar has hit its widest level in at least a decade, breathing life into the battle over U.S. import quotas that prop up the price of the sweet stuff. For years, U.S. prices have been artificially inflated by import restrictions designed to protect American farmers. That has kept the price well above the global market (see top chart above - the U.S. beet sugar price has averaged more than twice the world cane price, data here, Tables 2 and 5).

But the difference between the two has ballooned recently, giving new impetus to U.S. sugar processors and confectioners to step up their long campaign to pressure the government to increase import limits.

About 85% of the sugar consumed in the U.S. grows domestically, with the rest imported from about 40 countries under a quota system and Mexico, which isn't bound by the program under a free-trade treaty. Within the quota, exporters get higher prices paid by U.S. buyers but are subject to stiff tariffs once that limit is exceeded.

Sugar growers have used their lobbying muscle to fend off any increase in quotas for decades. The efforts by big brands to ease imports are just an attempt to "boost profits," according to Phillip Hayes, a spokesman for the American Sugar Alliance, a trade group of cane and sugar-beet farmers.
MP: Oh, and the efforts by the American Sugar Alliance to be protected against more efficient foreign sugar producers with government price supports, domestic marketing allotments, and tariff-rate quotas are NOT an attempt to boost profits for the U.S. sugar growers?

The bottom chart above illustrates one of the major motivations behind the protectionism for U.S. sugar growers. According to the USDA (data here), more than half of U.S. sugar has historically come from sugar beets, which is almost 40% more costly to produce ($38.91 per short ton) than U.S. cane sugar ($28.28).

Bottom Line: The major source of inefficiency for producing domestic sugar in the U.S. is that a majority of our sugar is produced from sugar beets grown in Michigan, Minnesota and North Dakota, and beet sugar is twice as expensive as producing sugar from sugarcane, the standard method of producing sugar throughout the rest of the world.

If you're producing a standard globally-traded commodity using production methods that are twice as costly as your foreign competitors, you normally won't survive, or would have a pretty small share of the market. Unless of course, your industry has hijacked the political process and erected protectionist trade barriers like the U.S. sugar growers, getting a guaranteed 85% market share, along with other sweeteners like price supports. It's a sickeningly sweet deal for Big Sugar and its 4,000 domestic sugar beet producers, but a pretty sour deal for the rest of us - it cost us about $2.5 billion last year in higher sugar prices,
see CD post.

17 Comments:

At 3/15/2010 2:43 PM, Anonymous Lyle said...

And as a result we produce ethanol from corn (whiskey process) while the cane growing areas produce ethanol from sugar cane (rum process). Now in one sense given that fructose is bad for folks we should just change to a fructose tax, levied on all fructose beyond that in natural fruits.

 
At 3/15/2010 2:48 PM, Anonymous Anonymous said...

Now in one sense given that fructose is bad for folks ...

Who are you, B.F. Skinner?

Socialism is bad for folks, how about a tax on socialists?

 
At 3/15/2010 3:54 PM, Anonymous Benny The Man said...

The Red State Socialist Empire takes a lot of subsidies and import barriers to prop up. From Alaska, down through Montana, deep into Texas, winding into deserts, the heartland and Appalachia, rural areas survive on the federal dole.
Been that way since LBJ and FDR invented rrual subsidies in the 1930s. A decadent culture has emerged--no wonder that meth labs are the fastest-growing rural industry.
Crop subsidies, and subsidized highways, telephone service, water and power systems, airports, rail stops and even postal service, all paid for or cross-subsidized by productive urban citizens.
How to balance the federal budget: How about each state gets back roughly equal what it snds to DC.
End of federal deficit, and end of Red State Socialist Empire.
And no chance that the R-Party would ever agree to such a plan.
State's rights anybody?
How about we all get back what we put in?

 
At 3/15/2010 4:11 PM, Blogger sethstorm said...

At least that U.S. sugar can be counted on to be sugar. Other countries, not so much.

 
At 3/15/2010 4:33 PM, Anonymous Anonymous said...

This is your brain:

If you're producing a standard globally-traded commodity using production methods that are twice as costly as your foreign competitors, you normally won't survive, or would have a pretty small share of the market. Unless of course, your industry has hijacked the political process and erected protectionist trade barriers ...

This is your brain on drugs:

... meth labs are the fastest-growing rural industry.
Crop subsidies, and subsidized highways, telephone service, water and power systems, airports, rail stops and even postal service, all paid for or cross-subsidized by productive urban citizens.


Any questions?

 
At 3/15/2010 4:36 PM, Blogger misterjosh said...

Something wrong with the second chart, or information is incomplete - says that beet sugar costs only 1.9 cents per pound to produce after you do the math. They may be crooked, but I don't think they're getting 1200% profit margin.

 
At 3/15/2010 4:43 PM, Blogger misterjosh said...

Benny - rebates aren't the solution. The power would just switch from federal to federated. I don't think it would be a whole bunch better. I'm all with reducing subsidies though.

By the way, what's your point? You always rag on the perfesser when he talks about urban subsidies. Don't you have anything nice to say even when he takes up your cause of farm subsidies?

 
At 3/15/2010 5:06 PM, Anonymous Benny The Man said...

MisterJosh and Anon-

My point is that sugar barriers are but a small actor on a very large and crowded stage, but one on which the curtains are closed--the rural welfare economy we have created in the USA.

If we (improperly) subsidize "auto clunkers" to the one-time tune of $3 billion, it is front-page news and the blogosphere goes nuts.

If we (annually) subsidize rural telephones to the tune of $8 billion a year, no one even says "hello." We are trained to overlook rural dole.

BTW-Maybe state-by-state rebates are the solution. Do you think Montana, Alaska, Miss. Texas et al Senators would keep voting for supertankers of federal red ink if they had to accept they only get back 95 cents for every $1 they sent, and not $1.85?

Right now, federal money is the most powerful stimulus in rural areas--they crave more and more.

End the dole--and end the red ink.

Anon-Why are meth labs popping up all over ural America? You don't think a welfare society contributes to the sort of laziness that promotes illegal drug production?

 
At 3/15/2010 5:34 PM, Anonymous Lyle said...

Note that much the same pathways in the liver are used for fructose and ethanol according to the biochemists. Fructose is what makes things sweet, but is the bad stuff in all the sweet drinks. Since we tax alcohol we should be consistent and tax Fructose (High fructose corn syrup is only 58% fructose so there would not be much difference between its tax and that on sugar). This is instead of taxing sugary drinks, lets tax the stuff that makes the drinks bad.

 
At 3/15/2010 5:39 PM, Blogger Craig said...

How about each state gets back roughly equal what it snds to DC.

I agree with you in principle, but how about we just not send it in the first place? Why lose all those hundreds of m(b)(tr)illions to pay federal bureaucrats to count it and send it back?

Also, as has been pointed out here before, the high sugar prices have led to a collapse in the US candy industry -- as many as 10,000 jobs lost in the last decade or so.

 
At 3/15/2010 5:46 PM, Anonymous Benny The Man said...

Craig-

I live in California, and I would be happy to defederalize.

We send about $50-60 billion net a year to DC, that is then re-routed to the Red State Socialist Empire.

I propose the State Financial Rights Act--that is, rough financial equality--as I think it can be done within the existing framework, whereas defederalizing is probably not something most peopel can accept.

State Rights should include the right to get back roughly as much as we send to DC.

 
At 3/15/2010 6:15 PM, Anonymous Anonymous said...

Hold on, folks... this is gonna hurt.

 
At 3/16/2010 10:24 AM, Blogger juandos said...

"I live in California"...

Well that's one explanation why California is an economic mess...

 
At 3/16/2010 12:39 PM, Anonymous Anonymous said...

If we open up the market for sugar, domestic consumers would get the world price of (average) 13 cents instead of the current 27 cents. That would be a benefit to consumers of raw sugar and to some extent to their customers as some of their savings might be passed on. The amount passed on would be a function of the price elasticity of demand for the product. The market sets the price the producers take the price.

What is the impact of free trade in sugar on the nation as a whole? With restricted trade 27 cents stays mostly in the country verses 13 cents all going outside the country. The 13 cents going outside the country would have a negative Keynesian multiplier while the 27 cents would be positive. Both the Bush and Obama stimulus packages ignored the part of Keynes’s theory that dealt with trade imbalance. When a country needed a stimulus Keynes advocated subsidizing exports and restricting imports to produce a positive balance of trade.

Considering the nation as a whole the choice is pay a higher price to ourselves or a lower price to foreigners. That is always a concern but today we have no replacement jobs for those that domestic sugar production provides.

I say keep the tariffs and eliminate sugar import altogether. Keep the money here.

 
At 3/16/2010 2:16 PM, Anonymous Brad S said...

"Anon-Why are meth labs popping up all over ural America? You don't think a welfare society contributes to the sort of laziness that promotes illegal drug production?"

Considering that both Dakotas and Nebraska have the nation's lowest unemployment rates (all below 5%), you may want to rethink your false notion of the rural areas being a "welfare society."

BTW, I'm surprised that you haven't harped on merging both Dakotas yet. Every ignorant comment about rural welfare states always gets some stupid comment about "Why are North and South Dakota separate states?"

 
At 3/16/2010 2:22 PM, Anonymous Brad S said...

"I live in California, and I would be happy to defederalize."

Sure, I'd be happy to defederalize too. Just as soon as your state starts paying premiums for receipt of the rural states' labor (largely white, I might add).

Of course, you're the type who conveniently forgets that in receipt for sending extra money the Dakotas' way, you also get large numbers of the Dakotas' youth. As any visit to San Diego and other military bases will attest.

 
At 3/16/2010 4:18 PM, Anonymous Benny The Man said...

Brad S.

What happened to "Dakotah"?

It is on this antique map I have. Takes in Montana and Idaho.

I have not met too many Dakotans, N or S, in Los Angeles.

Why are unemployment rates so low in the Dakotas? You are flush with urban dollars taxed away from the big cities, and spending the money.

You drive on subsidized roads, use subsidized power and water, socialized telephone service, and fed-supported airports and rail stops.

I will readily concede that Dakotans are about 20 times more friendly than Angelenos, and in may respects it is a nicer place to live.

 

Post a Comment

Links to this post:

Create a Link

<< Home