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.