Tuesday, May 22, 2012

Bipartisan Congressional Group Stands up for U.S. Consumers Over Special Interest Sugar Farmers

The chart above shows how government policies have artificially inflated the U.S. price of sugar to more than double the world price going back to the early 1980s.  World prices have averaged about 14 cents per pound (wholesale) since 1982, less than half of the U.S. average over that time period of almost 29 cents per pound.  Import quota restrictions that strictly limit the amount of imported sugar coming into the U.S. at the world price protect the domestic producers from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan. By preventing American households and sugar-using companies from buying imported sugar at the world price, America's trade policies imposed an unnecessary $4 billion burden on the American consumer according to my January study.

Not that it will necessarily result in any significant changes to the status quo, but it's still hopeful that a bipartisan coalition of 22 members of Congress have signed a letter highlighting the need to reform federal sugar policy, and they are urging the House leaders to have a robust debate on the U.S. sugar program during consideration of the 2012 Farm Bill. Here are some excerpts from the letter:

“Current U.S. sugar policy harms consumers, small businesses and workers. A recent study by Iowa State University researchers pegs the cost of the sugar program at about $3.5 billion in added consumer spending, and 20,000 foregone jobs, every year.

No other farm program is deliberately designed to transfer income from American consumers and workers to a small, but "special" interest of sugar processors and growers. 

The sugar program is the last of the command-and-control programs that has yet to be reformed by Congress, and in fact, U.S. sugar policy grows worse with every passing farm bill.  We urge you to ensure that Congress uses the Farm Bill as an opportunity to protect consumers and create jobs — something our current law prevents.”

 MP: Like all trade protection, U.S. sugar policy exists to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and comes at the expense of the U.S. consumers and the American companies using sugar as an input, and makes our country worse off, on net.

 This case is a perfect occasion to invoke this quote from French economist Frederic Bastiat: "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race." 

U.S. sugar policy has a long history, going back to 1789 when the First Congress of the United States imposed tariffs on foreign sugar, and is a perfect illustration of trade policy that ignores the viewpoint of disorganized, dispersed consumers in favor of the concentrated, well-organized interests of producers. Kudos to the 22 members of Congress who have recognized the harm U.S. sugar policy inflicts on the American economy (raising prices, destroying jobs), and are taking steps to implement changes to protect American consumers over a well-organized, anti-consumer, special interest group of U.S. sugar growers. 

20 Comments:

At 5/22/2012 2:50 PM, Blogger Jon Murphy said...

There is an even more sinister side to this protectionism, too.

Sugar tariffs have raised the price of sugar. Similarly, corn subsidies have lowered the price of corn and it's sweetener extract-high fructose corn syrup (HFCS, for short). HFCS is not processed by the body in the same way sugar is: more of it is turned to fat. This is one of the causes of the obesity epidemic in America (which, in turn, is leading to diabetes).

So, to look at even more of the "unseen", we have trade policies that hurt both our wallets and our waistlines (and hearts, kidneys, livers, etc).

Yep...way to go protectionism...

 
At 5/22/2012 3:13 PM, Blogger Hell_Is_Like_Newark said...

My Dad (now retired) worked in the food and flavors industry. After the tariffs were passed, manufacturers that could not use sugar substitutes moved to Canada. In particular, the confectionery industry which at the time was concentrated around Chicago.

One notable casualty that was featured in "Batman The Dark Knight" was the Brach's Candy Factory in Chicago:

The Chicago factory fell on hard times in the late 1990′s and early 2000′s. Artificially inflated domestic sugar costs and strict import quotas put in place by the US Department of Agriculture made operating costs in Chicago difficult for Brach’s. (These policies have essentially crippled candy production throughout the United States.) High labor costs also exacerbated the situation to the point where the owners decided to shutter the aging plant. Brach’s began laying off employees in 2001 and gradually continued until 2003. After 76 years in operation the “Palace of Sweets” closed its doors. Production of Brach’s candies resumed in Mexico where labor and sugar are more cost effective.

http://americanurbex.com/wordpress/?p=779

 
At 5/22/2012 4:04 PM, Blogger gadfly said...

The issue is much more complex than sugar tariffs alone. The $4 billion penalty is multiplied many times by the deals struck by Archer Daniels Midland which effectively captured the HFCS market and pushed the ethanol program to become a corn-based rather than a sugar based endeavor.

As we already know Brazilian ethanol is far cheaper than ours because the crop used is sugar cane. The only cane-based ethanol entering the US comes from the Dominican Republic which has trade agreement that permits the import.

Read this 2009 article from Mises Institute which coincidentally links back to an earlier piece written by Professor Perry.

 
At 5/22/2012 4:06 PM, Blogger AIG said...

Well, there may be other things in play as well. For example. HFCS may be easier to transport, store and process for large manufacturers then sugar. I worked at a beverage manufacturer, and HFCS can be stored in tanks and moved through pipes. Sugar needs warehouses. Also, you may need smaller quantities of HFCS to achieve the same results as sugar.

Point being, the overall cost to the manufacture isn't just the raw material, but also the processes. So even if sugar is at the world price, and HFCS not benefiting from subsidies...may it still be more cost-effective for producers? Maybe.

 
At 5/22/2012 4:09 PM, Blogger AIG said...

As we already know Brazilian ethanol is far cheaper than ours because the crop used is sugar cane.

You can't grow sugar canes in most of the US. You can grow corn, however.

 
At 5/22/2012 4:21 PM, Blogger VangelV said...

This case is a perfect occasion to invoke this quote from French economist Frederic Bastiat: "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

But when it comes to politics the consumer does not play a big factor because the gains are spread out too thinly. The producers win because they can bribe the legislators with contributions in exchange for having lobbyists write the bills.

This is why government power needs to be strictly limited and unless the US heads towards becoming a constitution republic once again it is doomed to become a failed state.

 
At 5/22/2012 6:13 PM, Blogger morganovich said...

"You can't grow sugar canes in most of the US. You can grow corn, however."

so?

why grow a bad solution when you can trade for a good one?

you cannot grow pineapples in most of the us either, but that does not make it hard to buy some in most places.

 
At 5/22/2012 6:21 PM, Blogger morganovich said...

aig-

hfcs is more expensive, more difficult to transport, and doe not work well in many food processes. it also does not taste as good which is why mexican coke tastes so much better than ours.

there is not "other rationale" for using it.

it's also terrible for you.

it has a glycemic index of 85 as opposed to 65 for sugar (and 47 for organic (unprocessed) sugars and even lower for sugar cane juice). that creates a huge insulin response. over time, that causes diabetes and serious weight gain. it's a big contributor to us health issues.

we are the only country that uses it for everyday stuff. the only reason is tariffs. drop sugar cost, and hfcs would go away.

 
At 5/22/2012 6:27 PM, Blogger Che is dead said...

"HFCS is not processed by the body in the same way sugar is: more of it is turned to fat. This is one of the causes of the obesity epidemic in America (which, in turn, is leading to diabetes)." -- Jon Murphy

"... there is insufficient evidence to say that high-fructose corn syrup is less healthy than are other types of added sweeteners." -- Mayo Clinic

 
At 5/22/2012 6:30 PM, Blogger Jon Murphy said...

Che,

I understand your point, but I'm comparing HFCS to sugar, not other sweeteners, which I believe is what the Mayo Clinic study was referring to.

 
At 5/22/2012 6:35 PM, Blogger Aiken_Bob said...

aig --
Having read this blog for the last couple of weeks - are there any jobs you haven't had or universities you haven't been associated with? Just asking?

 
At 5/22/2012 6:58 PM, Blogger AIG said...

Having read this blog for the last couple of weeks - are there any jobs you haven't had
I worked for DPSG, if you're interested. We made Dr. Pepper as well as several other types of beverages and drink mixers. Thanks for asking.

hfcs is more expensive, more difficult to transport, and doe not work well in many food processes
What do you base that on. Everything I've seen about it, points to the opposite.

why grow a bad solution when you can trade for a good one?
Sure you can trade. The point I was making is that "ethanol" in the US wouldn't have been a "sugar-based" one either way, which was what Gadfly was saying would have happened were it not for...whatever.

 
At 5/22/2012 7:02 PM, Blogger AIG said...

Besides, hasn't Brasil also subsidized it's ethanol? They just announced $38 billion in ethanol subsidies this year. That's the model we ought to be emulating?

 
At 5/22/2012 9:19 PM, Blogger morganovich said...

"What do you base that on"

the fact that no one but the US uses it and that the clear prefernce in non tarrif stses is for real sugar.

also from numerous discussions with a company called senomyx that makes flavor enhancers including a sugar intensifier that is going into some new pepsi beverages and into a number of fermenich products.

they claim that soft drink makers would LOVE to go back to sugar if it could be made price competitive (as it is if it is intensified). we spoke to the pepsi developers on this and they backed that up.

they trade publicly SNMX.

take a look. if you've been in beverages, i suspect you may find it interesting. early days still and i'm not recommending investing in it at the moment (we are not) but it's interesting tech.

i still think your point about sugar ethanol is incorrect. you trade for cheaper ethanol and don't make it here at all. his point is that there would be no us ethanol industry if not for high tariffs keeping cheaper product out and creating a dead-weight loss for the us economy (as all tariffs do).

 
At 5/22/2012 9:21 PM, Blogger morganovich said...

"Besides, hasn't Brasil also subsidized it's ethanol? They just announced $38 billion in ethanol subsidies this year. That's the model we ought to be emulating?"

that IS the model we are emulating. dropping the tariff and importing from them would be totally different. then, their taxpayers would be subsidizing us. if they want to do that, hey, take advantage.

cheap imports help, not hurt us.

 
At 5/22/2012 10:15 PM, Blogger AIG said...

his point is that there would be no us ethanol industry
I agree about the trade etc. I wasn't implying trade. But that's not what he said. He said it become corn ethanol instead of sugar. But it would never have been sugar to being with. That's all I was saying.

As for HFCS vs sugar, taste aside and market preference aside, your contacts are saying it is not price competitive. But is it not price competitive simply because of the raw materials, or the entire process?

I don't know since I've never seen how sugar would be used in the beverage industry. But I can imagine it being considerably more costly and difficult throughout the supply chain and production, no only because it is a voluminous solid...but also because the "artificial" stuff is a lot "sweeter" which means you need a lot less.

Also, there's no reason to think that other countries would use it as much as we do (it used in other countries, sometimes heavily). We make a lot more corn than anyone else, so it would be a lot more competitive here then elsewhere.

that IS the model we are emulating.
That was me poking a stick at Mises dot org for their "analyses", since they claim that Brasil has "found the answer".

dropping the tariff and importing from them would be totally different. then, their taxpayers would be subsidizing us. if they want to do that, hey, take advantage.
Sure, but it's a pointless debate to have.

 
At 5/22/2012 11:17 PM, Blogger gadfly said...

As a point of clarification, Brazilian ethanol is not extracted directly from the cane grass. First the sucrose is separated from the cane and then distilled into ethanol.

Our southern Gulf states and Hawaii and Puerto Rico can all grow sugar cane to make sucrose but we grow sugar beets for sucrose as well and this crop grows in our northern plain states and in Canada.

Interestingly, sugar beets are 17% sucrose by weight while sugar cane grass is only 10%.

Having said all that, the really smart thing to do is to get our government out of the ethanol and corn subsidy business. Food prices will drop. Hydrocarbons will return as the cheapest and sanest energy source.

Lest we forget, we also need these needless protectionist tariff policies to go bye-bye as well. You can tell how much I favor farm subsidies. Tell me about the last "poor" farmer that you know. He will amaze you with his knowledge of the myriad of farm programs that take the risk out of farming.

 
At 5/23/2012 9:37 AM, Blogger cliffwarren said...

I'm glad someone in our government is looking at it... but it is going to take a lot more than 22 votes. And Harry Reid will kill it.

 
At 5/23/2012 11:43 AM, Blogger morganovich said...

aig-

hfcs is not price competitive anywhere in the world but the US. it's cheaper here because we pay, on average, twice the amount for sugar that the rest of the world does.

why do you think even poor countries like thailand and mexico use sugar, not hfcs in their softdrinks? mexico has some of the highest per capita softdrink consumption in the world. they are also pretty poor, yet even their generic bargain brand sodas use sugar, not hfcs. if there were a cheaper way to make it using hfcs, they'd be all over it. but they are not because hfcs costs more.

not sure why you feel it's a pointless debate on brazil. i think it's a critical debate. we ought to drop the tariffs, import ethanol that's cheaper than we can make here, and let our ag prices go back to normal.

why is that pointless? that seems like a clear and obvious policy issue.

if trade were free, there would be no us ethanol industry at all and we would enjoy cheaper ethanol as well as cheaper and more plentiful corn and other foods as they took back acreage and cheaper meat as feed costs dropped.

 
At 5/23/2012 5:37 PM, Blogger Gordon Worley said...

Sugar subsidies have also been generally bad for Florida where we have a sugar cane industry. Bad because the subsidies have propped up a sugar cane farming industry that would have disappeared a long time ago on price, and it's a problem because they farm sugar cane in land that is part of the Everglades system and is naturally bad for agriculture and requires significant human intervention to make useful. As a result, the Florida sugar cane industry is really only possible so long as the price is high enough to make it economical. The consequence is the destruction of the Everglades through agricultural runoff.

 

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