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Bitter Sweet: How Big Sugar Robs You

Tuesday, February 14, 2012

That Valentine’s Day hand on your back pocket billfold is not your sweetheart’s, it’s the sugar lobby’s.

For decades, sugar beet and sugar cane farmers and processors have been the beneficiaries of a sugar program that stealthily drives up sugar costs—and, consequently, the cost of that heart-shaped box of chocolates. Over the past 30 years, the annual burden on U.S. consumers has averaged over $3 billion in higher food prices.

The “no-romance” sugar program has largely been ignored by legislators and groups concerned with tax burdens because there are no direct federal subsidies for the sugar industry. Instead, U.S. sugar policy raises prices indirectly by taxing consumers through the marketplace. A system of import quotas and domestic supply controls works to raise sugar prices for households and food processors to a target level of 23.3 cents per pound of raw sugar when world prices fall below that amount. This system drives up consumer food prices and destroys jobs in the food processing sector because of reduced competitiveness in the global marketplace.

Over the 30-year period from 1980 through 2009, the sugar program effectively doubled the price U.S. consumers paid for sugar and increased annual food costs by about $9 per person. That may not sound like a big price tag, but it resulted in a $1.3 billion deadweight loss for the U.S. economy (think of all the extra money that could’ve been spent on red roses and high-end confectionary!). And how did the sugar farmers, who are fewer than 20,000 in number and relatively wealthy, fare? They received a $1.7 billion net gain.

From 1980 through 2009, the sugar program resulted in a $1.3 billion deadweight loss for the U.S. economy.

While it’s true that this year’s high worldwide sugar prices have mitigated the sugar program’s adverse effects, there is no reason to keep a policy that, at best, has no impact and at worst substantially harms the U.S. economy, U.S. consumers, and the global competitiveness of the U.S. food processing sector. In most years, the program also hurts many of the poorest farmers in developing countries by lowering the world price of sugar and reducing their already meager incomes, a problem well understood by the governments of those countries and humanitarian organizations like the World Catholic Relief Fund and Oxfam.

In 2011, Representative Joe Pitts (R-Pennsylvania) and Senator Richard Lugar (R-Indiana) both had an excellent idea: They independently presented legislative initiatives that would have essentially gutted the sugar program, to the long-term benefit of all U.S. consumers, the U.S. food processing sector, the economy as a whole and, of course, everyone who buys chocolates for their sweethearts on Valentine’s Day. The Lugar and Pitts initiatives soon stalled in the face of a barrage of criticism from the sugar industry, and Congress is likely to drag its feet on any Farm Bill action in 2012, pushing all serious decisions into 2013. That’s a shame, because absent any congressional action, next year the sugar program may well provide yet another Valentine’s Day boondoggle for the sugar lobby.

Once sugar policy reform is enacted, some U.S. farmers would stop raising sugar beets and sugar cane, but almost all would switch their land to other crops. Many would turn to corn and soybeans—two commodities for which prices have been at record levels over the past four years. Farmers won’t be forced out into the streets. The additional production of scarce grain and oilseeds commodities would be a very good thing for U.S. consumers and the U.S. economy. More jobs would also be created as the American food industry would become more competitive, both in the United States and globally.

And, importantly, U.S. consumers will have more money left over to splurge on roses.

Michael Wohlgenant is the William Neal Reynolds Distinguished Professor of Agricultural Economics at North Carolina State University. Vincent H. Smith is a professor of agricultural economics at Montana State University and the Director of AEI’s American Boondoggle project.

FURTHER READING: Vincent H. Smith also writes “Shallow-Loss Insurance Assumes an Ignorance,” “Farmers Facing Loss of Subsidy May Get a New One,” and, along with Barry K. Goodwin, “The ACRE Program: A Disaster in Waiting.” Blake Hurst contributes “Our Real Food Problem” and “The 21st-Century Land Rush.” Douglas Nelson and Alexander Rinkus discuss “The Hi-Tech Agriculture Imperative.”

Image by Rob Green / Bergman Group

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