Sugar Shock
U.S. growers' sickeningly sweet deal with the government

Sunday, August 23, 2009

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. 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.

Who's right? Our sympathy for the food processors is limited. Given the obesity and diabetes epidemics, higher prices for their sugar-saturated products might be socially beneficial, if they encourage consumers to kick the habit. The latest government statistics also support the sugar producers' claim that stocks are sufficient.

More broadly, though, this episode illuminates once again the irrationality of U.S. agricultural policy in general -- of which the sugar producers are among the biggest beneficiaries. Why does Mr. Vilsack control the flow of imports to the U.S. sugar market in the first place? Answer: 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 percent; 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 about four years from now. Something to think about next time you bite into a candy bar.

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