OF ALL THE many ways in which federal policy distorts agricultural markets, none is more convoluted than the protectionist scheme for sugar. The government sets aside a maximum of 85 percent of the market for U.S. producers; the rest gets divvied up among exporting countries eligible to ship their respective “quotas” to the United States at a preferential tariff rate. (It’s legal to sell to the United States beyond the quotas, but extra-high tariffs usually make it uneconomical.) Then there’s Mexico, which since 2008 has been able to sell sugar to the United States without limit, under the North American Free Trade Agreement. Meanwhile, the Department of Agriculture guarantees minimum prices for both raw cane sugar and refined beet sugar.
The combined effect of these measures has been to inflate the U.S. price of sugar – for better or worse, one of the most ubiquitous food ingredients — making all sorts of products more expensive for consumers and diminishing employment in U.S. businesses that use sugar as an input.
But defenders of the sugar program at least have been able to assert that it does not cost federal taxpayers one dime – until now, that is.
Despite the government’s elaborate efforts to prop up the U.S. sugar price, it has dropped below the USDA’s target. There’s a glut on the market – in part because of the aforementioned Mexican imports. Anticipating just such a situation, Congress added a sugar-support program in 2008. Under that program, the government may buy up sugar that producers could not profitably bring to market at prevailing prices — and sell it to ethanol refiners instead.
Therefore, this year the USDA faces the prospect of purchasing 400,000 tons and shipping it to ethanol makers at an estimated loss of $80 million. Federal taxpayers, of course, would cover that. This puts Agriculture Secretary Tom Vilsack in a tight spot because federal law says that “to the maximum extent practicable, the Secretary shall operate the program . . . at no cost to the Federal Government.” Mr. Vilsack has not yet said how he proposes to manage the situation.
The real issue, though, is the absurdity and wastefulness of a sugar policy that presents Mr. Vilsack with such a dilemma to begin with. The program creates unnecessary complexity in U.S. relations with sugar-exporting nations, while pitting one big U.S. business — sugar — against another — food processing. Consumers and, yes, taxpayers bear the risk and expense, for no purpose other than sustaining domestic producers regardless of their global competitiveness.
Congress should liberate the sugar business. At a minimum, it should pass the bipartisan Sugar Reform Act of 2013, which would eliminate the sugar-for-ethanol program and make trade restrictions and price supports more flexible. Better still is the bipartisan Senate bill, co-sponsored by New Hampshire Democrat Jeanne Shaheen and Illinois Republican Mark Kirk, that would phase out the sugar program altogether. It’s time to let the market determine where candy, cake and soft drink makers — and those who consume such products — get their sugar, and how much they pay for it.