GASOLINE PRICES in the United States are a perennial source of ambivalence, or at least they should be. When they’re up, motorists suffer but the environment benefits, because people conserve. Falling prices boost economic growth — but people drive more and carbon emissions rise.
A similar point applies to sugar and other caloric sweeteners, of which the average American consumes some 128 pounds per year, about six times the maximum recommended by the World Health Organization. When sugar prices fall, Americans can indulge in more candy and cake, with all that implies for food processing jobs — and obesity and diabetes rates. Higher prices trim excessive consumption, which is why Berkeley, Calif., just adopted a tax on sugary beverages.
How, then, should consumers feel about the current run-up in the price of sugar? As the season of candy canes and chocolate Santas approaches, sugar is selling for 24 cents per pound on the U.S. commodities market, about 9 cents above the world price. This differential is due not to market forces but rather to government intervention. Specifically, U.S. sugar producers persuaded the Commerce Department to threaten Mexican producers with tariffs for allegedly subsidizing sugar exports to the United States. In late October, U.S.-Mexican negotiations produced a preliminary deal under which the United States would refrain from imposing tariffs if Mexico’s industry accepted price and quantity controls on its exports; the expectation that U.S. supplies will tighten accordingly has driven up prices.
On its merits, the U.S. producers’ case against Mexico was, at best, hypocritical. It’s true that the Mexican government owns about a fifth of the country’s sugar industry, which implies a subsidy, though precisely how much is hard to quantify. Yet U.S. producers, though nominally private, have benefited from federal subsidies and protections since the New Deal, including per-country quotas on imports.
Starting in 2008, Mexico was exempt from those limitations, which the United States agreed to lift in that year as part of the North American Free Trade Agreement. If finalized early next year as expected, the new U.S.-Mexico sugar deal would amount to managed trade in this commodity and, as such, a partial rollback of a market-opening agreement both sides had negotiated in good faith more than two decades ago. Potential U.S. free-trade partners, take note.
The only saving grace might be that higher prices will, indeed, reduce sugar consumption, with positive effects on public health. We’d celebrate that — if not for the blatant transfer of income from consumers to industry, via a barely transparent process that only a few bureaucrats and diplomats understand. At least Berkeley’s penny-per-ounce levy on sugary soda got imposed in full view, via a referendum, and all the revenue will go into the city’s treasury. The sweet U.S.-Mexico sugar deal, by contrast, would protect the interests and line the pockets of big corporations on both sides of the border. Some Christmas gift.