Friday, June 22, 2007

The Bitter Taste of US Sugar

Since the time of the founding of our great country, the government has taken every opportunity to insinuate itself into every conceivable manner of non-government business. Take for example the sugar industry. Chris Edwards over at Cato discusses the problems created by government meddling in the sugar industry in the latest Tax & Budget Bulletin (PDF).

Components of the Sugar Program

The purpose of U.S. sugar policies is to keep domestic prices artificially high. In recent decades, U.S. sugar prices have been typically two or more times higher than prices on world markets.2 The federal government achieves that result by setting guaranteed prices and backing them up with trade restrictions and production quotas.

Guaranteed Prices. The U.S. Department of Agriculture runs a complex loan program to support sugar prices. The USDA makes loans to sugar processors, who use their sugar as collateral. In return, processors agree to pay sugar growers certain minimum prices. If the market price of sugar rises, processors can sell their product on the market and pay back the loan. If the market price falls, processors can forfeit their sugar to the government and not repay their loans. The effect is to guarantee prices for both processors and growers. Sometimes other techniques are used to prop up prices, such as paying producers to discard their current inventories.

Trade Restrictions. Import barriers help to maintain high domestic sugar prices. The government applies a two-tiered system of “tariff rate quotas” to limit imports. A lower “in-quota” tariff rate is for imports within a set quota volume. A higher “over-quota” rate applies to imports in excess of the quota. The in-quota amounts are allocated to 40 foreign countries on the basis of prior import patterns.

These restrictions prevent lower-cost foreign sugar from putting downward pressure on U.S. prices. Sugar imports are currently restricted to about 15 percent of the U.S. market. By contrast, imports typically accounted for about half of the U.S. market prior to the 1980s.3

Production Quotas. In addition to controlling sugar imports, the government imposes quotas, or “marketing allotments,” on U.S. production. Each year, the USDA decides what total U.S. sugar production ought to be and then allots it 54.35 percent to beet sugar and 45.65 percent to cane sugar. Most sugar beet production is in Minnesota, Idaho, North Dakota, Michigan, and California. Most sugarcane production is in Florida and Louisiana. The USDA allots each U.S. state and each sugar company a specific quota based on a complicated formula. In sum, the sugar industry is a cartel that is centrally planned from Washington.

This is exactly why we, in the country in which it was invented, have to have inferior Coke produced with corn syrup (which the government is also heavily involved in) rather than the good stuff made with real sugar. I rarely drink Coke when I am here in the States, but make a point of drinking it when I am in China.

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