Oct 31, 2018

The Horrifying Cronyism of Sugar Production

Veronique de Rugy Senior Research Fellow

When people think about Halloween, they think about candy, children in costumes, and scary decorations. I think about all these things too, obviously, but I find myself thinking also about sugar subsidies.

Halloween is one of the biggest holidays for buying and consuming candy. Americans will spend about $2.7 billion on 600 million pounds of candy for eager trick-or-treaters. That’s $76 annually per American. This sum is much more than we would pay if legislators didn’t give the sugar lobby what it wants the most: federal programs designed to artificially enrich U.S. sugar growers.

Here’s how it works. A relatively small group of sugar-cane and sugar-beet farmers and processors pay an army of lobbyists who make an unholy alliance with politicians year after year in exchange for a series of measures that protect them from foreign competition and oblige U.S consumers to pay inordinately higher prices.

Among these interventions are protectionist tariffs on sugar imports to ensure that prices aren't lowered by market competition. The government also orchestrates an industry planning board to assign the legal output of each sugar company as well as to allocate market shares to favored private corporations. Any output that exceeds a company's government quota must be stockpiled — or destroyed.

In addition, if prices happen to fall below the "optimal" level that the industry board has determined, then the government buys up the “surplus” product in order to push prices back to the "proper" level. If that’s not enough, the government extends cheap taxpayer-backed loans to these same privileged corporations. If prices don’t rise, producers can simply forfeit the sugar and keep the loan. And don’t think this would stop them from applying and being eligible for more loans in the future.

All of these programs are why Vincent Smith, an economist at Montana State University and an ag expert, describes the U.S. sugar program as “a Stalinist-style supply control initiative.”

This is cronyism: the unhealthy alliance between the government and private companies. And of course it creates many economic distortions. While this nest of interventions is justified in the name of protecting the 18,000 workers in the sugar-processing sector — 4,500 farm businesses produce sugar — it inflicts a serious cost on the 600,000 workers in the sugar-consuming industries such as candy makers and pastry producers. Also shouldering part of the burden are the hundreds of millions of consumers of sugar as well as all American taxpayers. Adding insult to injury, many of these people are victimized many times over: as workers, as consumers, and as taxpayers.

One visible sign of the high cost of sugar protection is that the price of sugar in the United States is twiceas high as the world price of sugar. American Enterprise Institute economists recently calculated the direct cost to American consumers as being somewhere between $2.4 and $4 billion per year — or a cost of $44 to $50 a year for a family of four. That’s how much savings consumers would reap if sugar quotas were eliminated and Americans allowed to purchase sugar at the world price instead of at the inexcusably high U.S. price.

As for workers in sugar-consuming industries such as candy manufacturers, sugar protection and higher prices make it harder for them to compete in the global market. Foreign candy makers buy their sugar at half the price that U.S. makers must pay. U.S. candy makers are thus obliged to employ fewer American workers, or even in some cases to move their factories abroad or to import foreign-made candy. AEI scholars John C. Beghin and Amani Elobeid estimate that “the net result is reductions in U.S. manufacturing employment opportunities in the order of 10,000 to 20,000 jobs every year.”

In a recent column for National Review, Grover Norquist and Representative Virginia Foxx (R-NC) give a few examples of the effect of sugar protection on real American companies. They write:

"The Spangler Candy Company reports, “Today, we have about 150 people making candy for us in Mexico. In 2017, Spangler had 900 people apply for jobs at our Ohio factory. I would love to offer 250 of them a job as a candy cane maker, but our government insists that sugar processing jobs are more important than manufacturing jobs. They are picking winners and losers and our town has been the loser for many years now.”

"The Atkinson Candy Company moved 80 percent of its peppermint-candy production to a factory in Guatemala that opened in 2010.

And the makers of President Reagan’s favorite candy, Jelly Belly, had to build its new 50,000-square-foot plant in Thailand thanks to the high sugar price driven by U.S. policy."

On the other hand, you can see why sugar growers are willing to spend a lot of money to protect their handouts. According to Beghin and Elobeid, the perk redistributes an average of over $700,000 per grower each year.

Sugar protectionism is the perfect illustration of how the government grows by spreading the cost across many while concentrating the larger benefits across a few. It makes me sick. However, if this cronyism isn’t enough to give you a stomachache, then enjoy your overinflated candy on Halloween.

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