October 31, 2014

Halloween Is Sweet For U.S. Sugar Moguls

Veronique de Rugy

George Gibbs Chair in Political Economy
Summary

Is there a Halloween monster scarier than modern U.S. sugar policy? Say what you will about skeletons and vampires; at least they don't have Washington lobbyists on retainer. For years, special interest tricks benefiting entrenched sugar interests and opportunistic politicians have left Americans with a lot less treats.

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Is there a Halloween monster scarier than modern U.S. sugar policy? Say what you will about skeletons and vampires; at least they don't have Washington lobbyists on retainer. For years, special interest tricks benefiting entrenched sugar interests and opportunistic politicians have left Americans with a lot less treats. Outrageous policies like protectionist tariffs on imported sugar, federal loan guarantees, and government-planned production quotas push up U.S. sugar prices to make Halloween a lot less sweet.

U.S. sugar prices have far exceeded world markets for decades. From 2000 to 2014, the U.S. price of sugar was, on average, roughly two times the world price. Such a large price discrepancy indicates a major inefficiency. The culprit? Our nonsensical domestic sugar policies that rival only the former Soviet Union in their inconsistency, corruption, and almost comical injustice.

How do these programs work? First, the U.S. Department of Agriculture (USDA) runs a complex loan program for private sugar producers to ensure guaranteed prices for processors and growers. Next, the USDA imposes trade restrictions on foreign sugar imports to prevent international competition, thereby raising U.S. sugar prices over world sugar prices. Last, the USDA actually determines how much sugar should be produced in the U.S. each year and divides "marketing allotments," or production quotas, among chosen firms.

In short, the USDA centrally manages a protected sugar cartel and boosts incumbent profits from Washington. Scary stuff, huh?

But even these industry protections are not always enough for the relevant players. After the domestic price of sugar dropped from record highs in 2011 by over 25 percent in 2012 and 2013, the USDA announced a new policy to purchase sugar directly from domestic growers, in order to reduce the supply of sugar and increase prices. Why? The USDA feared that lower sugar prices would generate a wave of defaults on its $700 million portfolio of loans to these same sugar producers. In early 2014, the American Sugar Coalition jumped into action as well, filing a petition with the U.S. International Trade Commission accusing Mexican sugar imports of causing "material injury" to U.S. sugar producers by lowering prices too much.

The cozy connection between allied sugar interests and Washington regulators has its roots in the New Deal-era Sugar Act of 1934 and is managed in modern times through the U.S. Farm Bill. Today, the explicit goal of U.S. sugar policy is to keep prices high to protect sugar producers and USDA balance sheets. You are simply expected to pay more.

Sugar interests lobby considerably for their privileges. Sugar cane and sugar beet producers have spent almost $100 million lobbying Congress to protect and extend these policies since 2000, or an average of over $6 million per year.

To the top lobbyists go the spoils. The American Crystal Sugar Company spent $1.2 million influencing Congress in 2014. That company also received the largest market allotment-or government-set production quota-from the USDA in FY 2015. Florida Crystals, which spent $620,000 in lobbying services this year, received the fourth largest USDA allotment. In the sugar business, it pays to have friends in Washington.

It is hard to think of a U.S. policy more antiquated and absurd than our price-pumping, special interest-driven sugar policies that benefit a handful of entrenched producers at the expense of all other Americans. While other Halloween haunts will fade away by the holiday's end, the season's real fright is that these terrible sugar policies are for now here to stay.