International TradeSugar Subsidies: A Bitter Pill

International Trade

Sugar Subsidies: A Bitter Pill for the States to Swallow

America’s sugar policy is an 18th-century relic that, like many policies developed more than 200 years ago, is desperately in need of reform. The United States is one of the largest sugar producers in the world, and America’s sugar industry has enjoyed trade protections since 1789. While the current unnecessarily complicated system eliminates risk for a small group of sugar processors, reform would benefit U.S. consumers, taxpayers and industry, including many American small to medium size enterprises (SMEs). These protections take a number of different forms including price support loans, domestic marketing allotments, tariff-rate quotas and the diversion of excess sugar to ethanol production. The effect of this spaghetti bowl of government subsidies and protections is higher prices on consumer goods that contain sugar and added costs to American taxpayers.

As is typical with “protectionist” trade schemes, the policies that subsidize American sugar imperil more jobs than they protect. According to the U.S. Department of Commerce, America’s sugar program has an adverse multiplier effect. For every job saved at a sugar processing plant, three domestic manufacturing jobs are lost. The U.S. Census Bureau estimates that the U.S. sugar program resulted in the elimination of 123,000 American jobs between 1997 and 2015. Conversely, reform of the program could be a modest job creation engine. The American Enterprise Institute estimates that the elimination of sugar protections would result in minimal job losses which would be more than offset by the creation of 17,000 to 20,000 new jobs in the U.S. food processing sector.

Sugar protections function as an added $2.4-$4 billion annual hidden “tax” on goods that hardworking American families and businesses purchase every day. The current program restricts sugar imports and enforces minimum prices for sugar in the domestic market in order to elevate prices on domestic sugar artificially. The Feedstock Flexibility Program, another aspect of the tangled web of protectionism surrounding sugar, mandates that during periods of sugar surplus, the U.S. government buy sugar for resale to ethanol plants at a loss. The result is that American consumers and industries pay double the world market price for sugar and products containing it. See how sugar protections affect your state here.

The good news is that there are hints that Washington is ready to tackle this stickiest of subsidies which the Cato Institute accurately describes as one of the most “grotesque examples of crony capitalism” and as “an involuntary wealth transfer from consumers to producers.” A little bit of political courage will go a long way toward reforming America’s sugar program so that it benefits the majority American consumers and U.S. businesses rather than a small, but determined, special interest group.