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Brazil Sweetens the Sugar Subsidy Pot

If free market competition spurs competitiveness, then government subsidies clearly spur government subsidization. Thus the recent announcement from the world’s largest supplier of subsidized sugar: Brazil.

The South American nation already controls more than half of the global sugar market; however, recent decisions by other sugar exporting countries – especially India, where sugar export subsidies were recently announced in addition to sugar production subsidies – appear to have spurred the Brazilians to sweeten the pot, so to speak.

Last month, Brazil’s National Bank of Social and Economic Development (BNDES) unveiled a new “incentive” program for the nation’s sugar industry called PAISS Agricola that “could potentially make available $620 million (US) of investment resources from 2014 to 2018.”

Just as a “tariff” is a “tax,” in this case an “investment” is a “subsidy.” A rose by any other name…

Eligible for the government subsidies are “Brazilian firms interested in undertaking activities in research, development and innovation in five areas,” including the development of new sugarcane varieties that “are more suitable for mechanized harvesting,” as well as “more efficient techniques of seedling propagation.”

Manufacturers of “machines and instruments for planting and harvesting, including for collecting sugarcane husks and residuals” will also be eligible for this government “investment,” as well as firms specializing in “the planning and control of production.”

Planning and control of production? That doesn’t sound “free market,” does it?

Elizabeth Farina of the UNICA, the Brazilian Sugarcane Industry Association, cheered the new government “investment” in the nation’s sugar industry.

“Agricultural costs are already high and are rising,” Farina said in a statement, noting that 60% of the cost of sugar is in the production area as opposed to “the costs of industrial cane-processing, which has been a focus of (earlier Brazilian) research and investment that has resulted in lower costs.”

Indeed, rather than growers and manufacturers investing in themselves and their businesses, they rely on government subsidies to do it for them, which puts U.S. farmers, who receive no similar types of government “investment,” at a significant competitive disadvantage.

Yes, the U.S. sugar program should be ended, but not unless similar steps are taken to wean foreign competitors of anti-competitive government subsidies such as Brazil’s new PAISS Agricola.