A recent, extensive study – “Thailand’s Sugar policy: Government Drives production and export expansion,” conducted by Antoine Meriot of Sugar Expertise LLC, for the American Sugar Alliance – details how government meddling in the free market is the problem, not the solution.
And how the government solution to a government problem usually succeeds in only making the government problem worse. As Meriot notes…
“Previously the Thai government had encouraged rice production expansion and the government massively stockpiled rice, in hopes of exporting their surplus onto a rising world market. However, world rice prices did not rise as the Thais had hoped, and the government is seeking to address the rice surplus problem by diverting rice land to sugarcane.”
Alas, the sugar experiment isn’t faring any better than the rice experiment.
“Thai sugar producers are relatively inefficient compared with other major producers, such as leading exporter Brazil,” Meriot, a French agricultural economist, reports. In addition, “the Thai sugar industry is hampered by inadequate moisture and poor cane quality, small farm size, lack of mechanization, and underutilization of cane mills.”
Unable to compete on a level playing field, the struggling industry has turned to government intervention.
“The Thai government has been closely involved with the Thai sugar industry for decades,” Meriot writes, “and has taken major steps to expand Thai sugar production and exports, regardless of world market pricing and needs. Thai government support for its sugar industry amounts to at least $1.3 billion per year.”
And because of those government subsidies, Thailand is now “the world’s second largest sugar exporter” despite being really lousy at sugar production. As such, Brazil, Australia and the European Union are questioning whether or not Thailand’s sugar subsidies violate World Trade Organization rules.
The Thai handouts also reinforce the need to maintain the current U.S. sugar program – which protects domestic sugar producers, who Jack Roney of the American Sugar Alliance accurately characterizes as “among the world’s most efficient, and most socially and environmentally responsible.”
The way to fix the problems caused by governments getting involved in the free market is to get governments out of the free market, the objective of Rep. Ted Yoho’s (R-Fla.) zero-for-zero congressional resolution. Congress should pass it.