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The Excessive Cost of Sugar Industry Regulations

(Chuck Muth) – Dr. Karim Khan is an Associate Professor at the Pakistan Institute of Development Economics (PIDE) in Islamabad.  And he recently published a column on his government’s sugar subsidies and how they’ve backfired.

Here are some excerpted highlights that every Member of Congress would do well to read and consider in light of ongoing efforts to eliminate U.S. sugar policy as it relates to countries that subsidize their domestic sugar industries…

“Market regulations are exercised to ensure efficiency in production, streamline standard-setting, and provide protection to consumers by ensuring quality products at competitive prices. … Sugar industry in Pakistan is a case of regulatory failure where we have observed frequent instances of hoarding/over-pricing, rents seizing, and political capture, all having significant costs to the society.

“Sugar market in Pakistan is regulated through subsidies, export quotas, import restrictions, and regulations on prices. These regulations notwithstanding, the sugar industry has not been able to ensure competitive prices in the domestic market. …

“If the market were deregulated, competition in the sugarcane market would enable the growers to work out their alternative choices. Likewise, competitive sugar pricing would incentivise the sugar producers to enhance their productive, technical and allocative efficiencies. …

“Given structural inefficiencies in the sugar market, these regulations are not deemed to deliver much as has been the case with the earlier regulations. In other words, being the 7th largest producer in sugar production and 5th largest producer in terms of sugar produced from sugarcane, Pakistan has not been able to be competitive in the global market for sugar and sugarcane.”

Of course, Pakistan isn’t alone.

No domestic industry can compete in a global market where prices are barely half the cost of producing sugar. The answer is to get rid of all the subsidies and all the government distorting policies that have wrecked the global market.

Let prices rise to reflect production costs and create a policy where the best businesses, not the most subsidized, are rewarded.  Zero-for-zero: Zero quotas and tariffs in return for zero subsidies.  That’s the free-market policy Congress should pursue.