(By John R. Smith) – Let’s take an objective look at U.S. sugar policy. Based on Economics 101, supply should equal demand, to keep prices stable. America’s sugar policy, mandated by Congress, is designed to run at zero cost to taxpayers — not a dime. Sugar farmers do not receive subsidy checks. The Department of Agriculture can restrict foreign imports and control the amount of sugar American farmers can sell.
The USDA forecasts annual sugar consumption and subtracts from that amount the foreign sugar the government has committed to import through various trade agreements. What is left is allotted to U.S. sugar farmers. If production exceeds America’s need, sugar farmers store the excess at their own expense, not the taxpayer’s.
The U.S. sugar policy’s value is in its ability to keep sugar prices stable and affordable because the market is balanced. Fair prices allow farmers to get their returns from the marketplace, not from a government check. The program provides a reliable supply of sugar and avoids wild price swings.
Detractors are fond of saying that American sugar policy costs U.S. consumers more money. But, for starters, it’s the lowest-cost sugar policy option for Congress. A pound of sugar costs about as much at the grocery store as it did when Jimmy Carter was president, according to USDA data. Consumers in other countries aren’t so lucky. The rest of the developed world’s average retail sugar price is 30 percent higher than in America, and average wholesale prices are 65 percent higher. But lower farm prices do not always reach consumers. Why? Lower prices for sugar farmers mean larger profits for manufacturers of cereal, candy, ice cream and cakes. It’s common for sugar producer prices to trend downwards while retail consumer prices for candy and other sweetened products climb sharply — chocolate bar prices are up several hundred percent since 1982.
American sugar farmers can’t compete against foreign producers who are subsidized by their governments and who enjoy sharply different labor standards. American sugar farms hire mostly organized labor, so costs are high for domestic farmers trying to compete against foreign farmers using cheap labor. American sugar farmers would not need protection if other countries didn’t subsidize and protect their farmers. For example, the Brazilian government is the dominant sugar player on the world market, and it pumps about $2.5 billion to $3.5 billion into farm subsidies.
Price levels of all goods and commodities are set by the irrefutable Law of Supply and Demand. If the U.S. sugar program was eliminated, many American sugar farmers would be driven out of business. The result, following a brief period of lower sugar prices caused by a flooding of the market with subsidized, low-cost sugar, would be less sugar production (reduced supply) because American farmers would be gone. The supply deficit would then drive world prices sharply higher, as foreign producers work to corner the market in the same way that the monopolistic OPEC cartel cornered worldwide oil production for decades. Americans would then be at the mercy of foreign sugar producers, who would bask in a financial windfall by charging much higher prices, since demand would stay the same or rise while worldwide supply would be reduced. Consumers would be gouged at the cash register.
No wonder congressional support for a no-cost sugar policy is robust. America’s sugar program allows American farmers to compete against foreign growers, and it’s designed to cost nothing to the U.S. government and its taxpayers
Mr. Smith is chairman of BIZPAC, the Business Political Action Committee of Palm Beach County, and owner of a financial services company.