Economics

U.S. sugar policy cost American consumers almost $4 billion last year

In an article today on American.com titled “Bitter Sweet: How Big Sugar Robs You,” Michael Wohlgenant and Vincent Smith provide some timely Valentine’s Day commentary and report that:

For decades, sugar beet and sugar cane farmers and processors have been the beneficiaries of a sugar program that stealthily drives up sugar costs—and, consequently, the cost of that heart-shaped box of chocolates. Over the past 30 years, the annual burden on U.S. consumers has averaged over $3 billion in higher food prices.

Using data from the USDA on U.S. and world sugar prices, domestic sugar consumption and production, and sugar imports I estimate that U.S. sugar policies cost American consumers and business almost $4 billion last year from higher sugar prices.

1. Let’s start with sugar prices. The chart below displays average annual sugar prices between 1982 and 2011 for the U.S. wholesale refined sugar price at Midwest markets and the world refined wholesale sugar price. Over the past 30 years, the price for U.S. sugar has averaged 28.6 cents per pound, or more than twice the average world price of 14 cents. In 2011, the average U.S. sugar price of 56.22 cents per pound was 77 percent above the world price of less than 32 cents per pound.

2. American consumers and businesses consumed 22.44 billion pounds of sugar last year and domestic producers supplied 15.76 billion pounds of that sugar.

3. Due to quotas, Americans were only allowed to purchase 6.67 billion pounds of world sugar, or about 30 percent of the total sugar consumed. Domestic sugar producers are allowed to control roughly 70 percent of the sugar market every year through protectionist sugar trade policies that limit foreign competition.

4. By forcing Americans to pay 56.22 cents for inefficiently produced domestic sugar instead of 31.68 cents for more efficiently produced world sugar, Americans paid an additional 24.54 cents per pound for the 15.76 billion pounds of American sugar in 2011. Those higher prices for domestic sugar translated to $3.86 billion in higher costs for American consumers and businesses last year.

Bottom Line: The cost of most trade protection is largely invisible and hard to calculate, but the cost of sugar protection is directly visible and measurable, because the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all trade protection, sugar tariffs exist to protect an inefficient domestic industry (U.S. sugar farmers) from more efficient foreign producers, and come at the expense of the U.S. consumers and the American companies using sugar as an input. On Valentine’s Day, it’s appropriate that Wohlgenant and Smith remind us that the “hand on your back pocket billfold today is not your sweetheart’s, it’s the sugar lobby’s,” which lifted almost $4 billion from American consumers last year!

3 thoughts on “U.S. sugar policy cost American consumers almost $4 billion last year

  1. The same argument could be made for almost any product made in a foreign country compared with the United States. China could produce anything cheaper than the US because of their wage scales and quality of life issues. At least the US sugar industry employees local workers who pay taxes. This whole issue of sugar tarriffs comes up almost every year and usually by people that only regurgitate the columns they have read in the past. It is a tarriff but no subsidies are paid to the sugar companies. They borrow funds with sugar as collateral. They either pay back the funds or the government can sell the sugar so the American taxpayer does not pay for this with taxes…only higher sugar prices than they would pay if we bought all of it from Third World countries that subsidize their own sugar industries to a greater extent than we do. If these economists wanted to follow this line of reasoning to the nth degree we should be buying all of our food from foreign countries and see how long that works when diplomatic relations, wars or other disaster disrupt the food supply.

    • Yes, so many people will starve without the sugar if we say started importing it from Brazil at a reasonable price.

      If it isn’t subsidized then why are farmers planting such large acreage of sugar beets? -Tying up valuable farm land that could be growing food to feed American consumers.

  2. Domestic sugar is higher than world sugar, but the higher price reflects US labor and other operating cost that are much cheaper in other countries. The goverment sugar program helps protect our domestic sugar interest due to these higher cost. There are those that criticize the sugar program. Many of these domestic and foreign groups have self interest. Some of the candy manufacters in the US are good examples. The Hersleys and also the Brachs candy manufacters relocated their factories to Canada and Mexico because they said domestic sugar prices were too high. They now purchase foreign sugar at a lower price, but oops…the candy bar still has the same price tag that it had when manufactered in the USA. US manufacters that go overseas charge us the same home prices, while other cheaper products coming into the US will needless to say, go higher when oppertunity knocks. I think it is suffice to say we need more prgrams like the sugar program to protect our industries at home. I don’t mind paying more to keep US industries at home.

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