Protectionist sugar policy cost Americans $3 billion in 2012
The chart above displays annual refined sugar prices (cents per pound) using data (Tables 2 and 5) from the United States Department of Agriculture (USDA) between 1982 and 2012 for: a) the U.S. wholesale refined beet sugar price at Midwest markets (blue line), which averaged 43.4 cents per pound last year, and b) the world refined sugar price (red line), which averaged 26.5 cents per pound, or roughly 17 cents per pound below the US price in 2012. Due to import quotas that strictly limit the amount of imported sugar coming into the US at the world price, the domestic producers are protected from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at roughly half the cost of beet sugar produced in Minnesota and Michigan.
Of course, there’s no free lunch, and this sweet trade protection comes at the expense of American consumers and US sugar-using businesses, who have been forced to pay more than twice the world price of sugar on average since 1982 (29.1 cents for domestic sugar vs. 14.4 cents for world sugar, see chart), resulting in billions of dollars in increased sugar costs. How much did this trade protection cost Americans last year?
We can estimate the cost of sugar protection, using some additional data from the USDA (see Table 1) about sugar:
1. American consumers and businesses consumed about 10.7 million metric tons (23.58 billion pounds) of sugar last year.
2. The US produced about 7.7 million metric tons (16.97 billion pounds) of sugar last year.
3. Due to quotas, Americans were only allowed to purchase 3 metric tons (6.61 billion pounds) of world sugar, or about 28% of the total sugar consumed. Domestic sugar producers (“Big Sugar”) are allowed to control 72% of the sugar market every year through protectionist trade policies that strictly limit foreign sugar entering the US market.
4. By forcing Americans to pay an average of 43.4 cents per pound in 2012 for inefficiently produced domestic beet sugar instead of 26.5 cents per pound for more efficiently produced world sugar, US sugar policy forced Americans to pay a “premium” of almost 17 cents per pound for the roughly 17 billion pounds of American sugar produced last year. In total, that 17 cent per pound “premium” translates to almost $2.9 billion in artificially inflated costs for the domestic sugar purchased by American consumers and businesses in 2012.
(Note: This is an estimate based on the assumptions that: a) the amount of sugar consumed in the US, and b) world prices, wouldn’t change if the US sugar market was completely open. There are many other estimates that put the burden of sugar quotas and higher sugar prices at about $3 billion per year in higher sugar costs for consumers, see post on sugar here today on AEIdeas.)
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, since the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all protection, sugar tariffs exist to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and come at the expense of the US consumers and the American companies using sugar as an input, and make our country worse off, on net.
For example, here’s how Larry Graham, President of the National Confectioners Association, explains the adverse effects and job losses for his industry as result of US sugar policy:
“The [US sugar] program creates a competitive advantage for foreign confectioners who pay a significantly lower world price for sugar and import their products into the US market. The tight market generated by these policies threatens the overall supply, jeopardizing smaller US companies and putting jobs at risk. Over the last 10 years the sugar program has eliminated more than 14,000 confectionery jobs and more than 75,000 food manufacturing jobs.”
I’m reminded of a quote from Bastiat: “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” US sugar policy has a long history, going back to 1789 when the First Congress of the United States imposed a tariff upon foreign sugar, and is a perfect illustration of trade protection that ignores the viewpoint of disorganized, dispersed consumers in favor of the concentrated, well-organized interests of producers. US sugar policy violates the interests of consumers, and by doing so, violates the interests of the human race, in favor of a politically favored special interest group – “Big Sugar.”