Economics, Regulation

US sugar program turns Valentine’s day sour

Image Credit: Shutterstock

Image Credit: Shutterstock

Times change and not everything remains the same. If only that were true about the US sugar program. Valentine’s day is here again, and every lover who buys their significant other a box of candy will pay just a little bit more for the privilege, because of sugar quotas that guarantee sugar cane and beet producers and sugar processors higher returns than they would obtain if they faced genuine competition from the global market. The US sugar program raises food prices on supermarket shelves and reduces the ability of US food processors to compete in world markets. The program costs the US economy thousands of manufacturing jobs and, in a world of record prices for other major crops like corn and wheat, is scarcely an essential tool for maintaining a viable US agricultural sector. As Professor Michael Wohlgenant and I argued last year, it is well past time for the program to be disestablished:

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.

The “no-romance” sugar program has largely been ignored by legislators and groups concerned with tax burdens because there are no direct federal subsidies for the sugar industry. Instead, U.S. sugar policy raises prices indirectly by taxing consumers through the marketplace. A system of import quotas and domestic supply controls works to raise sugar prices for households and food processors to a target level of 23.3 cents per pound of raw sugar when world prices fall below that amount. This system drives up consumer food prices and destroys jobs in the food processing sector because of reduced competitiveness in the global marketplace.

Over the 30-year period from 1980 through 2009, the sugar program effectively doubled the price U.S. consumers paid for sugar and increased annual food costs by about $9 per person. That may not sound like a big price tag, but it resulted in a $1.3 billion deadweight loss for the U.S. economy (think of all the extra money that could’ve been spent on red roses and high-end confectionary!). And how did the sugar farmers, who are fewer than 20,000 in number and relatively wealthy, fare? They received a $1.7 billion net gain.

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