Sweet News: Congressional Sugar Reform Caucus is Formed
December 27, 2004
The U.S. government launched the sugar program 70 years ago during the Great
Depression. Its design was to provide "temporary" relief to sugar
producers, who were, at that time, small family farmers. Administered by the
U.S. Department of Agriculture, the program subsidizes sugar production and
processing by guaranteeing domestic cane 
sugar
and beet sugar producers (both growers and processors) a minimum price for
sugar. It does this by offering loans to sugar processors at a rate established
by law, with the sugar serving as collateral for these loans. This subsidy
program has allowed processors to forfeit their sugar to the federal government
instead of repaying their loans - which some processors do when the price
of sugar falls below the loan rate plus the cost of processing sugar. To minimize
forfeitures--a direct cost to taxpayers--the sugar program has maintained
artificially high sugar prices by restricting the amount of sugar that can
be imported at a low tariff rate.
While subsidies alone are not necessarily detrimental to consumers, the combination
of subsidies plus import restraints is. As you might recall a quota is a restriction
on the amount of a particular commodity which may be imported into a country
within a specific period of time. By limiting the quantity of any given item,
the government drives up its price by making it scarce. A tariff is a tax
that the importer pays at the border. The cost of this tax is passed along
to the consumer in the form of inflated prices. By limiting the quantity of
sugar allowed to enter the country, and imposing a very high tariff on all
sugar that enters above that quota, the price of sugar in the United States
is two to three times higher than the world price for sugar.
What is the impact of the sugar program on consumers? Since the U.S.
price of sugar is two to three times the world price, American consumers are
paying more for sweets than do Canadians, for example, and some American candy
manufacturers, for whom sugar is the main ingredient, are moving to Canada
and other places around the globe. Since the 1990's, U.S. wholesale prices
have fluctuated between $0.22 and $0.29 per pound, in comparison to the world
prices which have fluctuated between $0.06 and $0.13 per pound. Last year
the U.S. price of raw sugar was 131% higher than the world raw sugar price.
It is no wonder that American candy companies are moving their operations
overseas to take advantage of lower sugar prices. Higher sugar prices particularly
affect families with children and low and fixed income families who spend
a majority of their income on food. If Congress were to eliminate, or at least
reduce, restraints on sugar imports these families would reduce their food
budget dramatically. The impact of eliminating the current sugar program would
be a total welfare gain to the U.S. economy of $1.4 to 1.8 billion each year.
That's huge!
What about the needs of the sugar producers? U.S. sugar producers fear
that their employment numbers will be impacted if the sugar program is eradicated.
There are roughly 61,000 full-time-equivalent sugar production jobs in the
U.S., according to the International Trade Commission. Although this figure
is a relatively significant number of jobs, it is not enough to compensate
for the 724,000 people working in sugar-using industries. The number of people
in the sugar-using industries, which was calculated by the Department of Commerce,
is more than ten times that of the sugar-producing industries, and is currently
at a greater risk of "outsourcing" because of the artificially high
U.S. price for sugar. When a candy company lays off its employees and moves
to another country to have access to world price sugar, these jobs never come
back.
How is the Sugar Program threatening to the environment? Florida, one
of the largest sugar-producing states in the U.S., has sugar plantations between
a large fresh-water lake and the Everglades. The Everglades' delicate ecosystem
is dependent on the natural overflows of water from the lake, which now have
to pass through the sugar plantations before reaching the Everglades. This
bypass is threatening because of the phosphorous and other contaminants that
fertilize the plantations. The large amounts of fertilizer are largely responsible
for polluting and destroying native plant and animal life within the Everglades
ecosystem. The U.S. Congress funded a program to reverse, or at least ease,
the tension on the ecosystem. The clean-up and restoration plan will cost
$7.8 billion and will be supplied largely by taxpayers. If Congress were to
eliminate the sugar program and use the $1.4 to 1.8 billion annual gains to
reverse the negative affects on the Everglades, the ecosystem would be restored
within four to six years without using new tax dollars.
How does the world market play into the picture? U.S. agricultural
trade policy has been criticized as being contrary to American free trade
beliefs and obligations as a member of the World Trade Organization (WTO).
When the WTO approved an agreement to guide negotiations that would reduce
tariffs on food products and raw commodities, the U.S. stated that it will
most likely classify sugar as a sensitive product. This classification would
allow the U.S. to continue to maintain high protectionist tariffs at the expense
of consumers and workers in sugar-using industries. Internationally, the view
is that the developed world's protection of its domestic sugar market comes
at a great cost to developing countries, which are shut out of the American
and European markets by low quotas and high tariffs. This in turn prevents
them from reaching their full economic potential. Agricultural programs such
as the sugar program have done a great deal of damage to American credibility
in promoting free trade. If the U.S. is willing to participate fully in regional
and global trade negotiations it will result in a decrease of food industry
jobs moving to more open markets and lower prices on food. This will provide
a greater incentive for economic gains as a whole by allowing opportunities
for exports and increasing demand for products in which the U.S. is competitive.
In the end it is the consumer who ultimately pays to "protect" the
U.S. sugar market while at the same time paying excess taxes to stabilize
environmental problems and other complications that have been caused by the
overproduction of sugar. Take the situation that occurred a few years ago.
In 1999, the greatest surplus in sugar caused prices to decrease to their
lowest level in 20 years, although this price decrease was still above world
prices. In order to counter this price decrease and maintain sugar prices
at a level where sugar producers could continue to pay off their loans, the
USDA bought a record amount of sugar and stored it at the cost of around $1.4
million per month. In that same year the government also paid sugar growers
to plow under their sugar beet crops in order to reduce outputs. Neither of
these actions generated enough of an increase in price for sugar producers
to pay back their loans, which resulted in the government paying significantly
large sums for the sugar program.
Over the next decade,
the USDA estimates that it will cost the government an additional $2 billion
to fund the sugar program. Today, 9 percent of the 1999-2000 outputs are reportedly
still in warehouses paid for by the U.S. taxpayers. Not only are we taxpayers
expected to pay for the storage of excess production, but we're expected to
pay higher prices so that sugar producers can then afford to pay back their
loans to the government. The
situation is truly absurd.
Why has the U.S. sugar program not been reformed or abolished? With
all the negative press and damning economic studies pertaining to the sugar
program you'd think it would have been done away with by now. The sugar growers'
lobby, however, is extremely powerful and has its friends in Congress. Since
1979, sugar related interests have spent almost $12 million in campaign contributions,
most of which went to congressional candidates. James Kempner, CEO of Imperial
Sugar, has said "the U.S. sugar program is the most efficient tax we
have. It comes directly from consumers and goes directly to the growers, who
turn around and give some of the money to the politicians."
While the sugar lobby has a right to pursue its interests as much as the next
group, our government has been derelict in its duty to do what is financially
responsible. With a ballooning deficit, we cannot continue to give enormous
hand-outs to a handful of farmers. The sugar program does not serve the national
interests because it only benefits a selected few and harms the greater good,
and should therefore be dismantled. It is time for Congress to get its priorities
straight and the formulation of the Congressional Sugar Reform Caucus is the
best first step to addressing these concerns. Under the direction of the co-chairs
Reps. Mark Kirk (R-IL) and Danny Davis (D-IL) the caucus, which is comprised
of nine Republicans and nine Democrats, will be a fresh initiative to even
the balance between industrial sugar users, retail consumers of candy and
sugar-containing products and sugar cane and beet growers. The Caucus is working
to put together a work program designed to price sugar in a way that benefits
the industrial users and prevents them from going out of business or relocating
abroad, while remaining sensitive to the sugar beet and cane growers. CWT
wishes them much success.