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Research & Commentary: Subsides Help Big Sugar While Hurting Consumers and the Economy

May 11, 2018

In this Research & Commentary, Senior Policy Analyst Matthew Glans discusses the U.S. Sugar Program and its negative effects on the US agricultural industry.

Few sectors of the U.S. economy receive more in subsidies than the agriculture industry.  According to the Cato Institute, the U.S. Department of Agriculture spends $25 billion or more per year on subsidies for farm businesses. One of the more egregious agricultural subsidies, which borders on Soviet-style central planning, is the U.S. Sugar Program, a federal commodity support program that artificially manipulates the price of sugar through loans, tariffs, and import quotas.

Protectionist policies on the U.S. sugar market is not a new phenomenon; the federal government has been imposing tariffs on sugar imports since 1789. The modern Sugar Program has its roots in the Sugar Act of 1937, which established domestic production quotas, subsidies, tariffs, and import quotas, all of which were designed to restrict sugar supplies and increase prices.

The current Sugar Program, which is recertified in each Farm Bill, supports domestic sugar prices by making available cheap, nonrecourse loans to processors, restricting sugar imports using a tariff rate quota, and limiting the amount of sugar that processors can sell domestically.

Colin Grabow, a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, told Budget & Tax News there are several ways the U.S. government artificially increases sugar prices. “In a nutshell, the federal sugar program uses four key tools to set a price floor for sugar, ensuring a degree of predictability and a minimum income for sugar processors and growers,” Grabow said. “These tools are price support loans, marketing allotments, a feedstock flexibility program, and tariff rate quotas on imports of sugar.”

Grabow argues these policies negatively affect consumers. “Quite simply, customers are forced to pay more for sugar and products containing sugar than what they otherwise would, with U.S. sugar prices significantly higher than those outside the country,” Grabow said.

Justin Sykes of Americans for Tax Reform found the average wholesale price of domestically produced sugar in the United States is more than double the average world price of sugar. Sykes also found the U.S. Sugar Program led to a loss in U.S. manufacturing jobs. According to the Department of Commerce, for every sugar-growing job saved through high U.S. sugar prices, approximately three in the confectionary industry are lost. 

Further, Alexandra Wexler at The Wall Street Journal analyzed U.S. Census Bureau data in a 2013 article and found “total U.S. confectionary manufacturing employment declined by 22 percent from 1998 through 2011.”

While the current debate over the provisions of the latest Farm Bill offers a chance for Congress to roll back these unnecessary subsidies, there is no indication the Sugar Program will soon end.

Late in 2017, a bill was introduced in Congress that would have ended many of the Sugar Program’s most distorting policies. The Sugar Policy Modernization Act, introduced by U.S. Rep. Virginia Foxx (R-VA), would have removed government-mandated price floors, ceilings on domestic farmers’ production, and caps on the amount of sugar food manufacturers can purchase and import from foreign farmers. This bill would end the program without having to rely on changing the bloated political football that is the Farm Bill.

Sugar subsidies represent crony capitalism at its worst. The U.S. Sugar Program throws billions of taxpayer dollars at a well-funded, politically connected industry while generating higher prices for consumers, less competition in the marketplace, and fewer jobs for American workers.
 

 

The following documents examine the U.S. Sugar Program in greater detail.

10 Policy Recommendations for the 2018 Farm Bill
https://www.heritage.org/sites/default/files/2017-04/FS_173.pdf
In this FactSheet, The Heritage Foundation outlines 10 policy recommendations for the latest Farm Bill. These recommendations include limits on farm subsidies, ending programs like the sugar program, repealing the renewable fuel standard, and separating the food stamp provisions of the bill from the legislation governing agriculture.

Analysis of the U.S. Sugar Program
http://www.aei.org/publication/analysis-of-the-us-sugar-program/
John C. Beghin and Amani Elobeid of the American Enterprise Institute examine the costs and effects of the U.S. Sugar Program and argue it is a protectionist scheme destined to transfer income to sugar growers and processors at the cost of sugar users and consumers.

Candy-Coated Cartel: Time to Kill the U.S. Sugar Program
https://www.cato.org/publications/policy-analysis/candy-coated-cartel-time-kill-us-sugar-program
In this paper, Colin Grabow of the Cato Institute argues the federal government is effectively the leader of a nationwide sugar “cartel.” Grabow examines how the current cronyism developed and provides an overview of the Sugar Program’s history and its essential elements. He concludes the program’s overriding goals are “the provision of a minimum income to sugar producers and a higher price for the product than would otherwise be the case through the use of various measures that restrict supply.”

 

Top Five Reasons to End U.S. Sugar Subsidies
https://www.atr.org/top-five-reasons-end-us-sugar-subsidies
Justin Sykes of Americans for Tax Reform outlines five reasons the sugar program is all costs and no benefits for Americans.

A Farm Bill Primer: 10 Things You Should Know About the Farm Bill http://www.heritage.org/research/reports/2013/05/a-farm-bill-primer-10-things-you-should-know-about-the-farm-bill
Daren Bakst and Diane Katz of The Heritage Foundation identify 10 important elements of the Farm Bill, including the many subsidies that distort the U.S. agriculture industry.


Support Grows for Sugar Policy Reform
https://www.heartland.org/news-opinion/news/support-grows-for-sugar-policy-reform?source=policybot
Lindsey Schulenburg writes in Budget & Tax News about a bill in Congress that would reform the federal sugar program.

Agricultural Regulations and Trade Barriers
https://www.heartland.org/publications-resources/publications/agricultural-regulations-and-trade-barriers?source=policybot
This article, written by Cato Institute Director of Tax Policy Studies Chris Edwards for Downsizing Government, explains the politics of federal milk and sugar subsidies and regulations and explores how these industries can be reformed.

Solving the Sugar Subsidy Problem
https://www.heartland.org/publications-resources/publications/solving-the-sugar-subsidy-problem?source=policybot
in this policy document from the Institute for Policy Innovation, Tom Giovanetti explains how agricultural producers have become an extremely influential political constituency, which has resulted in the passage of a series of harmful and market-distorting agricultural trade policies.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website at https://www.heartland.org/publications-resources/newsletters/budget-tax-news and The Heartland Institute’s website at http://www.heartland.org.

Whether sending an expert to your state to testify or brief your caucus, hosting an event in your state, or simply sending you further information on the topic, Heartland can assist you. If you have any questions or comments, contact Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 312/377-4000.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR