EDITOR’S NOTE: This piece appears in the July 18, 2005, issue of National Review.
In a hall of fame for corporate-welfare queens, the sugar industry would occupy a place of special honor. For decades, powerful sugar growers have gotten politicians to enrich them with a protectionist scheme that inflates domestic sugar prices to the detriment of American consumers, American manufacturers, American farmers, and the American economy as a whole. In that congeries of absurdities known as U.S. farm policy, sugar’s sweet deal stands out as perhaps the most damaging and least defensible program. Now, more than ever, it needs to be scrapped.
The program allows sugar processors to take out loans from the USDA by pledging sugar as collateral. The loan rates–18 cents per pound for cane sugar, 22.9 cents per pound for beet sugar–are significantly higher than average world sugar prices. These loans must be repaid within nine months, but processors also have the option of forfeiting their sugar to the government in lieu of repaying their debt.
This arrangement effectively guarantees that the processors receive a price for their sugar that is no lower than the loan value: If prices fell below that level, they would simply forfeit their sugar and keep the government’s money. In order to avoid that scenario, the USDA must prop up the domestic price of sugar. It does this by controlling supply through two mechanisms. First, it sets quotas on how much foreign sugar can be imported without facing prohibitive tariffs; second, it regulates the amount of sugar that domestic processors can sell.
The consequence is that sugar in the U.S. has, over the past decade, cost two to three times the average world price. The sugar industry likes to point out that the program requires no government outlays, since processors repay their loans each year (assuming the government keeps sugar prices sufficiently high). This argument is sound if one regards the sugar program as a question of federal bookkeeping, but that is only because, in this case, the government does an uncharacteristically efficient job of plundering taxpayers to pay off a special interest: It simply cuts itself out as middleman. Each time you buy sugar or a product made with sugar, the difference between the price you pay and the lower price you would pay absent the sugar program’s dirigisme can be thought of as a sugar tax. Unlike most taxes, this tax never finds its way to government accounts. Instead, it passes directly from your pocket to the sugar industry’s profit statements. . . .
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