“It’s an outrage!” That’s the usual cry of Washington politicians when they chastise the world outside their chambers for their profligate ways, which they then promise to “fix” by passing more laws. Now is the time for consumers and taxpayers to shout back at their legislators — and they should focus on proposals for the new 2007 farm bill, especially the bloated sugar program.
The House Agriculture Committee is scheduled to debate the new farm bill starting on July 17, with the full House expected to consider farm legislation later this month. Agriculture Committee Chairman Collin C. Peterson (D., Minn.) is proposing to include a new sugar system to further sweeten the pot for the large agribusinesses that already benefit from one of the most outrageous government programs on the books.
The current U.S. sugar program is a complex system composed of three main parts — all designed to reward sugar producers at the expense of consumers and taxpayers. The program restricts the domestic supply of sugar, guarantees sugar producers a minimum price, and keeps out many imports. The cost of this price support and tariff regime includes higher food prices for U.S. consumers, lost jobs in sugar-using industries, a waste of taxpayer dollars, environmental damage to ecologically sensitive areas, and the loss of economic opportunities for many small farmers in poor countries.
Under the current program, Americans have been paying for sugar at two to three times the world price over the past 25 years. The Government Accountability Office (GAO) estimates that the program has cost consumers $1.8 billion per year. A later OECD report corroborated this huge consumer cost but put the figure slightly lower, at about $1.4 billion.
But that doesn’t seem to be enough to satisfy the small-in-number but huge-in-influence sugar producers. They want higher price supports and better guarantees that more foreign sugar will not be allowed into this country. In the new proposals, the sugar price support would be increased from 18 cents to 18.5 cents per pound for raw cane sugar, and from 22.9 cents to 23.5 cents per pound for refined beet sugar. A study by the consultancy Promar International estimates that this increase would cost American consumers an additional $200 million per year.
Because of the high cost of sugar, jobs are lost in industries that use sugar in large quantities. Last year a Commerce Department study found that restricting sugar imports led to a loss of 10,000 jobs in candy manufacturing and noted that for every one job saved in the sugar industry, three jobs were lost in the confectionery industry.
The higher price supports in the proposed legislation, in addition to leading to higher costs for consumers and taxpayers, would also encourage even more domestic sugar production, which will mean further encroachments by sugar producers into ecologically sensitive areas, such as Florida’s Everglades.
The current program constrains sugar imports under a tariff rate quota (TRQ) system that allows specific amounts of sugar from certain countries to be imported duty-free, with high tariffs applied to sugar above those quotas. However, the proposed legislation could further restrict sugar imports by mandating how much sugar can be imported during specified periods. That mandate would take away the USDA’s discretion to allow TRQ imports as they are needed and further disrupt the supply.
The proposals also add a new component to the sugar program: the use of surplus sugar to produce ethanol, even when government reports show that U.S. sugar is a costly ethanol feedstock. This mandate — besides costing taxpayers — would also cause producers to shift from food to fuel use of sugar, which would further harm consumers by restricting the supply of food sugar and artificially boosting demand for sugar overall, leading to even higher prices.
And who benefits from this largesse? A small number of large sugar-cane and sugar-beet producers. A GAO study in the early 1990s showed that only one percent of sugar cane and sugar beet farms received 42 percent of the program’s benefits. The benefits are especially concentrated for sugar-beet producers: Just four firms accounted for 87 percent of production in 1990.
Fortunately, in both the House and the Senate, some legislators do recognize that the needs of consumers and taxpayers should trump the appetites of rich sugar producers. In May 2007, Senator Richard Lugar introduced a bill — called FARM-21 — that would, among other provisions, end the sugar-loan program and lift barriers to sugar imports. A similar version of the bill was introduced in the House by a bipartisan group of U.S. congressmen: Representatives Ron Kind, Jeff Flake, Joseph Crowley, and Dave Riechert.
The U.S. sugar program is one of the most egregiously harmful government programs to consumers and taxpayers. With consumers today facing higher prices for food and taxpayers facing a huge budget deficit, policymakers should take strong steps to repeal the U.S. sugar program instead of handing out more candy to Big Sugar.
— Frances Smith is an adjunct fellow, trade and consumers, at the Competitive Enterprise Institute, and is the former executive director, Consumer Alert.