The Corner

More On The Sugar Lobby

Last week I mentioned the insanity of our sugar policies. These policies are first and foremost meant to artificially increase the price of sugar and sugar producers’ profits at the expense of consumers by sheltering them from competition. In addition, the U.S. Department of Agriculture (USDA) extends loans to the sugar industry. The federal government shouldn’t be in the business of lending money or guaranteing loans to businesses — any businesses. For one thing, when companies fail to repay loans, taxpayers end up footing the bill. But in the case of the sugar interest it gets much worse. In order to try to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program, the USDA is considering buying 400,000 tons of sugar, which it will then sell at a loss. That’s right: The federal government protects the sugar industry, lends it money after promising that the loans wouldn’t cost anything to taxpayers, and after all that still ends up having to buy part of its sugar production because borrowers can’t repay the loans. Customers pay higher prices for sugar, and then they pay again when their tax dollars are used to buy over-priced sugar and bad loans. And yet, lawmakers on the Hill continue to support farm interests in spite of the unfairness and inefficiency of the whole system.

Following up on this story, the Wall Street Journal asks which companies have received the bulk of the $1.1 billion in sugar loans. The Journal found that over half of the money went to three companies — Amalgamated Sugar Co., Michigan Sugar Co., and Western Sugar Cooperative — even though they only produce 20 percent of the U.S. sugar supply.

Disclosure of the loan recipients comes as domestic sugar prices are trading around four-year lows, prompting the USDA to voice concerns that some processors — who turn sugar cane or sugar beets into the sweetener — may not be able to repay what they owe. As of Wednesday, $644 million in loans remained outstanding, according to the USDA website. The bulk of the loans come due Aug. 1.

The loans went to 17 sugar processors, including the makers of Domino Sugar, Big Chief and other brands that line supermarket shelves. Just three companies, Amalgamated Sugar Co., Michigan Sugar Co. and Western Sugar Cooperative — all grower-owned cooperatives that process sugar beets — borrowed 55% of the funds, although they produce about 20% of the country’s sugar. The loan recipients were identified on USDA documents viewed by the Journal following a Freedom of Information Act request.

The fact that about half of the country’s processors were among this year’s borrowers shows how the sugar industry has integrated cheap government cash into its operations. During the past nine years, the U.S. has lent $8.8 billion to sugar processors. The 2012 loans were granted with interest rates ranging from 1.125% to 1.25%.

The estimated cost to taxpayers of the current rescue plan: an estimated $38 million. Sadly, this is not the first time it has happened. Take Idaho-based Amalgamated Sugar, one of the three top borrowers. It borrowed money from the USDA before, and, yes, defaulted:

Idaho-based Amalgamated Sugar borrowed $274 million, or 26% of the total loans this fiscal year, which ends Sept. 30, according to USDA data. As of Wednesday, Amalgamated still owed about $168 million, according to loan information posted on the USDA website.

Amalgamated was among the first processors to forfeit sugar to the government in 2000, surrendering 84 million pounds of sugar, the company’s chief executive said at the time. That kicked off a wave of loan defaults that eventually put about two billion pounds of sweetener in the hands of the USDA.

Amalgamated didn’t return repeated requests for comment.

One would think that this should give an incentive to lawmakers to put an end to these policies. And yet, as the Journal reports, when given a chance to reduce the protection to the sugar industry, lawmakers refused:

The possibility of defaults this year has drawn criticism from lawmakers of both parties, who call the price-support program a hidden tax on consumers.

A floor vote in the Senate last month on an amendment that would have scaled back industry assistance and overhauled the program was defeated in a 45-54 vote, with senators from sugar-cane and sugar-beet producing states uniting to defeat the measure.

Meanwhile, businesses on both sides of the debate have increased their political contributions in recent years.

This is what cronyism looks like and one can only hope that lawmakers will find a way to put an end to it soon.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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