Wall St Journal – The Sugar Scandal
The Sugar Scandal
Wall Street Journal (Editorial)
07/29/15
Americans pay nearly twice as much per pound as foreigners do for sugar, thanks to U.S. import restrictions and subsidies. We’ve tilted at this corporate welfare for decades, but new political forces are aligning to take another run.
The absurdity of the federal sugar program is legendary. Every year the government grants sugar processors nonrecourse loans linked to the amount of sugar the government says they can produce at a set price per pound: 18.75 cents for raw cane sugar and 24.09 cents for refined beet sugar. If the market price is below the loan price when it’s time to sell, the processors simply forfeit their crop to the U.S. Department of Agriculture in lieu of repaying the loan. They can still make a profit thanks to the price guaranteed by the loan.
To ensure that imported sugar doesn’t drive down U.S. prices, provoking a sugar dump on Uncle Sam, there are also import quotas. Anything above the quotas gets hit with a hefty tariff—16 cents a pound on refined sugar.
Yet all of this central planning is harder than it sounds. According to a January 2014 USDA report, for the 2013 crop year the government’s net cost “to remove” sugar from the marketplace was $258 million. But sometimes there’s not enough sugar, as in 2010, and prices skyrocket. If the secretary of agriculture decides that shortages will drive prices too high, he can increase the quota. But he has to make sure that more imports won’t mean lower prices and thus sugar forfeitures to the feds. All the risk lies with consumers or taxpayers—not producers.
The Congressional Budget Office estimates that the loan program will cost some $115 million over the next 10 years. But the greater cost is to the economy. The food and drink industry, which has sales of some $387 billion, is less competitive when it has to pay twice the world price for sugar. In a July 2 letter to U.S. Trade Representative Michael Froman, the Coalition for Sugar Reform estimated the program has cost American consumers and businesses $15 billion since 2008 and 120,000 jobs since 1997.
The relatively few sugar cane and beet producers have grown fat and happy off this racket, but they are losing support. Growers of other crops had their subsidies cut in the last farm bill, and many are asking why sugar gets a pass. Last month the Corn Refiners Association, which produces high-fructose corn syrup, began lobbying on Capitol Hill for a level playing field with sugar.
They’re allied with Republican tea party Members of Congress who dislike business subsidies, led by Joseph Pitts (R., Pa.). In 2013 he led a floor revolt with an amendment to the farm bill that would have permitted more foreign sugar to enter the U.S. and reduced the price guaranteed by the federal loan. He lost 221 to 206.
Mr. Pitts is now seeking another opportunity for a vote to limit the size of the nonrecourse loan to any single sugar processor, and we hope he gets it. This wouldn’t end all of the political help that guarantees profits for sugar producers. But it would be a start, and a sign that American democracy isn’t so calcified by special interests that it can’t reform one of Washington’s worst welfare schemes.
http://www.wsj.com/articles/the-sugar-scandal-1438212128