Sugar program isn’t sweet for consumers or the economy

Fran Smith Board Member and Adjunct Fellow, CEI
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Don’t look now, but here comes the farm bill, one of those catch-all legislative behemoths littered with wasteful programs and supported by entrenched special interests. The bill comes up for reauthorization every five years and is a lobbyist’s dream — impacting everything from farm subsidies to food safety — and industry and interest groups are working furiously to protect their sacred cows, so to speak.

Given the inability of Congress to agree on much — and the fact that this is an election year — most observers give a new farm bill little chance of passing. Rather, it’s likely that Congress will kick the can down the road by passing an extension of current law. Wasteful spending on unnecessary programs will continue, and an opportunity will be missed — hurting U.S. consumers, taxpayers and workers.

An egregious example of a sacred-cow program that should be cut is the sugar program, which began during the Great Depression as a means to help domestic sugar farmers and refiners survive. Under this central planning scheme, the federal government restricts the sugar supply, fixes the domestic price at high levels and keeps out competition.

Despite record world prices for sugar, the program continues to impose unnecessary price supports, strict production and marketing controls and outdated import quotas. The program is counterproductive, antithetical to a free market economy and has long outlived its usefulness.

The program protects about 4,700 sugar farms in the U.S. These are not your small mom-and-pop farms. The average size of a sugar cane farm is over 1,000 acres, and almost 60 percent of production comes from farms over 2,000 acres.

The U.S. sugar program is a classic public choice case of concentrated benefits and dispersed costs and an example of how special interests can trump the public interest. A small number of sugar producers receive enormous benefits, while the costs are spread across the U.S. economy, hitting consumers and the sweetener-using industries.

Opponents of reform argue that the sugar program operates at no cost, but that is misleading at best. Essentially the sugar program operates as a cross-subsidy, with consumers paying the bills. It operates as a hidden, regressive tax on a vast array of food and beverage products — not only candy, but cereals, breads and other baked goods, canned fruits and vegetables, mayonnaise, dressings and sauces, jellies and preserves.

With U.S. sugar prices at an all-time high — 50 percent or more above the world price — the program is forcing U.S. consumers to pay an extra $3.5 billion per year for a wide variety of food and beverage products. In addition, estimates show that 125,000 American jobs in the food production industry have been lost due to high sugar prices and a consequent move to increased foreign production where prices for this key ingredient are far lower.

There are numerous examples of U.S. food manufacturers relocating to countries that do not artificially restrict access to sugar. In fact, the Canadian government is actively recruiting U.S. confectioners to relocate to that country. An official government brochure states: “Canadian sugar users enjoy a significant advantage — the average price of refined sugar is usually 30 to 40 per cent lower in Canada than in the U.S. Most manufactured products containing sugar are freely traded in the NAFTA region.”

When a government program becomes a recruitment tool for countries that are trying to lure away our manufacturers and move U.S. jobs abroad, revisiting that program makes sense.

The Senate Agriculture Committee seems poised to send the farm bill to the Senate floor in the next few weeks — and most agree there is little or no chance that senators will take on the powerful sugar lobby with its cane and beet growers and refiners in Florida and the Midwest. The House, however, may offer more hope. This is the first opportunity for many House members to vote on the farm bill, and if the freshman class remains focused on reforming big government, this is low-hanging fruit. In these tough economic times, with high unemployment levels, consumers deserve a break from the hidden taxes of the U.S. sugar program. At a minimum, policymakers should insist on reforms that will open the sugar market, help save and create jobs in the U.S. food industry and help consumers by keeping food prices down.

Fran Smith is a board member and adjunct fellow at the Competitive Enterprise Institute.