This Policy In The Next Farm Bill Could Make Sugar Prices Skyrocket

sugar Shutterstock/Sheila Fitzgerald

Ross Marchand Director of Policy, Taxpayers Protection Alliance
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With the virtual certainty of a new farm bill in 2018, big and small sugar consumers are hoping for a sweet end to the bitter status-quo of sugar subsidies.  The sugar industry is heavily rigged to favor a consortium of domestic producers, with quotas and byzantine pricing systems ensuring a grossly overpriced product for American consumers and taxpayers. Sugar subsidy proponents have called for a policy known as “zero for zero” in which the United States pledges to unwind favoritism if foreign governments also do so. While such a policy may sound sensible and fair, “zero for zero” fails to live up to its reasonable-sounding moniker. The slogan is little more than a thinly-veiled attempt to derail real reform and to keep sugar prices extraordinarily high for millions of Americans.

Proponents of “zero for zero” love to suppose that the largest sugar-subsidizing countries will readily cast their cronyism to the side, paving the way for the United States to do the same. While (most) foreign governments are capable of modernizing aspects of their sugar programs, few will completely cast away complex systems of price floors and quotas. Developing nations like Thailand rely on favoritism toward domestic producers to keep their governments afloat, making half-hearted attempts at sugar reform all-too-likely.

In the aftermath of Brazil’s challenge against Thailand before the World Trade Organization (WTO) over sugar protectionism, misguided policies remain in the Southeastern Asian country. Even as Thailand scales back quotas and removes price determination ability from their Ministry of Agriculture, remaining revenue sharing systems and local stock requirements will pave the way for indirect subsidization. The military government has a track record of bestowing generous subsidies on to farmers to ease tensions in the politically-sensitive country, and will readily do so again regardless of WTO rulings.

The proposed policy also ignores federalism-related hurdles in subsidy phase outs. Even if the federal government of India decided to expose their gargantuan sugar industry to market pricing, states could rebel with their own protectionist schemes. Sugarcane pricing policy already contradicts federal policies in states such as Punjab and Tamil Nadu, and it is difficult to see Delhi effectively imposing its will when so much is at stake. States already defy federal diktat in a variety of areas, ranging from pricing laws and waste handling. Any foot-dragging by states could lead to “zero for zero” proponents shifting goal posts and unrealistically demanding sub-federal compliance. Going down that rabbit hole would virtually guarantee an open-ended fight with no resolution in sight.

Assuming that countries refuse to fully phase-out sugar subsidies and/or federalism prevents liberalizations, what would “zero for zero” mean for America? If countries refuse to play ball for one reason or another, proponents argue that “existing tariffs on foreign subsidized sugar imported to the U.S. market should remain in place.” This purportedly is not the “preferred option,” but advocates see the status quo as the only safeguard against a doomsday scenario. Rhetoric of “unprotected” American sugar producers being outdone by foreign subsidized competition sure does sound scary, especially to lawmakers from sugar producing districts across the country.

Fortunately, policymakers needn’t rely on economic models and conjecture to guess what would happen to the American sugar industry post-liberalization. The European Union (EU) went against “zero for zero” logic in 2006, when they implemented a wide-ranging quota relaxation and target price reduction scheme. Foreign sellers were finally let in, and prices were allowed to reflect global marketplace conditions. Despite grumblings and “cautionary tales” from the “zero for zero” community, the sky didn’t fall. Sugar prices have fallen in most of the years since reform, save for a turn-of-the-decade hike experienced by most countries. The going rate per ton is now around 20 percent lower than it was prior to reforms. In contrast, the United States has yet to recover from the price hikes of the Great Recession.

Detractors do have a point that the industry shed jobs in the aftermath of reform, but consolidations and layoffs were the norm pre-reform as well. The European Parliament’s Research for AGRI Committee estimates that sugar industry employment decreased by 15,000 in the three years before and after changes in the price and quota system. It’s hard to separate out the effects of reform from changes in underlying productivity, but policy changes didn’t seem to have hastened job losses. In fact, the number of jobs has held roughly steady in the years since the Great Recession.

Like many misguided proposals, “zero for zero” sounds like a pragmatic, sensible idea. The reality, however, is a recipe for continued inaction against the failed status-quo of protectionism. “Free market” advocates of “zero for zero” sure seem to place a lot of faith in corrupt foreign governments’ ability to ditch favoritism and recruit recalcitrant state officials in their efforts. They seem to put even more faith in the WTO to enforce trade and subsidy violations.

Real world experiences, such as the EU’s successful relaxation of sugar laws, are cast aside in favor of fear-mongering. By ignoring inconvenient case studies and relying on the whims of unstable foreign governments, “zero for zero” proponents would resign America to a future of sky-high sugar prices.

Ross Marchand is the Director of Policy for the Taxpayers Protection Alliance.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.