NCPA - National Center for Policy Analysis

How Big Sugar Robs You

February 17, 2012

Perhaps the most famous example in the American economy of effective implementation of trade barriers to protect domestic industry, sugar producers enjoy an inflated price that boosts personal profits.  This benefit is to the detriment of American consumers that routinely pay higher-than-optimal prices for sugar and all foods for which sugar is an input, say Michael Wohlgenant, a professor at North Carolina State University, and Vincent H. Smith, a professor at Montana State University.

  • A system of import quotas and domestic supply controls works to raise sugar prices for households and food processors to a target level of 23.3 cents per pound of raw sugar.
  • Thus, when world prices fall below this level as they often have in past decades, American consumers continue to pay the same rate.
  • This effectively doubles the price U.S. consumers pay for sugar and increases annual food costs by about $9 per person.

While this may seem like a small amount of money, the aggregate effect of the trade policy creates a significant market distortion.  It causes consumers to spend more on a good that should be cheaper and spend less on goods that are made relatively more costly.  It also distorts incentives for farmers, causing them to dedicate acreage to a crop that should sell for less instead of planting other commodities such as grain and soy.

Nevertheless, sugar producers are the primary force behind the trade barriers -- while American consumers and the economy as a whole takes a loss, they reap the benefits of the policy.

  • Over the past 30 years, sugar farmers, who are fewer than 20,000 in number, received a $1.7 billion net gain.
  • Meanwhile, the policy creates a deadweight loss on the economy of $1.3 billion.
  • Simultaneously, the annual burden on U.S. consumers has averaged over $3 billion in higher food prices.

Additionally, the trade barriers eliminate the ability of sugar producers in developing countries to compete with domestic producers, effectively shutting them out of the American market entirely.

Source: Michael Wohlgenant and Vincent H. Smith, "Bitter Sweet: How Big Sugar Robs You," The American, February 14, 2012.

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