Sugar Subsidies: Not So Sweet

June 26, 2014

The U.S. sugar subsidy program should be abolished, contend Jared Meyer and Preston Cooper of Economics21.

The American sugar industry has received broad, bipartisan support from the government and, in turn, the American Crystal Sugar Company has given more than $1.3 million to 221 Congressmen this election cycle. In 2013, the company spent $1.4 million lobbying on Capitol Hill.

The U.S. sugar program is most known for its subsidy program, which gives Department of Agriculture (USDA) loans to sugar farmers:

  • If sugar prices fall below 20.9 cents, the farmers can repay the federal loans with raw sugar. That massive federal sugar purchase drives up consumer prices, serving as an additional industry subsidy.
  • Afterwards, the USDA sells the sugar at a discount to ethanol producers.
  • In 2013, the USDA spent $53.3 million on the sugar program, not including the loans that could not be repaid. Including those loans, the federal government spent $171.5 million.

Additionally, the federal government sets sugar tariffs and quotas, which limit the amount of cheap sugar that can be brought into the U.S. from abroad, meaning that American sugar prices are much higher than the rest of the world.

According to a recent Iowa State University study, abolishing the program would lead to various benefits:

  • Sugar consumers would be able to purchase sugar from abroad at lower prices, dropping the domestic price of sugar by one-third and saving consumers $2.9 to $3.5 billion.
  • Businesses dependent on sugar, such as confectioners, would be able to add up to 20,000 new jobs if the sugar program were ended. Currently, American confectioners are moving abroad to take advantage of lower sugar prices.
  • Employment would actually increase in the sugar industry itself, because without federal intervention, refineries could use cheap sugar from abroad, expanding output by 24 percent.

Why, Meyer and Cooper ask, is the program still in place if it costs money, hurts the economy and decreases employment? They point to the fact that sugar farmers have a strong incentive to keep the program going, as 20,000 American sugar farmers received $1.7 billion in government transfers in 2013 alone, equivalent to $85,000 per farmer.

Source: Jared Meyer and Preston Cooper, "Sugar Subsidies Are A Bitter Deal For American Customers," Economics21, June 23, 2014

 

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