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Monday, April 01, 2013

 

United States Sugar

     One thing it seems many of my peers are aware of, even outside economics, is the high price of sugar in the US. In fact, we were recently discussing different types of exchange in an Anthropology class, and many students seemed to be aware of protectionist trade policies, and especially the fact the sugar in the US is sold at a much higher price than other places of the world. I recently read an article that I believe explores most of the important implications of interventionist policies that often go unmentioned...

http://www.npr.org/2013/03/28/175569499/farm-bills-sugar-subsidy-more-taxing-than-sweet-critics-say

     Essentially, the price of sugar in the US is due to "a complicated combination of import restrictions, production quotas and a kind of guaranteed price." Chris Edwards of the CATO institute calls it "essentially a Soviet-style control on production." Basic economic principles will tell you that these types of policies will undoubtedly create some kind of a surplus, but the article became much more interesting when it discussed the loan program for sugar refineries. In order to encourage them to buy more sugar from the producers, they take out government loans using the sugar itself as collateral. So we have an ill-effect of government intervention (sugar surplus), and now another policy to combat the effects of it. Now the incentives for refineries are to either sell their sugar at market prices, or simply 'give' the sugar back to government and keep the loan money. As economics students, I'm sure you see how this could easily go awry, and apparently this year, it is expected to. When the loans cannot be repaid, the government plans to buy the excess sugar and sell it at a loss to ethanol producers, at the expense of the taxpayer. 
     The article humorously said that there is an ongoing feud between "Big Sugar" versus "Big Candy." The President of Jelly Belly said he only wishes that producers would have to compete in an open market, and he even opened up a manufacturing plant in Thailand partly to avoid the trade restrictions. This is yet another effect that I doubt politicians or big sugar saw coming, the adaption of the entrepreneur. Jack Roney, of the American Sugar Alliance, argues that sugar market policies are "the most successful of any US commodity policy," and that they almost never cost the US taxpayer anything. After reading the article, it seems that they are very ineffective, and Roney apparently does not understand that artificially high commodity prices is, in fact, an unseen cost to the masses, even without direct taxation.
     Roney even adds that his opposition is simply profit-seeking, is not doing any of its lobbying for the benefit of the consumer, and that getting rid of the policies would cost thousands of sugar jobs (and then proceeds to blame the problems on the tariff-free Mexican imports, suggesting that they, too, need to be regulated). I cannot say I would not expect a response along these lines, as this is the kind of rhetoric that usually gets the policy there in the first place. He discusses profit in a negative light, and uses emotional arguments about jobs and exploited consumers to garner support. 
     Overall, although it is somewhat brief, I believe this article brings to light many concepts we have discussed in class. Primarily, it shows the 'chain reaction' of interventionist policy--how much must be done just to combat the problems of the previous intervention, and suggests who is really paying for it. It exemplifies policy that obviously benefits one group with the often-unseen costs to everyone else. However, I do not understand how more people are not upset about paying nearly twice the price for sugar as the rest of the world. Maybe they buy into the rhetoric that it benefits sugar producers, and see it as a good thing, but perhaps do not draw a line to how they end up paying for it. Maybe the consumers lack the organizational power of the sugar lobby. Whatever the reason, more people should recognize how these sugar trade policies, and others like them work--and mainly understand that there is no free lunch. 



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