Sugar’s sweetheart deal

November 15, 2007

Free Market Foundation

Of all the U.S. government’s farm-support programmes, there are few as egregious as the tangle of loans, quotas and import tariffs set up to protect the well-connected club of American sugar producers, says the New York Times.

Consider:

Under the current system, the government guarantees a price floor for sugar and limits the sugar supply placing quotas on domestic production and quotas and tariffs to limit imports.

According to the Organisation for Economic Co-operation and Development (OECD), sugar supports cost American consumers who pay double the average world price more than $1.5 billion a year.

The system also bars farmers in some of the poorest countries of the world from selling their sugar here.

However, the North American Free Trade Agreement is about to topple this cosy arrangement. Next year, Mexican sugar will be allowed to enter the United States free of any quotas or duties, threatening a flood of imports. But rather than taking the opportunity to untangle the sugar programme in this year’s farm bill, Congress has decided to bolster the old system, says the Times:

A House bill (which has already passed) and a Senate version (which could be voted on soon) guarantee that the government will buy from American farmers an amount of sugar equivalent to 85 per cent of domestic consumption regardless of how much comes in from abroad.

The bills encourage the government to operate the programme at no cost to the budget, by selling the surplus sugar to the ethanol industry.

But that last stipulation is not likely, says the Times. Ethanol makers will never accept paying anywhere near sugar’s guaranteed price. According to rough estimates from the Congressional Budget Office, supports for sugar in the House bill could cost taxpayers from $750 million to $850 million over the next five years.

Source: Editorial, Sugar’s Sweetheart Deal, New York Times, October 30, 2007.

For text: http://www.nytimes.com/2007/10/30/opinion/30tues2.html

For more on Federal Spending & Budget Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=25

FMF Policy Bulletin/ 06 November 2007