Economics 101 & Public Square

Sugar Subsidies: Sweetening the Deal, But At Whose Expense?

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Ever had a cavity? Then you know how sugar contributes to painful decay. Yet those sweet treats are so hard to resist!

Cronyism is another sweet temptation that business often succumb to, yet causes a great deal of decay in our culture. The sugar industry in particular has a sweet tooth for such practices.

Yesterday Anne Bradley defined cronyism and detailed the harmful effects it has on all of us – on our values, our vocations, and our ability to flourish. Today, we’ll see how this is taking place in the sugar industry.

What’s the Story?

According to the National Confectioners Association, sugar subsidies cost consumers approximately $3.5 billion in 2012 alone. As different sectors of the economy debate the true cause of these imposing costs, candy producers indicate federal farm bills that include the federal sugar program are to blame.

The New York Times explains why in a recent article. The article reports that:

  • With a combination of “import restrictions, production quotas, and loan programs dating to the 1930’s,” the federal sugar program is designed to keep the price of American sugar well above that of the world market.
  • The repercussions of this program are clearly negative, given that the government spent at least $300 million in buying excess sugar this year.
  • The government is legally bound to buy excess sugar from farmers when prices drop to a specific level. The sugar industry blames the fall in prices on increased importation of sugar from Mexico and “a larger-than-expected harvest.”

What is wrong with this picture? If sugar farmers are exerting strenuous effort, striving to achieve an effective and efficient harvest, the government pays them subsidies, but nothing more. However, if the sugar farmers have a bad harvest, whether it is due to weather or other factors, the government, by law, is required to not only give out subsidies, but also pay for any excess sugar produced. Sugar producers have no incentive to be efficient businesses.

How did these producers strike up such a sweet deal?

Heavy-hitters in the sugar industry spent about $8 million in lobbying funds in 2012. Peter Schorsh of Public Affairs Consultants notes, “While sugar products comprise only 1% of U.S. crop production, sugar interests represent 35% of lobbying expenditures by crop producers.”

In the first half of this year, such corporations have held over 250 meetings with politicians and have contributed over $5 million in campaign funds last cycle, according to the Wall Street Journal. It seems that these sugar subsidies are given out to firms largely due to their political pull rather than their capabilities and efficiency in producing sugar.

Winners & Losers

Who are the winners and losers in this cronyism battle? The winners are clear: sugar producers. The losers are more difficult to see.

  • First, as is mentioned above, the American taxpayers are stuck paying the billion-dollar bill to these big, and inefficient, businesses.
  • Second, every time someone buys a box of chocolates, bakes a cake, or goes out for ice cream, this person pays more than they would have to if sugar prices were not kept artificially high.
  • Third, in a time when the current unemployment rate is lingering right around 7%, it is particularly infuriating to see jobs lost due to the federal sugar program. A study from Iowa State discovered that “eliminating price supports and quotas for sugar would create about 20,000 jobs for American food processors, bakeries and candy makers.” At a cost this high, it might make sense to allow the unsuccessful sugar production industry to diminish in size, saving the American taxpayers millions of dollars and putting these resources to a more appropriate use.

One man in the sugar processing industry (which is separate from sugar farming and production), whose company does not receive subsidies (though some do), explains that the loss of jobs results from two options many businesses are facing: go bankrupt or move processing to a country without inflated sugar prices.

He states,

I keep hearing sugar producers saying they need a safety net, but what about us? No one is creating a program for us that guarantees our industry a price for our products.

The government is picking the winners and the losers in the sugar industry, paying a high cost to appease big business sugar producers at the cost of smaller, less politically connected local sugar processors.

What about those businesses that are efficient in producing sugar? In the United States, small sugar producers are most likely unable to compete with firms receiving heavy subsidies at the expense of hundreds of thousands of dollars needed for lobbying purposes. These more efficient, yet smaller firms, may be run out of the industry.

Consider also how the trade barriers set in place to prop up the American sugar industry are affecting developing countries that have a comparative advantage in growing and producing sugar. These barriers will inflate the cost of selling sugar in the United States, making it hard for the developing countries to sell their sugar in the United States at a profit. This limits advancement opportunities for poor people in these countries.

The Bottom Line

As Christians, we are called to do our work with integrity and excellence. We are also called to steward resources wisely. Propping up inefficient businesses while driving efficient ones out of business violates both these commands. In doing so, we are raising prices for hardworking consumers. We are also causing people in the sugar industry to lose their jobs, costing them the chance to pursue their vocations.

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