Ways And Means
Florida Gov. Charlie Crist and U.S. Sugar took both agribusiness and environmental groups by surprise last week, announcing that the state of Florida would buy out U.S. Sugar for $1.75 billion and convert 187,000 acres of land back into the Florida Everglades.
Good news for the alligators and all their advocates, but if $1.75 billion in taxpayer funds sounds like a tasty treat for big sugar too, that's because it is. Nor is it surprising, say those that follow the industry. Sugar is one of the most politically influential businesses in America, and this kind of deal is nothing new.
"The Florida bailout was bailing out a company inflated, in effect, with government subsidies," says Chris Edwards of the Cato Institute, a Libertarian think tank.
As far back as 2002, Aaron Schwabach, a law professor at the Thomas Jefferson School of Law, predicted the outcome. "Given the tremendous influence that the sugar producers seem to enjoy in Washington," he wrote in the Georgetown International Law Review, "they will probably be able to convince the government to purchase some or all of their land, at or above market value, for incorporation into Everglades National Park."
Schwabach had a different solution. In fact, his paper was titled: "How free trade can save the Everglades."
U.S. Sugar, Schwabach suggested, was only able to farm profitably in the Everglades because of massive government subsidies of the sugar industry. Without government support, U.S. Sugar might have gone out of business the old-fashioned way--bankruptcy.
Instead, the company enjoyed years of government support, with the eventual government buyout as the cherry on top. Officials from U.S. Sugar were not immediately available for comment. Crist's office referred all questions on the deal to the South Florida Water Management District. Officials from that office did not return calls.
Sugar subsidies in the United States work through a complex system of loans and quotas. Sugar processors take out loans from the government; then, after the harvest, they face one of two scenarios. If they've been able to sell their sugar for more than the cost of the loan, they pay off the loan and pocket the profit. If their crop is worth less than the loan, they can keep the money and just give the government their sugar.
The loans are made to processors, but in order to qualify, they agree to make payments to the producers at a predetermined rate. The system guarantees the sugar industry a minimum price for sugar.
In order to prevent the subsidies from causing oversupply, however, the Department of Agriculture maintains marketing allotments, preventing producers from growing too much. A strict quota system also limits the amount of sugar that can be imported into the country.
Sugar crops are a small proportion of the U.S. agricultural output. For the 2006-2007 crop year, sugarcane receipts totaled around $897 million and sugar beets $1.53 billion--a mere 1% of cash receipts for U.S. farmers. While legislation calls for the program to be operated on a no-cost basis, a 2007 USDA estimate of the current system (before the support levels were increased by the 2008 Farm Bill) estimated that the sugar programs would cost $1.4 billion between 2008 and 2017.
In addition to money spent on the supports, the programs ratchet up the price of sugar. "It has always had a huge impact on consumers in this country--it really raises the cost of sugar and sugar-containing products by about $2 billion a year," says John Frydenlund, director of food and agricultural policy at the watchdog group Citizens Against Government Waste.
Sugar policy has been a major trade issue in recent years, particularly with the North American Free Trade Agreement and a trade deal with several Central American countries and the Dominican Republic, both of which have opened the United States to sugar imports.
In general, the American Sugar Alliance, representing sugar processors, opposes bilateral trade deals, believing that trade issues involving sugar are best resolved through the World Trade Organization. On the other side of the debate, sweetener users favor the regional and bilateral trade agreements, arguing that imports will help drive down the price of sugar in the U.S.
The U.S. controls its imports from sugar giant Brazil by the same quota system that applies to 40 other countries exporting sugar to the United States. For years, however, the American Sugar Alliance has complained about the level of government subsidies Brazil’s sugar producers receive, largely to fuel the country’s booming ethanol industry. The U.S. sugar industry says the policy distorts world sugar prices, arguing that Brazil uses its status as a developing country to avoid punishment from the WTO.
For now, discussion of a free trade deal involving the U.S. and Brazil is stalled, but American sugar producers worry that if such an agreement were put in place, Brazil’s sugar industry would gain a stronger place in the U.S. market. A separate tariff applies to Brazil’s foreign ethanol--one that domestic ethanol producers are keen to keep in place.
Nonetheless, the U.S. sugar industry remains strong in Washington. "They have been a notoriously powerful lobby for decades and decades," says Cato's Edwards.
As an explanation for sugar's lavish subsidies in the 2008 farm bill, which recently became law after a veto override, look no further than Congress' Agriculture Committees. According to the Center for Responsive Politics, the top beneficiaries of big sugar's influence for the current election cycle include Senate Agriculture Committee Chairman Tom Harkin, D-Iowa ($35,400), House Agriculture Committee member Tim Mahoney, D-Fla. ($33,923) and committee chairman Collin Peterson, D-Minn., ($28,900).
The U.S. Department of Agriculture says roughly 54% of total U.S. sugar-beet acreage is in the Red River Valley between Minnesota and North Dakota. North Dakota's sole Congressman, Democrat Earl Pomeroy, has been the greatest beneficiary of donations from sugar-related political-action committees for the 2008 election cycle, taking in $26,500, the Center for Responsive Politics says. Peterson, whose district in western Minnesota stretches along the Red River Valley, is No. 2, with $26,400 in PAC money.
As a governor, Crist has no vote on federal farm subsidies--he can only influence what's done with Floridians' tax money. And federal taxpayers? They're still paying to support sugar and keep prices high at the store. Sweet.