Why Congress Should Repeal Sugar Subsidy

by Chris Edwards

This article appeared on IBDEditorials.com on June 20, 2007.

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The farm bill moving through Congress provides the Democrats an excellent chance to challenge special interests and help average families.

A ripe target for reform is the sugar program, which protects sugar growers and inflates domestic sugar to twice the world price. This racket costs U.S. families about $2 billion annually, hitting them whenever they buy chocolates, breakfast cereal and the like.
When the Republicans controlled Congress, they shied away from sugar reform, yielding to the power of the sugar growers' lobby. The Democrats can show that they are different. By reforming sugar policies, they could cut food costs for families and end unfair benefits for a small group of wealthy sugar barons.

Chris Edwards is director of tax policy at the Cato Institute.

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The sugar program is essentially a producer cartel run out of Washington. The Agriculture Department operates a complex loan program to guarantee sugar growers certain prices, which it enforces with import barriers and domestic production controls.
The import barriers prevent cheaper foreign sugar from putting downward pressure on domestic prices. Current rules restrict sugar imports to about 15% of the American market. By contrast, when rules were looser prior to the 1980s, sugar imports accounted for half the U.S. market.
In the domestic market, the Agriculture Department decides what total sugar production ought to be and allots 54% of production to beet sugar and 46% to cane sugar. The department then allots each sugar company a specific production quota. According to the Government Accountability Office, 42% of sugar program benefits go to just 1% of sugar growers.
Most sugar beet production is in Minnesota, Idaho, North Dakota, Michigan and California. Most sugarcane production is in Florida and Louisiana. Not surprisingly, policymakers from those states usually block sugar reform. Nonetheless, policymakers from Illinois and other such states, which have food companies damaged by high sugar prices, are challenging the current program.
High sugar prices harm manufacturers of candies, chocolates and breakfast cereal. A 2006 study by the Commerce Department found that for each sugar industry job saved by the sugar program, nearly three food manufacturing jobs are lost. The study found that:

• Employment in food companies that use substantial amounts of sugar is declining. Imports of food products that contain sugar are growing because it is not competitive to make those products in the U.S.
• Numerous companies have relocated to Canada and Mexico, where sugar prices are much lower.
• Chicago, once the nation's candy manufacturing capital, has lost thousands of jobs. In 2004, candy maker Fannie May closed its Chicago factory and Brach's moved its Chicago candy production to Mexico.
• Michigan took a hit in 2002, when Kraft moved its 600–worker LifeSavers factory to Canada in search of low–cost sugar.
• Hershey Foods closed plants in Pennsylvania, Colorado and California and relocated them to Canada as well.

The sugar program also causes environmental damage. Large areas of the Florida Everglades have been converted to cane sugar production as a result of sugar protection. That has caused damage from the related land drainage, runoff of chemical fertilizers, and the destruction of natural habitat.
With all the negative effects of the sugar program, why does it survive? Because Congress often puts the interests of the favored few ahead of the general public good. In this case, sugar growers are well–organized and they protect the program by providing large campaign support to presidents, governors and many members of Congress.
But the sugar lobby is beatable. The Bush administration proposed minor reform to sugar policies this year, and a bipartisan group of more than 100 House members led by Jeff Flake, R–Ariz., is demanding fundamental reform.
Also, under rules of the North American Free Trade Agreement, the sugar trade with Mexico will be opened in 2008, which should add to the pressure for reform.
In winning the House last year, Democrats portrayed themselves as reformers willing to take on special interests for the benefit of average families. Now they have a chance to prove it by abolishing the sugar program.