Commentary

Sugar Program Brings Bitter Taste to Holiday Season

By Daniel Griswold
January 7, 2002

Congress has voted once again to make the Holiday Season in America less sweet and more expensive. By wide majorities in both chambers, Congress recently reaffirmed its support for a U.S. sugar program that punishes millions of sugar-consuming families for the benefit of a few politically connected sugar producers.

Through its sugar program, the U.S. government guarantees a minimum price to domestic sugar growers by restricting imports and by buying and storing excess production. The result of this intervention is a domestic sugar price that is typically two or three times the world market price. The losers are millions of American families that consume sugar, along with sugar-using industries such as candy-makers, and sugar growers in mostly poor countries.

As with other protectionist policies, the biggest losers are consumers. American families pay for this program every time they buy Christmas candy and cookies, a bag of sugar, soft drinks or candy bars. A report by the U.S. General Accounting Office estimated that, in 1998, American sweetener users paid an extra $1.9 billion a year because of the U.S. sugar program.

Also feeling the pinch of higher sugar prices are the 520,000 workers in food-processing industries, such as confectioners, which use sugar as a major input. When their costs go up, these companies become less profitable and less able to expand production and hire new workers. Cities such as Chicago, with its large number of confection plants, will continue to lose jobs because of the artificially high domestic price of sugar.

Chicago’s mayor, Richard M. Daley, pointed out in a press conference earlier this year that the confection industry has lost 11 percent of its Chicago-based jobs since 1991. “The continuation of domestic sugar price supports,” Daley said, “is a key reason these companies [confectioners] are considering leaving Chicago and relocating their facilities outside of U.S. borders.” The U.S. sugar program is only protecting jobs in the sugar and related industries by destroying jobs in sugar-using industries.

Also paying the price for the sugar program are taxpayers and the environment. To mop up overproduction caused by price supports and protection, the federal government bought nearly 1 million tons of sugar last year only to store it in government warehouses. The buying and storing of excess sugar will cost taxpayers an estimated $2 billion over the next 10 years. Taxpayers are also paying billions of dollars to help clean up the Florida Everglades, where excess sugar production in the region has disrupted water flows and dumped pollutants such as phosphorus in waterways.

The sugar program has caused damage beyond our borders. The depressed global sugar prices caused by U.S. protectionism cost sugar producers in poor nations an estimated $1.5 billion a year in lost export earnings. Our stubborn refusal to open our sugar market has complicated the efforts of U.S. trade negotiators to open foreign markets to American exports, including services, manufactured goods, and farm products such as soy beans and corn in which we enjoy a natural competitive advantage.

The sugar program is a failure by every measure except its political support in Congress. In October the House rejected a modest amendment to cut the government’s guaranteed price by 1 cent per pound, or by less than 5 percent. On Dec. 12, the Senate voted 71-29 to kill an amendment that would have phased out the sugar program and used any savings to improve nutrition assistance. Illinois Sen. Richard Durban (D) voted to keep the sugar program while Sen. Peter Fitzgerald (R) voted to phase it out.

The U.S. sugar program is a classic case of concentrated benefits and diffused costs. A small number of sugar growers receive enormous benefits, while the costs of providing those benefits are spread across the U.S. economy, specifically to consumers and confectioners. Consequently, U.S. sugar producers have a strong incentive to lobby and fund campaigns of U.S. policy-makers. Dominated largely by two companies in Florida (Flo-Sun and U.S. Sugar), the sugar lobby has been a major financial contributor to incumbent politicians.

Standing up to the sugar lobby will require more vigorous leadership from the president and the majority of members of Congress who represent far more people who suffer from the U.S. sugar program than who benefit. It is terrible public policy to force the mass of U.S. consumers to pay higher costs at the grocery store to make a small number of sugar farmers richer.

Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute. The center’s most recent study is, “America’s Bittersweet Sugar Policy.”