August 22, 2007

Sugar Policy Survey

Remy Jurenas surveys U.S. sugar policy(Sugar Policy Issues, Congressional Research Service, July 16, 2007). 

This is a good overview of the broad outlines of U.S. sugar policy, with attention to issues raised in recent trade negotiations and to current debates over the farm bill. 

Here's the abstract - reorganized somewhat:

Continue reading "Sugar Policy Survey" »

April 21, 2006

How to end the subsidies to "Big Sugar"

Ivan Osorio, Barbara Rippel, and Fran Smith explore some of the options for the Competitive Enterprise Institute (CEI): Is the U.S. Sugar Problem Solvable?:

The United States' sugar policy has a long history of supporting sugar producers, and the current system has its roots in the agricultural programs of the Great Depression. The policy has been widely criticized both at home and abroad for supporting a relatively small group of sugar producers at the expense of consumers, taxpayers, sugar-using industries, and the environment. The program relies on restricting sugar imports to keep domestic prices high, which especially hurts those developing countries that are low-cost producers of sugar. The artificially high price also provides incentives for domestic sugar producers to increase production into environmentally sensitive areas.

This paper explores the possibility of reform of the sugar program by considering other agricultural reforms at home and abroad. The cases examined are New Zealand's agricultural policy reform in the mid-1980s, changes to the United States peanut quota program through a buyout program, and the buyout program for tobacco quota holders in the United States.

Continue reading "How to end the subsidies to "Big Sugar"" »

June 09, 2005

Has Big Sugar finally gone too far, Postrel wonders

Virginia Postrel: "Sugar Rush".

May 17, 2005

CAFTA in trouble

Steve Pearlstein looked at the prospects for the Central American Free Trade Agreement (CAFTA) recently: CAFTA Could Fall to Big Sugar (Washington Post, May 11).

The treaty is in trouble in Congress.  The main problem may be that it lacks a powerful, motivated, domestic constituency:

The problem for the Bush administration is that CAFTA doesn't offer enough benefits to exporting industries to get them juiced up about this fight. Even supporters of CAFTA estimate that it will boost exports by $3 billion a year, a rounding error in an economy that is running a $600 billion annual trade deficit...

But the opposition of the powerful sugar industry doesn't help:

... the sugar lobby, which for decades has lavished money on politicians of both parties to preserve prohibitive tariffs and restrictive import quotas that cost Americans at least $1 billion a year in subsidies and artificially high sugar prices. During the most recent political cycle, sugar interests contributed $22 million to federal candidates, exceeding the generosity of other, much larger farm interests.

How powerful is the sugar industry?

It should tell you everything that Bill Clinton interrupted one of his late-night assignations with Monica Lewinsky to take a call from Alfonso Fanjul Jr., Florida's top sugar baron...

What's at stake?

... a defeat for CAFTA will signal to the world that the United States can't walk the walk when it comes to curbing farm subsidies, thereby killing any prospect for the trade talks that really do matter -- those in Geneva aimed at a global trade treaty [the WTO Doha Round - Ben]. To avert that defeat, a desperate White House might try to pick off enough sugar-state votes by promising not to include sugar in any future deals. But either way, the effect will be the same: Hundreds of thousands of high-paying export jobs in growing service and technology sectors will be sacrificed to preserve the livelihood of 10,000 subsidy-addicted farmers and agri-millionaires.

August 10, 2004

What kind of a hold do these people have over the government?

Under the framework rules just negotiated in Geneva, countries are allowed to shield "sensitive" products from liberalization to some extent.

Big sugar is in line for shielding: Today the "PR Newswire" reports that, "A top government trade policy official told an international sweetener industry conference that the United States is "very likely" to designate sugar as a sensitive product in the Doha Round of World Trade Organization negotiations..." The rest of the story is here: "U.S. Official Tells International Sweetener Symposium: U.S. Very Likely to Designate Sugar as Sensitive Product in WTO"

Kenneth Dam writes,

Continue reading "What kind of a hold do these people have over the government?" »

August 04, 2004

The WTO uphold's Brazil's challenge to the EU sugar subsidies

The Washington Post has the story here: "WTO Rules Against EU Sugar Subsidies". The New York Times reports here: "W.T.O. Rules for Brazil in Sugar Dispute".

Peter Gallagher comments here: "Sugar case victory on EU subsidies ", and Vic Keegan comments here: "Legal victory against sugar subsidies".

June 24, 2004

More sugar

The Financial Times reports on a proposal to revamp European Union (EU) sugar subsidy and protection programs:

    "...According to documents seen by the Financial Times, Mr Fischler [EU Farm Commissioner - Ben] will propose cutting the guaranteed sugar price by one-third between 2005 and 2007. He will also reduce sugar quotas from 17.4m tonnes to 14.6m tonnes a year. Crucially, the amount of subsidised sugar exports will drop from 2.4m tonnes a year to 400,000 tonnes, a move that will boost the prospects of sugar farmers in the developing world."

Peter Gallagher provides an analysis of the impacts on EU sugar producers, and on certain foreign countries which actually benefit from EU subsidies and protection, here: "Proposed EU Sugar Reforms" 

Some foreign countries (76 African, Caribbean and Pacific countries - called the "ACP" countries) benefit from the EU program because the EU gives them preferential access to its domestic market (and the artificially high prices therein) as a sort of foreign aid program.  Gallagher points to a nifty paper by Theodore Levantis, Frank Iotzo and Vivek Tulpule of the Australian Bureau of Agricultural and Resource Economics (ABARE) on the impacts of the preferential access program on one small ACP country - Fiji:  "Ending of EU Sugar Trade Preferences.  Potential Consequences for Fiji"

The authors use an computable general equilibrium model of Fiji's economy to look at the impacts of three scenarios: (a) eliminating the subsidy with no new foreign aid, (b) eliminating the subsidy and substituting equivalent foreign aid which is then used to reduce Fijian taxes and tariffs, (c) eliminating the subsidy and substituting equivalent foreign aid which is then used for investments in infrastructure. 

All three alternatives move Fiji onto a faster growth path, and (b) and (c) lead to increased GDP (under (a) the increase in growth is small compared to the immediate impact of the loss of the preference, and GDP is below baseline levels for at least 10 years).

    "The two principal reasons for the higher growth path [even under Alternative A - Ben] are: factor resources are diverted to sectors of the economy with stronger growth prospects; and factor resources are diverted to sectors providing higher productivity growth. The marginal cost of producing sugar in Fiji is relatively high and exceeds the world market price... Growth in Fiji?s sugar industry is therefore constrained by the fixed volume quota for access to the European market. For this reason, growth in other sectors of the Fijian economy consistently outpace growth in sugar production. And productivity growth in sugar production is constrained by a lack of investment caused by the lack of growth prospects in European sugar markets and the uncertainty about land tenure in Fiji."

It's not all skittles and beer, even under Alternatives (b) and (c).  Unskilled rural labor takes a hit under all three scenarios:

    "...Employment in the sugar industry is dominated by rural based unskilled labor, particularly of family based self employment on small scale farms. Consequently, it is this labor that loses out in the event of a loss in sugar trade preferences. Under scenario A, unskilled rural employment drops by 5.2 per cent in the first year and continues to decline marginally thereafter so that, after ten years, the decline reaches 5.5 per cent... Scenario C is the best case but, even then, unskilled rural employment declines sharply. After ten years, the loss in unskilled rural employment will be 3.3 per cent and, initially, the fall will be 6.1 per cent...  For scenario B, the pattern of unskilled rural employment is similar to scenario A ...."

Revised 6-25-04

Running interference for sugar producers

Chris Mooney argues (in Mother Jones) that the U.S. Department of Health and Human Services is trying to get the World Health Organization (WHO) to modify a report tying sugar consumption to obesity and obesity related diseases such as Type II diabetes.  The motive: to be responsive to sugar interests with administration ties.  "Eating Away at Science"

    "...The final WHO guidelines are scheduled to be approved this summer, and before drafting them the WHO produced a summary of the scientific research, which finds a connection between obesity and unhealthy diets, including too much consumption of sugar and fatty foods. In April 2003, after this report was released, the Sugar Association and the Corn Refiners Association (which makes high-fructose corn syrup, the leading soft-drink sweetener) mobilized to have the findings revised. Not only did they call on HHS to take action, but the Sugar Association also wrote to the WHO threatening to have its allies in Congress eliminate the organization's U.S. funding if the WHO didn't rethink its anti-obesity work.   

    The industry's leaders and representatives are certainly well positioned to make their views known in Washington, particularly to the president and his top advisers. The Bush campaign acknowledges, for instance, that its "Rangers"?fundraisers who bundle at least $200,000 in donations?include the sugar magnate Jose "Pepe" Fanjul Jr.; Richard F. Hohlt, a 2003 lobbyist for Altria, which owns Kraft Foods; and Robert Leebern Jr., a lobbyist who last year represented Coca-Cola. And in the campaign's class of "Pioneers"--bundlers of a minimum of $100,000; there's Robert A. Coker, a United States Sugar Corp. senior vice president; Barclay Resler, Coca-Cola's vice president of Government Relations; and Joe Weller, the chairman and CEO of Nestl� USA..."

The government is providing this service to the industry in addition to jacking its profits up at the expense of U.S. consumers by protecting it from international competition. (Given the health problems associated with sugar consumption, higher prices and reduced consumption may have a positive health benefit.)

Recent posts on "big sugar"

"Trade Protection Can Cost Jobs"

"Cooperation, makes it happen..."

"Big Sugar"

"Candy makers fleeing the country"

"Doha round maneuvers; European sugar"

(I'm taking advantage of Blogger's new search function.)

April 14, 2004

Doha Round maneuvers; European sugar

Doha Round maneuvers

Daniel Drezner reports on European Union efforts to preserve its Common Agricultural Policy (CAP) in WTO Doha Round trade negotiations by dividing the ranks of agricultural exporters and developing countries.  Peter Gallagher posts on the same story.

European sugar

In the same post, Drezner also draws attention to a Financial Times story on a new Oxfam report critical of Europe's sugar policies.  Financial Times reporter Guy de Jonquieres writes:

    "Oxfam accused the European Union on Tuesday of employing "economic sophistry" to conceal the true costs of its controversial sugar regime, saying the policy inflicted big losses on poor countries and reduced the value of EU development aid.

    A study* by the development organization said the regime, which boosts European sugar output by keeping prices at more than three times world levels and heavily subsidizing exports, mainly benefited a "cartel" of big sugar processors...

    The EU puts the annual budgetary cost of export subsidies at �1.3bn, but the study found it provided a further �833m a year in "hidden" support to cover the difference between production costs and export prices. Every �1 of EU sugar exported cost �3.30 in subsidies...

    Oxfam estimated the regime deprived Brazil, the world's biggest sugar exporter, of $494m (�414m, �272m) of potential export earnings in 2002.

    It put the costs to Ethiopia, Mozambique and Malawi at $238m since 2001. Mozambique's losses equalled a third of its development aid from the EU and its government's spending on agriculture and rural development. Malawi's losses exceeded its primary healthcare budget..."

Modified 4-15-04

February 28, 2004

Candy makers fleeing the country

Protection for sugar producers is causing candy makers to flee the country - Lynne Kiesling has the story.

February 18, 2004

"Big Sugar"

The Bush Administration exempted sugar from the recent bilateral trade liberalization agreement with Australia.  But why did it imperil the agreement to preserve an obstacle to trade that benefits relatively few Americans and only imposes costs on most of them?  Aaron Lukas provides a brief review in "A Sticky State of Affairs: Sugar and the U.S.-Australia Free-Trade Agreement".

    "...The U.S. sugar program is a classic case of concentrated benefits and diffused costs. A very small number of sugar growers receives enormous benefits, while the costs of providing those benefits are spread across the U.S. economy. Consequently, U.S. sugar producers have a very strong incentive to lobby and fund campaigns of U.S. policymakers. And they have done so. 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. In the 2000 election cycle, for example, Flo-Sun, owned by the wealthy Cuban-American Fanjul family, contributed $690,750 in "soft money" to both the Democrats and the Republicans and $78,200 in direct funds to candidates and the parties. [13] Overall, the U.S. sugar industry contributed $7.2 million to political action committees and $5.7 million in soft money donations, for a total of $13 million�a bargain in exchange for protection worth hundreds of millions..."

("Big Sugar" is Lukas' expression)

Tariff-rate quotas are one of our key defenses against foreign sugar.  These are described in detail by David Skully in the US Department of Agriculture report, "Economics of Tariff-Rate Quota Administration".

January 05, 2004

"Cooperation, makes it happen..."

In 1998, sugar producers (sugar cane and sugar beet) earned an estimated $1 billion from restrictions on sugar imports that cost sugar consumers $1.9 billion ("Trade protection can cost jobs").  How could a few thousand domestic sugar producers create this transfer from, and these costs for, almost 300 million consumers? 

Edward Lotterman basically says "because they had help" in yesterday's column in the Twin Cities Pioneer Press: "Real world economics".

    Most students [in Lotterman's classes - Ben] are silent but often one well-informed individual will ask, "What about the corn producers, don't they benefit, too?" Bingo! Yes, there are only a few hundred cane sugar producers and a few thousand sugar beet producers. In contrast, there are over 300,000 corn growers. They know just how much corn goes into making corn sweeteners.

    High fructose corn sweetener is very competitive with sugar when prices are high but would rapidly lose market share if lower-cost sugar could be imported freely. HAFIZ is a "related good" to sugar. Sugar price increases "shift" demand for corn sweetener in the direction of higher sales. The sugar lobby is a smaller factor in keeping out world sugar than the corn lobby..."

  Josh Chafetz has a different, but complementary, explanation, here: "THE COSTS OF PROTECTIONIST".  (I linked to Chafetz's post in my post a few days ago, cited above, but repeat it here because of its relationship to Lotterman's column.)

December 27, 2003

Trade protection can cost jobs

Daniel Drezner posts on a Chicago Tribune story about job losses in the U.S. hard candy industry caused by U.S. sugar import restrictions: "Protectionism never tasted so sour".  The key point in the story: high U.S. sugar prices, associated with tariffs and quotas that keep U.S. sugar prices above world levels, are forcing U.S. hard candy producers to "outsource" production overseas.

    "...In the last three years, nearly half of all U.S. candy cane production has shifted to Mexico, industry experts say...

    But the story of the Mexican candy cane isn't your typical tale of American manufacturers chasing lower wages. It's more about the cost of sugar than the cost of labor...

    In Chicago, for example, Brach's Confections plans to shut its plant in 2004, forcing about 1,000 workers out of their jobs. The Chicago area, the center of the U.S. confection business, has lost an estimated 3,000 candy-related jobs since 1998..."

I've just finished reading Douglas Irwin's Free Trade Under Fire (Princeton University Press, 2002.)  I'd strongly recommend it.  Irwin makes the case for free trade, focusing especially on the issue of jobs.  The second half of the book is on the history, political economy and law of U.S. trade policy.

Relevant here are some of Irwin's comments on sugar restrictions (and what we're getting for this sacrifice of candy jobs):

    "...As already noted, the United States assists the domestic sugar industry through price supports and import restrictions in the form of a tariff-rate quota.  Under a tariff-rate quota, sugar-exporting countries are given a certain (small) quantity that they can sell in the United States at the regular tariff, and any exports beyond that specified quantity are subject to a tariff rate of nearly 150 percent.  As already noted, the sugar import restrictions and price supports cost domestic users of sweeteners $1.9 billion in 1998.  Domestic sugar beet and sugarcane producers reaped $1 billion as a result of these policies, with most of the benefit accruing to sugar beet growers.  The net loss to the economy is $900 million annually, $500 million due to economic inefficiency bred by the policy and $400 million in the transfer of quota rents to foreign exporters." (page 59)

  So, we are sending $400 million a year to foreign producers in order to engineer a transfer one billion dollars from consumers to domestic sugar producers (and to destroy an additional $500 in domestic wealth from the inefficiencies associated with the restrictions- this $500 million is in addition to the $400 we're giving to foreigners).

    "...Sugar imports are restricted to maintain domestic price supports for sugar beet and cane producers.  The benefits of these restrictions are highly concentrated because Congress has not limited the amount of support that large farms can receive.  For example, one farm received over $30 million in benefits from the sugar program in 1991, and just 0.2 percent of all sugarcane farms - thirty-three in total - received 34 percent of the entire program benefits.  The family of Alfonso Fanjul single-handedly supplies the United States with about 15 percent of its sugarcane through its land holdings in south Florida and the Dominican Republic, collecting somewhere between $52 to $90 million in benefits from the price supports on U.S. production and the quota rents on Dominican sugar exports.  Not surprisingly, the Fanjul family could afford to make nearly three hundred thousand dollars in campaign contributions in 1988..." (page 61)

Irwin is drawing on sources written in the early 1990s, so his numbers are 10 years old.

Drezner points to relaxed sugar restrictions in the new Central American Free Trade Agreement (CAFTA).  Robert Tagorda links to Reuters stories which elaborate and discuss the domestic sugar producers' response and sources of influence: "Big Sugar".

Why are a small number of sugar producers able to get Americans to incur $900 million in expenses in order to transfer an additional one billion to them?  Tagorda links to Josh Chafetz, who explains one theory: "THE COSTS OF PROTECTIONISM"