The Custom-House

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:

Has Big Sugar finally gone too far, Postrel wonders

Virginia Postrel: "Sugar Rush".

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.

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,

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".

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.)

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

Candy makers fleeing the country

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

"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".