Sugar Subsidies Drive Candy Makers Abroad Back in the 1930s at the height of the

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Sugar Subsidies Drive Candy Makers Abroad

Back in the 1930s at the height of the Great Depression, the U.S. government stepped in to support the U.S. sugar industry with a combination of subsidies, price supports, import quotas, and tariffs. These actions were meant to be temporary, but as of 2015, they are still in place. Under policies approved in the 2008 farm bill, the government guarantees 85 percent of the market for U.S. producers, primarily farmers growing sugar beets and cane. The remaining 15 percent is allocated for imports from certain countries at a preferential tariff rate. The government also sets a floor price for sugar. If the price falls below the floor, the government steps in to purchase excess supply, driving the price back up again. The surplus is then sold at a loss to producers of ethanol. A significant U.S. sugar harvest in 2013 required the government to spend some $300 million to prop up U.S. sugar prices. As a result of these policies, between 2010 and 2013 the U.S. sugar price has averaged between 64 and 92 percent higher than the world price of sugar.

American sugar producers say that the federal programs are necessary to keep big sugar-producing countries like Brazil, India, and Thailand from flooding the U.S. market and driving them out of business. Opponents of the practice include numerous small candy producers. Many of them complain about the high U.S. price for sugar. Increasingly they have responded by moving production offshore. For example, the Spangler Candy Company, the maker of Dum Dums, has moved 200 jobs from Ohio to Juarez, Mexico, where it makes candy canes that are then imported back into the United States. Similarly, Adams & Brooks, a California-based candy company, has shifted two-thirds of its production across the border to Mexico in response to higher U.S. sugar prices.

A recent academic study suggests that the U.S. sugar policies primarily benefit 4,700 sugar producers, while imposing costs of $2.9 to $3.5 billion per annum on U.S. consumers due to higher sugar prices. The same research predicts that removing the support programs would lead to the net creation of 17,000 to 20,000 new jobs in the United States, while dramatically reducing imports of products containing sugar.

Given the benefits of removing sugar support programs, and all the talk about deregulation and reducing the budget deficit in Congress, many observers thought that 2013 would be the year that the sugar programs were finally abandoned. The farm bill was up for renewal, and the sugar support programs were held up as an example of how wasteful government subsidies are. However, sugar producers spent some $20 million on political lobbying between 2011 and 2013. Partly due to their influence, the U.S. Senate voted 54 to 45 against any reform in the sugar programs. The majority included 20 out of 45 Republican senators, most of who publicly rail against this kind of government intervention. Apparently, however, political expediency required that they support intervention in this case.

Sugar Subsidies Drive Candy Makers Abroad Questions

How does the US government support the sugar industry?

What were the results of the subsidies?

What would happen if the US removed the support programs? Do the benefits outweigh the losses?

Why did the government renew the programs?

Explanation / Answer

In a move to support the domestic sugar industry, the US government in its policy provides various benefits to the sugar producers. The government provides a guarantee of 85 percent of the sugar market for the local producers and about 15 percent of the market for the foreign producers. By doing so, the government ensures to protect the interests and the financial well-being of the local sugar producers. The government also fixes the floor price i.e. the minimum price for the sugar in the market. This is done to ensure that sugar producers are profitable and weed out the foreign producers such as Brazil, India etc. that offer sugar at a cheaper rate than the local producers. The government also buys the excess sugar and sells them to ethanol producers at a loss, in a move to keep the sugar prices as high as possible.

The subsidies provided to the sugar industry led to the loss of $300 million to the US government. The government policies increased the sugar prices by huge percentage when compared to the global sugar price levels. Due to high sugar price levels, the US consumers ended up spending around 2.9 to 3.5 billion dollars per annum. Another major impact of these subsidies is the movement of operations of sugar candy companies to the cheaper destinations such as Mexico. The sugar candy companies started shifting their production to offshore locations to combat the high sugar prices in the US.

If the US government removed the subsidy programs, the market will witness the entry of new players from countries such as Brazil, India, and Mexico etc. Since these foreign players are low cost producers, competing on price would be rather difficult for the local players. The chances of local players going out of business are very high.

The benefits of removing the support programs:

The losses of removing the support programs:

Thus, the benefits far outweigh the losses.

The government renewed these programs because of the influence and power of these sugar producers in the country. Bowing to political pressures, the government renewed these support programs.

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