America’s longest-standing case of ‘legal plunder’ and ‘crony capitalism’ – the sugar racket

From Mark Perry.

"Due to trade protectionism for relatively inefficient domestic sugar producers, American consumers and domestic sugar-using industries have been forced to pay twice the world price of sugar for many generations. The chart above [I put it below-cm] shows that the average wholesale price of domestically-produced sugar in the US (29.23 cents per pound) is more than twice the average world price of sugar (14.87 cents per pound) since 1982, according to USDA data available here. For the latest month available (August), the US sugar price of 33.13 cents per pound was more than double the world price of 15.57 cents. Most of the time, the cost to consumers of trade protectionism (aka crony capitalism) is hidden and difficult to calculate. But with sugar protection, we get a monthly estimate of exactly how much money per pound domestic sugar producers are being allowed to legally pick from the pockets of millions of American consumers and thousands of sugar using-companies. Annually, the federal sugar program that subsidizes and protects Big Sugar from competition through import restrictions, price supports and loan guarantees, artificially raises US sugar prices to twice the world price and costs American consumers somewhere between $1.9 billion (according to a GAO estimate in 2000) and $3 billion (my more recent estimate for 2012 here).



I was reminded of the sugar racket and Big Sugar’s protection from more efficient foreign competition by David Henderson’s recent comment on the EconLog blog (emphasis added):

I don’t think Trump understands that when we open trade to other countries, we gain not just as exporters but as consumers. But then, what U.S. politician running for president does? Marco Rubio? Rubio argued a few years ago that he would favor getting rid of quotas on sugar imports if we got something in return. But we do get something in return: it’s called cheaper sugar. And getting cheaper sugar, by the way, might have caused LifeSavers not to move from Michigan to Quebec.

To which John Cochrane added on his Grumpy Economist blog:

We also get more exports automatically without political deals. When other countries sell us sugar, they get dollars, of every single one ends up buying US exports or invested in the US.
Nothing new. It’s in Adam Smith. But nicely expressed. Economics needs good stories.

Related: See John Tamny’s recent Forbes article “Marco Rubio’s Big Sugar Embrace Flunks Basic Economics.”

Bottom Line: As I concluded in a 2013 blog post, the cost of most trade protection is largely invisible and hard to calculate, but the cost of sugar protection is directly visible and measurable, since wholesale prices for both high-cost domestic sugar and low-cost world sugar are reported regularly by the USDA and other sources (futures markets). Like all protection, sugar tariffs exist to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and come at the expense of the US consumers and the American companies using sugar as an input, and make our country worse off, on net. Like John Cochrane says, that’s nothing new, it’s in Adam Smith.

For example, here’s how Larry Graham, President of the National Confectioners Association, explains the adverse effects and job losses for his industry as result of US sugar policy:

The [US sugar] program creates a competitive advantage for foreign confectioners who pay a significantly lower world price for sugar and import their products into the US market. The tight market generated by these policies threatens the overall supply, jeopardizing smaller US companies and putting jobs at risk. Over the last 10 years the sugar program has eliminated more than 14,000 confectionery jobs and more than 75,000 food manufacturing jobs.

It’s a perfect time to invoke French economist Frederic Bastiat who wrote in 1850 that we should “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” US sugar policy has a long history, going back to 1789 when the First Congress of the United States imposed a tariff upon foreign sugar, and is a perfect illustration of trade protection that ignores the viewpoint of disorganized, dispersed consumers in favor of the concentrated, well-organized interests of domestic producers. US sugar policy clearly violates the best interests of consumers, and by doing so, violates the interests of the human race, in favor of a politically favored special interest group – “Big Sugar.”

We could also invoke Bastiat’s test for “legal plunder” and apply it to the case of sugar protection:

How is legal plunder identified? See if the law [US sugar policy] takes from some persons what belongs to them [American consumers and sugar-using industries], and gives it to other persons to whom it does not belong [domestic sugar producers]. See if the law benefits one citizen [sugar beet farmers in Minnesota] at the expense of another [American consumers] by doing what the citizen himself cannot do without committing a crime [picking the pockets of American consumers].

There’s probably no better example in US history of a case of both legal plunder and crony capitalism that has been tolerated for so many years, and that has picked more money from the pockets of Americans, than the centuries-old “sugar racket.”