Marco Rubio’s continued defense of the economically indefensible US sugar program

From Mark Perry. 

"Sen. Marco Rubio’s (R-FL) continued defense of Big Sugar’s indefensible legal plunder of American sugar consumers to the tune of billions of dollars every year has been rightfully criticized recently, here are two examples.

1. A WSJ editorial last week (“Rubio and Big Sugar“) claimed that the Florida Senator is defending what may be the worst farm subsidy:

There is no economic defense of the sugar program, which every year provides nonrecourse loans to sugar processors at a guaranteed price-per-pound. If the market price is below the guarantee when they want to sell, the processors simply dump the crop on the U.S. Department of Agriculture as the loan repayment. To avoid that outcome, the USDA holds sugar prices artificially high by imposing tariffs on imports above an annual quota. The result is that Americans pay about twice what the rest of the world pays for sugar.

2. Tim Carney wrote last week in the Washington Examiner (“Marco Rubio needs to get past his sugar problem“), emphasis mine:

Marco Rubio is a conservative senator with a record of opposing corporate welfare in all corners of the economy, except one. That would be in the swampy fields of South Florida, where they grow sugar cane. Rubio supports the federal sugar program, with its special cheap loans and its blatant protectionism. This is to the detriment of U.S. consumers and foodmakers, and to the benefit of a handful of sugar magnates, including some of his earliest fundraisers.

Amidst the jungle of crony capitalism, corporate welfare, and federal boondoggles that Congress has created, the sugar program may be the least defensible.

That recent commentary about Sen. Rubio and Big Sugar prompted me to update my previous estimates (see the last one here) of the annual cost to American consumers of sugar that results from the US sugar program (aka the “sugar racket”):



The chart above displays annual refined sugar prices (cents per pound) using data from the USDA (Tables 2 and 5) between 1980 and 2015 for: a) the U.S. wholesale refined sugar price at Midwest markets, and b) the world refined sugar price. Due to import quota restrictions that strictly limit the amount of imported sugar coming into the U.S. at the world price, the domestic producers are protected from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan.

Of course, there’s no free lunch, and this sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who have been forced to pay twice the world price of sugar on average since 1980 (29.2 cents for domestic sugar vs. 14.9 cents for world sugar, see chart). How much does this trade protection cost Americans?

We can estimate the cost of sugar protection, using some additional data from the USDA (Table 1) about sugar:

1. American consumers and businesses consumed 10.88 million metric tons (23.98 billion pounds) of sugar last year, and therefore every 1 cent increase in sugar prices costs Americans an additional $239.8 million per year in higher prices.
2. The U.S. produced 7.67 million metric tons (16.91 billion pounds) of sugar in 2014.
3. Due to quotas, Americans were only allowed to purchase 3.1 metric tons (6.94 billion pounds) of world sugar, or about 29% of the total sugar consumed. Domestic sugar producers (“Big Sugar”) are allowed to control more than 70% of the sugar market every year through protectionist sugar trade policies that limit foreign competition.
4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% of their sugar in 2014 at the world price (20.05 cents per pound average) instead of the average U.S. price of 30.72 cents, they would have saved about $1.8 billion collectively. In other words, by forcing Americans to pay 30.72 cents per pound for inefficiently produced domestic sugar instead of 20.05 cents per pound for more efficiently produced world sugar, Americans were forced to pay an additional 10.67 cents per pound for the 16.91 billion pounds of American sugar produced annually, which translates to $1.8 billion in higher costs for American consumers and sugar-using businesses.
5. Based on the much greater price differential this year (through October) of 34.90 cents per pound for US wholesale sugar vs. 16.64 cents per pound for world sugar, the US sugar program will burden American consumers and businesses this year with more than $3 billion in spending on US sugar at prices that are more than double the world price.

(Note: These estimates are based on the assumptions that: a) the amount of sugar consumed in the U.S., and b) world prices, wouldn’t change if the U.S. sugar market was completely open.)
Bottom Line: 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 the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all trade 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 U.S. consumers and the American companies using sugar as an input, and make our country worse off, on net.

I’m reminded once again of Bastiat’s famous pro-consumer quote: “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” U.S. 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 producers. By ignoring sugar consumers in favor of sugar producers, i.e. allowing crony capitalism to flourish, we’re now a poorer country with a lower standard of living.

I’m sure the US sugar program would also meet Bastiat’s famous definition of “legal plunder,” which he defined as any law that “takes from some persons that which belongs to them, to give to others what does not belong to them.” The cost per American of Big Sugar’s racket was less than $6 last year and will be less than $10 per person this year, which helps to partially explain why Big Sugar’s “legal plunder” has persisted for centuries. Every American’s pocket is picked each time he or she buys sugar, but the amount picked is so low they mostly don’t even notice. And even if they do notice, Americans have no incentive to organize and fund a special interest group to go up against the well-funded, well-organized Big Sugar lobby. Furthermore, even though Big Sugar’s invisible, legalized pocket-picking (legal plunder) only amounts to pennies every time sugar or a candy bar is purchased, it should be viewed as no less despicable as if Big Sugar were allowed to extract the billions of dollars in annual legal plunder more visibly and instantly.

Kudos to the WSJ and Tim Carney for exposing Rubio’s economically indefensible defense of Big Sugar’s crony capitalism that legally transfers plunders billions of dollars every year in total from every American one candy bar at a time."