Government Interference Ruins Yet Another Industry — Sugar

In my American Spectator column last week, I complained about the Republican Party’s descent into protectionism and its move away from free-market policies — in the name of becoming a populist, working-class party. I urged Republicans to emulate Ronald Reagan, but this week I’m bringing up a policy where they should definitely not follow in Reagan’s footsteps. It regards the continuing and wasteful federal sugar program, which needlessly drives up the cost for this commodity.

In 1982, Reagan needed the votes of four Southern senators for his budget reconciliation bill and agreed to support restrictive quotas on sugar imports. The result, as the Washington Post’s Hobart Rowen wrote at the time, was a policy that would “simply transfer the burden of protecting domestic sugar interests to consumers from the government, making a mockery of the Reagan propaganda line that he is ‘getting the government off your backs.’”

These quotas, which at the time guaranteed domestic producers a price that was double the price on the world market, simply won’t go away. “The U.S. sugar program uses domestic marketing allotments, tariff-rate quotas (TRQs), and high out-of-quota tariffs to restrict the amount of sugar available to the U.S. market,” reports a recent U.S. Department of Agriculture explainer. “In conjunction with market price support, the program also supports U.S. sugar prices, which are usually well above comparable prices in the world market.”

A recent study from my R Street Institute colleague Nan Swift, a resident fellow in our governance program, shows that artificially sweetening sugar-industry prices comes at a high economic cost for other industries, which is, quite frankly, how all these tariffs and trade restrictions end up working:

High sugar prices put U.S. food makers at a competitive disadvantage and kill jobs. A 2006 Commerce Department report found that for every one domestic sugar-growing or harvesting job, three confectionary jobs are lost. A more recent study found modest job growth, 17,000 to 20,000 additional jobs, from sugar program reforms. But in the meantime, many candy makers have moved production to Canada or Mexico where sugar can be found for half the price.

Less discussed is the degree to which sugar quotas encourage the growth of a crop in areas where it might be better to grow something else. For instance, sugar subsidies have a pronounced impact on the environment. “Large areas of the Florida Everglades have been converted to cane sugar production because of federal protections and subsidies,” states a 2007 Cato Institute report. “Sugar production damages the Everglades by land drainage, habitat destruction, and the run-off of chemicals in the fertilizers used by sugar growers.”

Yet, 16 years later, nothing much has changed.

In California, farmers continue to grow this crop — one of the most water-intensive crops in the world — in the Imperial Valley desert, one of the world’s most-parched regions. As other growing Western states increase their reliance on Colorado River water, Californians — who had long been overusing their river allotments — have had to cut back significantly. Despite a drought reprieve caused by a rainy year, water-rights battles remain a big deal.

This rebuts the idea that sugar production takes place only in rainy Southeastern states. California is the nation’s seventh-largest producer of sugar beets. The Imperial Valley Press reports that a new plant near Brawley, just north of the Mexican border, will use an additional 12,000 acres to grow sugarcane to support a proposed low carbon ethanol-production facility. Once it’s up and running, the operators expect another 38,000 acres of supporting sugarcane plantings.

The federal price-support program directly bolsters prices only for consumption, yet the Department of Agriculture explains that its “Feedstock Flexibility Program (FFP) is designed to divert sugar in excess of domestic food consumption requirements to ethanol production.” So federal policy indirectly promotes sugarcane plantings for industrial uses, as well.

The basic takeaway is that Congress ought not to incentivize its expansion in drought-stricken areas through subsidies and price supports, which stress water supplies and impose unnecessary ecological damage even where water is plentiful. It’s just another case of the federal government undertaking policies that have unforeseen and detrimental consequences.

As Swift further explains, “With high prices guaranteed by the U.S. government and little-to-no consumer choice, there’s no incentive to innovate or ensure that land, capital and human resources are being put to their best, most rewarding purpose.” As Reagan famously said, “Nothing lasts longer than a temporary government program.” That certainly seems true for the federal sugar program. If the GOP is interested in restraining government, here’s an easy program to target.

Steven Greenhut is the Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.