Sugar Tariffs Cost Americans $3.86 Billion in 2011

Carpe Diem ^ | Jan. 28, 2012 | Mark Perry

[BfloGuy]

The chart above displays annual refined sugar prices (cents per pound) using data from the USDA (Tables 2 and 5) between 1982 and 2011 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 more than twice the world price of sugar on average since 1982 (28.6 cents for domestic sugar vs. 14 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 10.18 million metric tons (22.44 billion pounds) of sugar last year, and therefore every 1 cent increase in sugar prices costs Americans an additional $224.4 million per year in higher prices.

2. The U.S. produced 7.15 million metric tons (15.76 billion pounds) of sugar last year.

3. Due to quotas, Americans were only allowed to purchase 3 metric tons (6.67 billion pounds) of world sugar, or about 30% of the total sugar consumed. Domestic sugar producers ("Big Sugar") are allowed to control 70% of the sugar market every year through protectionist sugar trade policies that strictly limit foreign competition.

4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% of their sugar in 2011 at the world price (average of 31.68 cents per pound) instead of the average U.S. price of 56.22 cents, they would have saved about $3.86 billion. In other words, by forcing Americans to pay 56.22 cents for inefficiently produced domestic sugar instead of 31.68 cents for more efficiently produced world sugar, Americans pay an additional 24.54 cents per pound for the 15.76 billion pounds of American sugar produced annually, which translates to $3.86 billion in higher costs for American consumers and businesses.

(Note: This is an estimate 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 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 of the recent Quote of the Day from Bastiat: "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.

[Wuli]

“Neither are rare earth metals in reality. Overzealous environmental regulations along with the disparity in labor costs once again makes this an apt comparison.”

Sorry, more ignorance from you with more use of some problems to explain away others you disagree are really problems or problems you want to ignore.

While there are SOME “rare earth metals” where environmental regulations, in the U.S. are a problem, and not known supply and reserves, there are OTHERS where the supply and reserves, and where in the world they are known to exist, at strategic quantities, IS AN ISSUE, IS THE ISSUE, that no amount of improvement in our domestic regulations or labor costs can fix.

Sugar is not in the same situation and cannot be.

[Chewbacca]

That is still only a $0.05 candy.
You could get two of them for the value of a silver dime.

[Wuli]

“I would beg to differ. An Army functions best with well fed and relatively happy soldiers. That is a truism that cannot easily be dismissed, and sugar is a very important ingredient that cannot easily be replaced.”

The crystaline form of sugar, from sugar cane and sugar beets, the kind of sugar you get in a bag or box at the grocery store IS NOT STRATEGIC, as many substitutes can and are produced and used - substitutes such as “high fructose corn syrup”, for instance; substances that when ingested provide the same “sweetening” and when metabolised provide the same nurtitional benefit - when crystaline sugar is unavailable, or when it is too costly, or when it is undesireable for production reasons.

Sugar, from sugar cane or sugar beets, is NOT a strategic commodity.

[Wuli]

Again, you place sugar on the lofty plain of strategic materials - where it does not belong.

[Pox]

at strategic quantities

Actually, it would be better described as sufficient concentrations that are economically extracted, but that really isn't the issue. Perhaps I am making a bad comparison by lumping together all REM's, but that does not dismiss the overall issue of our obtaining our own reserves versus the cost of obtaining them in countries that are not saddled with onerous regulations and incomparable labor costs. If I were to cherry pick a certain REM to illustrate my point, it would make no difference as the basic economics behind said REM are still forcing us to obtain our supplies outside of this country due to the bottom line.

Now that supply is drying up of certain REM's due to the fact that we do not mine our reserves since it is cheaper to obtain them from China or elsewhere, it is beginning to become economically viable, or actually a necessity due to the situation we've been presented with which is a demand with little to no supply.

Eventually, we could again come back full circle in the case of Sugar as I outlined previously, but what is the point of allowing such upheaval in our own labor situation in the first place for such an important commodity? I don't have an easy answer to that question, and perhaps we need to be pushed down that road once again to see the "errors of our ways", but perhaps it's much more sane to actually level the playing field through a tariff to avoid a repeat of earlier mistakes that have been made? Again, I don't profess to have all of the answers, but this case seems pretty clear cut to me that the howling from Hershey is pure BS, and the many articles I've read about their desire to cast off their union labor costs are much more realistic than the desire to avoid "world prices" of sugar. In fact, it only seems to me they would love to have the tariff dropped so they can continue to shovel more of their profits at their unions, and that, once again, is a pattern we have seen over and over again for 50+ years.

[Pox]

Now your are drifting off into a subsidized commodity that would not be economically viable without said subsidies, and although I suppose you could technically classify both in the same category, I find that to be a misplaced belief.

HFCS cannot be substituted in many cases, and they are not metabolized in the same manner, and I know that from personal experience, but it's not really the point we're discussing, so I'll drop that.

You discounting sugar as not strategic is ridiculous, but that is your belief, and I will leave you to it.

[Wuli]

Under your whims, in favor of protectist tarriffs (which I can see you wishing were higher and broader than they are), more American companies would leave this country in order to avoid the restrictions our import tarrifs were making on the goods they needed for production than would those companies that simply closed due to foreign competition.

[Pox]

I knew the word protectionist would come out eventually. You believing I wish for them to be higher and broader is absurd and arrogant as you have no clue what you are talking about concerning my thoughts and desires.

My primary concern is to insure we have a supply of that commodity that cannot be cut off on the whims of a foreign supplier (or suppliers), and I hate my own desire for such since it actually enables the economic viability of HFCS, which I consider a bad thing (gotta love irony sometimes). Another bitter twist to my belief in such a tariff is the fact it keeps the unions that produce our sugar in business as well (ARGH!!).

Back to my primary point. Hershey wants to move their manufacturing due to labor costs. Period. I've seen enough articles on the net that I looked up in the last hour that easily confirms my belief as they have basically admitted such. You seem able to search for such information yourself, so you have no need to take my word for it.

In any case, I'm off to enjoy the rest of my Saturday night!

[InterceptPoint]

And that dime will still buy a gallon of gas.

[1rudeboy]

And an economist wants to get his silk panties in a wad about sugar? Holy crap, talk about misplaced priorities.

I don't care what sort of panties you wear. And subsidizing sugar producers to the tune of $4B per year is not ok because of the shenanigans that occur in the financial services industry. Why would you even bring that up, unless you understand that you are skating on thin ice?

[driftdiver]

Then you support using American law and regulations to give foreign producers an advantage over American producers.

[impimp]

I am opposed to just about every acronym in the US government. EEOC and EPA are junk.

[BillGunn]

You are suggesting perpetual government manipulation! That is the cause of the problem, not the solution. Less regulation and taxation at home will increase our competitive ability. We (the United States, at least the fed) have no justification to complain of monetary manipulation by other nations.

If allowed, free trade would benefit all nations involved. Once the government starts dictating quotas and prices, our society has become that much more enslaved.

Bastiat stated in The Law that the only two violations of man's individual rights in America were slavery and tariffs. Smith in the second book of The Wealth Of Nations describes foreign trade, even deficit spending as an advantage as long as the imports are self sustaining and can be improved in the domestic economy(an advantage the Chinese are capitalizing upon, they import raw materials while we import creature comforts; again greatly encouraged by our government.