U.S. Sugar Policy is too Sweet for Sugar Producers

I vividly remember the time when I got to go to Hershey’s Chocolate Factory. “These candy places are so lucky because they probably get all this sugar for a huge discount” I thought to myself while enjoying my ride around the factory.  Well, that could not be further from the truth, as the candy industry just received another big loss on its ongoing struggle to get access to more sugar in the global market.

Last month, the farm bill, which outlines agriculture policies at five year intervals, was extended for another five years. Unfortunately for candy makers, the bill did not change any of the policies regarding U.S. sugar.

What is the big issue with sugar policy in the United States one may ask? Because of the price supports and restrictions on the imports of sugar, sugar purchasers are forced to buy sugar at a more expensive price than the rest of the international market. While a small number of growers benefit from the protection, many others do not. As a result, businesses that rely on the purchase of large quantities of sugar are at a competitive disadvantage.

sugar graph

As the chart shows, from 1982-2012, the average price of sugar in the United States was 29.1 cents compared to the world price of 14.4 cents. Thus, candy makers have had to pay 102.1% more for sugar than the rest of the world during this time period. (Source: Google images search on U.S. Sugar Policy)

Job loss is one consequence of current sugar policies in place. Sugar producers argue that the import restrictions save American jobs in the sugar industry. While true, the opportunity costs are not worth it. The U.S. department of commerce found that for each job it saves in sugar production, it destroys three jobs in candy making. Companies are so fed up with the policies that they have shut down their factories and relocated abroad, leading to job loss. Brach’s Confections Inc relocating its factory from the US to Canada is one such example.

Candy makers are not the only ones that suffer with the import restrictions. Every time you go to the supermarket, you are most likely getting ripped off for sugar heavy products you purchase, relative to the rest of the world. It is estimated that the import quotas cost consumers roughly 3.5 billion a year, a number which is on the rise (Goone, U.S. Sugar Protectionism).

One may think that U.S. sugar policy results in a drop of sugar supply, which then leads to less sugar dispersed among the population. The consequence of this should be that people have to adjust to less sugar and hence healthier foods. In reality however, the sugar quota currently effective in the United States has only accelerated the obesity epidemic. Because of the substitution effect, firms start producing high fructose corn syrup for a cheaper price (Goone). This has led to a significant increase in the consumption of HFCS over the past decade. Unfortunately, HFCS has been proven to be unhealthier than regular sugar and is highly linked to the rise in obesity. A study conducted by Princeton University researchers found rats that were fed HFCS gained more weight than those fed table sugar, even when their overall caloric intake was the same (journal of Pharmacology, Biochemistry and Behavior).

Sugar policies in the United States have taken a toll on the countries relationship with Caribbean countries. Because of Caribbean countries comparative advantage in the production of sugar and the high import demand in the United States, it would be in their best interest to export sugar to the United States. However, they are unable to access the American market due to the policies in place. According to the Council on Hemispheric Affairs (COHA) “the implementation of sugar quotas by the United States has resulted in “colossal losses” for Latin American and Caribbean sugar economies.” Caribbean nations have blamed the United States for the poverty that its farmers suffer from in addition to the rise of crime. Not to mention, political tensions between the U.S. and Caribbean nations have risen as well as a consequence of the quota.

It is obvious that the negatives of U.S. sugar policy far outweigh the positives that are almost exclusively tied to sugar growers. With the recent five year extension of the farm bill, candy makers will have to look to different avenues. One such avenue includes the current negotiations of the TPP. According to Alison Bodor, the NCA executive vice president, “trade deals are a good avenue for sugar reform.” The fact that Australia is the third largest exporter of sugar in the world makes the possibility of softening sugar policies for the TPP enticing. However, policy makers admit that this is unlikely. Therefore, policy makers must also admit to the downfalls of current U.S. sugar policy and made an arduous attempt to reform it in a way that promotes global competition.

References:

http://www.caribbean360.com/index.php/news/896725.html#axzz2x02QbfSc

http://reason.com/archives/2014/02/13/the-farm-bill-leaves-a-sour-taste

http://dartmouthbusinessjournal.com/2011/05/u-s-sugar-protectionism/ (Goone)

http://blogs.wsj.com/moneybeat/2014/03/05/trade-agreement-could-sweeten-life-for-candy-makers/

 

 

 

 

 

 

 

 

 

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