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Uncle Sam's Surprising Role: Sugar Cartel Kingpin

Monday, April 16, 2018 7:57
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Colin Grabow

Kirk Vashaw, CEO of the Spangler Candy Company, employs more than 500 workers at his company’s Bryan, Ohio, production facility. He says he’d like to hire more, and with 900 applicants for jobs last year there is no shortage of interest. But Vashaw says that the federal government’s meddling prevents the math from working out.

To bring them on, Vashaw asks but one simple thing of Washington policymakers: “Let us buy sugar on the free market.”

Vashaw’s request likely comes as no surprise to those familiar with the federal government’s sugar program. Despite widely-held perceptions of the United States as a free-market exemplar, the buying and selling of sugar in this country is wrought with central planning and government manipulation. Incredibly, the goal of such intervention is not to lower costs to consumers but rather to raise the price of sugar beyond what it would otherwise be.

Rooted in the Great Depression, the modern-day incarnation of the sugar program sees the federal government provide loans to sugar processors in exchange for the provision of sugar as collateral. To ensure the processors actually pay back the loans instead of surrendering the collateral if sugar prices dip too low, the government boosts the cost of sugar. This is accomplished through supply restrictions, including domestic production quotas as well as limits on the amount of sugar that can be imported either tariff-free or at low rates.

Uncle Sam is effectively the ringleader of a sugar cartel. As a result, both American families and businesses ranging from bakeries to breakfast cereal producers face sugar costs that are often twice that found on the international market.

The cost of this policy to consumers is considerable, with recent research from the American Enterprise Institute placing the toll for households at $3.4 billion to $4 billion.

While households may have little choice but to pay the higher prices, some companies have opted to close factories in the United States and move operations to Canada or Mexico, where the price of sugar is far lower. In 2002, Kraft Foods announced the closure of its Life Savers plant in Michigan and relocation to Canada, with the estimated $90 million it would save in sugar costs over 15 years figuring prominently into the decision. Even smaller candy makers such as Los Angeles-based Adams & Brooks, Bob’s Candies of Albany, Ga., and, yes, Spangler Candy have all shifted some of their production to Mexico in order to remain competitive.

“I just got tired of paying welfare to Big Sugar,” said the president of Bob’s Candies in explaining his decision to open a plant in Reynosa.

Detailed analysis supports such anecdotes. The Wall Street Journal notes that total confectionery employment saw a 22 percent decline in employment from 1998 through 2011, and AEI’s latest research estimates that the sugar program results in an annual loss of 17,000 to 20,000 food industry jobs. A Commerce Department study, meanwhile, found that artificially inflated U.S. sugar prices result in three confectionery jobs being lost for each sugar growing and harvesting job saved.

A survey of some of the country’s best-known economists found 38 of 39 in agreement that trade barriers used to restrict the sugar supply raise the profits of sugar producers and make U.S. consumers pay more.

Faced with such voluminous evidence, defenders of the sugar program attempt to shift the conversation. Citing an alleged need for price smoothing, they insist that the bureaucrat-driven program is better positioned than market forces to balance supply with demand. Another oft-heard claim is that the program should not be dismantled in the face of market distorting mechanisms employed by other countries—effectively making the United States a hostage to bad policies enacted in foreign capitals. Sen. Marco Rubio, R-Fla., has even risibly argued that the preservation of the sugar program is a matter of national security.

The thin rationales offered for why the sugar program should be maintained underscore the urgent need for its deep reform, if not outright abolition. Bipartisan legislation introduced in both the House and Senate late last year, the Sugar Modernization Act of 2017, offers some hope in this regard. Although the bill keeps more of the program intact than is desirable, it probably constitutes the most politically realistic means in the near-term of reining in this Washington swamp creature.

This has gone on for too long. It’s time for Washington to get out of the way and leave sugar in the hands of the free market, instead of bureaucrats.

Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.



Source: https://www.cato.org/publications/commentary/uncle-sams-surprising-role-sugar-cartel-kingpin

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