The High Price of Federal Sugar Policy: What’s the true cost of this “free” program?

Click here to see the R Street Institute’s Explainer on the true cost of the federal government’s sugar program.

Though overall inflation may finally be slowing, the wallets of American consumers are still being stretched by basic expenses, like food. Experts cite a broad litany of underlying causes from high energy and labor costs to persistent supply chain disruptions and global conflicts. Most of these problems are outside Washington’s immediate control or are one facet of a larger issue. However, there is one part of the food price puzzle that is wholly a monster of D.C.’s own making: the federal sugar program.

Background

The modern sugar program, in place for decades, is a protectionist racket benefitting politically favored domestic producers at the expense of consumers. The U.S. Department of Agriculture (USDA) administers a sticky mix of top-down policies that strictly control the domestic sugar supply, artificially boosting prices by restraining production and shutting out most imports. The program proudly claims to operate at no cost to taxpayers, but this supposedly “free” program comes at a high price for other Americans and our economy.

Hidden and Not-So-Hidden Costs: 

1. U.S. consumers and any industry that uses refined sugar, such as bakers or even pharmaceuticals, tend to pay about twice as much—or more—for sugar than users who have access to lower prices in the global market.
2. 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.
3. The federal sugar program is a massive drain on consumers. Though the cost per person may be low, taken together $2.4 to $4 billion in wealth is transferred from consumers and users to a comparatively small number of sugar producers.
4. Sugarcane harvesting can have a negative effect on air quality. Growers burn fields to eliminate leaves and make it easier to process, sending plumes of harmful ash into the air and lungs of nearby communities. Though other countries have worked to eliminate the practice, burning continues to be a feature of U.S. sugar production.
5. Sugar growers receive ad hoc disaster payments and taxpayer-subsidized crop insurance.
6. Tight sugar supplies increase price volatility and leave little room for user error or innovation.
7. The federal sugar program imposes production caps on sugar growers who could potentially earn more without arbitrary restrictions. In Australia, following liberalization of the agriculture sector and removal of industry protections and subsidies, sugar production rose. Today, the country is a leading exporter on the global market.
8. A sugar surplus in a high yield year can trigger major costs for the USDA. The USDA has two tools to take sugar off the market and maintain high prices for producers: forfeitures, whereby producers surrender sugar in lieu of loan repayment; and direct purchases by the USDA. Either way, the USDA can end up with tons of surplus sugar on hand. Rather than make that available to users who would benefit from lower costs, the USDA has the authority to sell sugar at below-market prices to ethanol producers via the Feedstock Flexibility Program, which crowds out other conventional inputs such as corn and soy. Truly putting sugar in the gas tanks adds insult to injury for consumers who already contend with myriad other costs imposed by ethanol-blended fuels.
9. Lack of competition leads to industry stagnation and widespread inefficiencies. 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.
10. The federal sugar program shifts power away from voters and consumers to the government and the wealthy sugar-fueled oligarchs it favors. As previously stated, this drives up costs and deprives people of choices; the only available choice is the one the government and its cronies designate.

What Congress Can Do

It’s clear that we need the government to stop picking winners and losers—in this case, sugar producers and everyone else.

It would be best if Congress repealed the sugar program and let consumers and producers benefit from the global marketplace. Another possibility that would inject some competition and reduce cronyism would be to treat sugarcane and sugar beets more like other traditional crops which enjoy a robust safety net, rather than continue their special status under the current program. In prior years, strong bipartisan, bicameral bills recommended commonsense reforms that would have decreased taxpayer liability for loans to sugar producers, increased flexibility for producers, repealed the Feedstock Flexibility program and undertaken other market-oriented reforms to lower costs to consumers. At the very least, Congress should take steps to ensure access to a generous sugar supply to avoid shortages or more painful price hikes for already strapped consumers.