Agricultural lobbies : the costs of subsidizing the U.S. sugar industry

A subsidy for the rich that will have you clutching your head

by Vincent H. Smith

Agricultural lobbies often make economists who care about the general economic wellbeing of society clutch their heads in their hands. Not only do these lobbies seek subsidies that will mainly flow to farmers who are much wealthier and have much higher incomes than the average U.S. household, but they also generally appear to pay little attention to any ancillary damage that may spillover to other sectors of the economy. In addition, many of the subsidy programs they support potentially violate U.S. commitments under international trade agreements which are helpful to consumers and other sectors of the American economy.

The sugar lobby is a current case in point. In March of this year, the American Sugar Coalition filed a petition with the U.S. International Trade Commission claiming that increased sugar imports from Mexico were causing "material injury" to American sugar producers and processors.

What is material injury? The answer, according the American Sugar Coalition, is any decline in sugar prices. And why is Mexico at fault? Because, under the terms of the 1994 North American Free Trade Agreement — NAFTA to most of us — Mexico's sugar industry has had completely open access to U.S. markets since 2008 (after its agreement to a 15-year delay ran out), and Mexico is now legally exporting more sugar to the United States.

But is Mexico really the major cause of lower U.S. sugar prices? The answer is almost certainly "No." Sugar prices in the United States have certainly fallen from recent record high levels in 2010, 2011 and 2012 (59.5 cents per pound at the peak). But the same price increases and price decreases occurred in world sugar prices. In fact, globally and in the United States, sugar prices are now close to their more typical long run average range of 13 cents to 18 cents a pound.

The real question is why were world and U.S. sugar prices so high between 2010 and 2012? The answer is a combination of events.

............

Read more: www.realclearmarkets.com