This is the second half of an article.  Part 1 article looked at the recent history of the Sugar Acts including the failure of socialist style industry control, the destruction of productivity, and how government colludes with big business. CLICK HERE TO READ PART 1

 

 

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Table of Contents Part 2:

3. Special Interest program #2: 1981 – today destroys your wallet
4. Restrictions against imported sugar hurt “the competition” AKA the poor farmer in the 3rd world
5. The financial benefits from these programs go to a small handful of big companies

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3. Special Interest program #2: 1981 – today
In 1981 America passed the Food Act of 1981.  Its policies have stayed in place ever since (under renewed bills sometimes with differently named as Farm Acts) as the heart of America’s current robbery program against the taxpayer in favor of the special interest sugar lobby.

Today’s programs break down along the following lines:

  • Interest Free Loans
  • Price Controls
  • Tariffs & Import Restrictions
  • Subsidies

Loans: the sugar lobby can take out interest free loans from the USDA and pledge its crops as collateral if not repaid.  Each year the UDSA announces loan rates, presently they are 18.75 cents/per pound of cane sugar and 24.09 cents/lb for beet sugar(SOURCE: USDA).  These loans are HUGE subsidies because they are at higher rates than the US sugar price, and about double the worldwide sugar price.  So the big companies who take out these loans can then choose to default after 9 months, keep the money, and give the government their sugar crop as collateral.  Almost all decide to do that, unless the price of sugar is higher when the loan comes due, but since the loans are meant to be an extra subsidy above the already very high price that never happens.

To highlight this US cane sugar is presently selling for 16.96 cents/pound.  So the crop loan was given out at an 11% premium allowing those companies to forfeit their crop at the end of the loan period and make an even higher price than they would have selling it on the open market (remembering the US sugar price is double the price in the rest of the world).

Price Controls: When the loan program above does not work to prop up sugar prices the USDA pays sugar farmers to destroy their crops.  These programs starting to sound evil yet?  The program is called “Payment-In-Kind” and it was enacted in 1983. (SOURCE: USDA)

Tariffs & Import Restrictions: Every year the USDA announces how much foreign sugar is allowed into the US.  Sugar imports are generally restricted to less than 30% of overall sugar demand.  Here is this year’s import restriction notice (SOURCE: USDA).  This program is what’s called a “Tariff Rate Quota” which means that it is not an absolute import restriction, but any imports above the restricted amount are subject to very high penalty fees.

Subsidies: The government engages in other subsidy programs to sugar.  When prices still aren’t where the USDA wants them to be they will purchase a part of the nation’s sugar supply and convert it into ethanol to reduce the supply available in the market (and raise the price).  An elaborate scheme that costs taxpayers an awful lot to run as opposed to the very simple alternative of eliminating all these programs and allowing the price of sugar to drop in half to the benefit of every American.

4. Restrictions against imported sugar hurt “the competition” AKA the poor farmer in the 3rd world
Possibly you’ve seen “fair trade” goods in stores?  The policies identified above have already distorted the amount of sugar that otherwise would have been imported into America.  Also, the artificial price distortions caused by those programs send incorrect signals in the marketplace to farmers.  Those signals can be safely ignored by American farmers because of all the taxpayer funded special protections above, but the farmer in the developing world doesn’t get correct market signals for when to slow down or increase production.  So not only is the third world farmer hurt because he cannot import his crops into America, but he also gets distorted signals about the demand for sugar.  This causes farmers in poor countries to incorrectly select which crop is most profitable for them to plant in a given season.

5. The financial benefits from these programs go to a small handful of big companies
As far as the sugar loans are concerned, the case is clear.  The USDA publishes their “Agricultural Decisions” and announces who they give these loans to each year.  In total the federal government issues just under a billion dollars a year in sugar loans.  In 2012 it was $966M.  The special interest groups who got the biggest reward for their undue influence on government included:

  1. Amalgamated Sugar enjoyed $274M or 26% of the nation’s sugar loans
  2. Michigan Sugar $167M or 17% of the nation’s sugar loans
  3. Western Sugar Co-op $147M or 15%
  4. Southern Minnesota Beet Sugar $101 million or 10%

So there you have it, between those 4 companies $689 million dollars of tax money was taken from you and given to them in return for artificially raising the price of sugar.  Also those 4 players received 71% of the nation’s sugar loans.  If we listed the next 4 largest recipients we’d account for 87% of the nation’s sugar loans.

That is how your government fails you, and takes from you, to line the pockets of a few rich, powerful players all while protecting them from competition and robbing you at the register.

US vs. World Sugar Prices

US vs. World Sugar Prices