This is the first in a 2 part series on the American sugar industry.  The second part will publish tomorrow.

The United States has a long, embarrassing history with sugar.  It is a history that includes the failure of socialist style industry control, the destruction of productivity, government colluding with big business, and you at the register, forced to pay twice as much as the rest of the world.

Your well-being (both physical & financial) is eaten in a million little bites from a million little parasitic programs.  This is the story of one of them: the sugar industry.  It is a story of multi-billion dollar special interests harming everybody’s general interest.

The American government massively distorts the price of sugar that should exist in the marketplace for only one reason: to take money from you at the register and transfer it into record profit for a few big companies (I’ll reveal company names at the end).

America’s special interest protections to the sugar industry have been in place for over 100 years.  I’ll look at:

  1. Sugar is TWICE as expensive in America as the rest of the world.
  2. Why you’ve never noticed the high price
  3. Special Interest program #1: 1934 – 1974 destroyed American productivity
  4. Special Interest program #2: 1981 – today destroys your wallet
  5. Restrictions against imported sugar hurt “the competition” AKA the poor farmer in the 3rd world
  6. The financial benefits from these programs go to a small handful of big companies

1. Sugar is TWICE as expensive in America as the rest of the world.

US vs. World Sugar Prices

US vs. World Sugar Prices

Above is the price Americans pay for sugar compared to the price the rest of the world pays.  Sources at end of article (Source 1).

Sugar is more expensive in America, but we actually don’t import sugar in the aggregate.  America is the world’s 5th largest sugar producer, and we export almost as much sugar as we import.  Sugar should cost less in America than the global average.  Only government interference makes it more expensive.

 

2. Why you’ve never noticed the high price
Even though these price differences amount to billions of dollars you’ve probably never noticed you’re paying more.  Why is that?  The answer is a principle is called “concentrated benefits; diffuse costs” and it goes like this:

You pay $35/year more for your food because your government made sugar more expensive than it should be.  Spread that extra price over 50 shopping trips per year and over hundreds of different items and the harm isn’t obvious.  It’s not just you though: all 120 million households in America pay that extra $35/year.  All that money concentrated into the hands of a few in the sugar industry becomes several billion dollars in extra profit.

 

3. Special Interest program #1: 1934 – 1974 destroyed American productivity
The sugar program of yesteryear led to the problem of high prices we have today.

Before 1934 the American sugar industry was protected from foreign competition by a tariff.  Protection was increased still further in 1934 when an import quota was also added.  The government dictated not only the price of foreign sugar but also precisely how much foreign sugar was allowed into the US; the balance of demand had to be produced here.  This law was called the Jones-Costigan Amendment.  It was passed because the perception was that too much sugar was being produced, which was causing low prices. (2)  You heard me right.  The perception was the American consumer was getting “too good” a deal and the special interest wasn’t getting a good enough deal.  The policies of that law changed only slightly over the years.  This system of import quotas was combined with a price support system until 1974.

Notice the big price explosion in 1974 in the graph above?  Three years prior Milton Friedman, writing in Newsweek on October 18th, 1971, likened price control programs like the one in sugar to a brick put on top of a tea kettle.  If the flame is turned down, he said, the brick may stop the lid of the kettle from bursting.  If not then pressure will build until the lid blows off.  In that same article he explained:

The most serious potential danger is that, under cover of the price controls, inflationary pressures will accumulate, the controls will collapse, inflation will burst out anew.

The Jones-Costigan Amendment was the government’s first sugar price support & government control scheme, and its structure remained in place through various laws until 1974.  In this system the government gave farmers acreage quotas, dictated how much sugar crop they were allowed to sell and set their prices; the government then told sugar companies how much sugar they could buy, how much product they could produce, and set their prices.

Sounds a touch like socialism doesn’t it?

Well, lo and behold, all those government attempts to control the free market and interfere with supply & demand failed.  Just like the failure of collective farms under communism in the USSR, so too these measures led to ever declining productivity (see productivity graph below).  Productivity kept declining until the price support scheme had to be ended in 1974.  Economists from the Federal Reserve & the Bureau of Economic Analysis studied the law and explained it this way (3):

Declining American Productivity in the Sugar Industry Caused by Government Control

Declining American Productivity in the Sugar Industry Caused by Government Control

For “voluntarily” abiding by acreage quotas, farmers were given subsidies by the government based on their “output.” To cover these subsidies, the factories were taxed on the sugar they produced. The rationale for these regulatory provisions was to insure “fair-division” of the benefits (among producer groups) of the sugar program. Tax/subsidy schemes can obviously distort production decisions and, like lack of competition, reduce productivity.  We find the fair-division provisions, by distorting production decisions, led to very significant productivity declines.”

In the upcoming second half of this article I will take you into the current government scheme to funnel money from you into a few large special interests in the sugar lobby.  These massive distortions can only be caused by government intervention against free trade and against the free enterprise system.  If the bad government failures were removed the price of sugar would immediately drop more than in half and the American consumer could enjoy the price consumers across the rest of the world enjoy.

Sources:
1. US Department of Agriculture, Economic Research Service
2. “Mexican Labor and World War II: Braceros in the Pacific Northwest, 1942-1947” by Erasmo Gamboa  pp. 11-12
3. Federal Reserve, Staff Report 389, “Does Regulation Reduce Productivity? Evidence From Regulation of the U.S.Beet-Sugar Manufacturing Industry During the Sugar Acts, 1934-74” pp. 1-2