American Sugar Subsidies: A Bitter Pill for the States to Swallow

America began protecting the sugar industry more than 200 years ago, and like many ideas first advanced during the 18th Century, it is a policy relic that is desperately in need of reform. The good news is that Congress finally appears ready to tackle this sticky subsidy which the Cato Institute accurately describes as one of the most “grotesque examples of crony capitalism” that serves as “an involuntary wealth transfer from consumers to producers.” ALEC Alumna and U.S. House of Representatives Member Virginia Foxx (NC) is expected to offer an amendment to the Farm Bill that, if adopted, will go a long way toward righting what ails America’s sugar policy. The outlines of her amendment are contained in the Sugar Policy Modernization Act (HR 4265), which is widely supported by her fellow lawmakers. At this writing, 80 House Members from 25 states are currently co-sponsoring the measure, and in a Congress that typically votes strictly along party lines, the co-sponsor roster is strikingly bipartisan. Much of this unusual display of party and geographical unity can be attributed to the thousands of jobs found in all 50 states that America’s current sugar protections place at risk. Senator Jeanne Shaheen (NH) is sponsoring a similar bill in the U.S. Senate that currently has 19 sponsors currently split almost evenly between Democrats and Republicans with wide geographical diversity.

The United States is one of the largest sugar producers in the world, and America’s sugar industry has enjoyed trade protections since 1789. While the current unnecessarily complicated system eliminates risk for a small group of sugar processors, reform would benefit U.S. consumers, taxpayers and industry, including many American small to medium size enterprises (SMEs). Sugar protections take a number of different forms, including price support loans, domestic marketing allotments, tariff-rate quotas and the diversion of excess sugar to ethanol production. The effect of this spaghetti bowl of government subsidies and protections is higher prices on consumer goods that contain sugar and added costs to American taxpayers.

As is typical with “protectionist” trade schemes, the policies that subsidize American sugar imperil more jobs than they protect. According to the U.S. Department of Commerce, America’s sugar program has an adverse multiplier effect. For every job saved at a sugar processing plant, three domestic manufacturing jobs are lost. The U.S. Census Bureau estimates that the U.S. sugar program resulted in the elimination of 123,000 American jobs between 1997 and 2015. Conversely, reform of the program could be a modest job creation engine. The American Enterprise Institute estimates that the elimination of sugar protections would result in minimal job losses which would be more than offset by the creation of 17,000 to 20,000 new jobs in the U.S. food processing sector.

Sugar protections function as an added $2.4-$4 billion annual hidden “tax” on goods that hardworking American families and U.S. businesses purchase every day. The current program restricts sugar imports and enforces minimum prices for sugar in the domestic market in order to elevate prices on domestic sugar artificially. The Feedstock Flexibility Program, another aspect of the tangled web of protectionism surrounding sugar, mandates that the federal government buy sugar for resale to ethanol plants at a loss during periods of sugar surplus. The result is that American consumers and industries pay double the world market price for sugar and products containing it. See how sugar protections affect your state here.

Americans have grown weary of the “swamp,” and sugar protectionism is a prime example of swamp creatures in action. However, the principles outlined in the Sugar Modernization Act can neutralize at least one swamp creature. Standing up to the sugar lobby to modernize America’s sugar policies will benefit the majority of American consumers and U.S. businesses rather than a small, but determined, special interest group.