The sweet taste of corporatism

As Congress debates the farm bill this week, one could celebrate the legislation’s productivity by drinking Mexican Sprite, which boasts a refreshingly crisp taste. A look at the ingredients will enlighten — they are made with pure cane sugar. Mexican carbonated drinks contain sugar while American sodas have high-fructose corn syrup. The problem is political as much as economic: there exists in the United States a tariff-rate import quota on sugar.

The history of the U.S. sugar program dates to the Revolutionary War. Saddled with debt after gaining independence, a young America imposed a tariff on sugar to raise revenue. In 1890 it was replaced by a subsidy; in 1894 the tariff was reinstated. During the Great Depression, the 1934 Sugar Act installed quotas on foreign sugar imports and paid a direct subsidy to farmers. After the Act expired in 1974, President Reagan signed the 1981 farm bill, which included country-by-country import quotas. Under Presidents George H.W. Bush, Bill Clinton, and George W. Bush, the farm bill was repeatedly reauthorized.

The tariff-rate quota restricts the amount of sugar that can legally be imported into the US. Excess sugar imports are subjected to an exorbitantly high tariff. The result is both a decreased quantity of sugar in domestic markets and a domestic price much higher than the world price. The sugar program costs American consumers and businesses a deadweight loss of $3.5 billion annually. It destroys thousands of jobs in the food manufacturing sector by increasing the costs of production. It makes domestic confectioners less competitive because foreign sugar is so much cheaper. It harms the environment, as sugar production can pollute and damage ecosystems. This phenomenon has occurred in the Florida Everglades.

Instead of reforming the sugar program, Congress decided to buy back land from sugar farmers for millions of dollars. The final cost is the hidden cost to public health. By making domestic sugar very expensive, Congress incentivizes companies that sell sweet products to use sugar substitutes such as high-fructose corn syrup and aspartame. Heavily subsidized, high-fructose corn syrup is present in many foods nowadays. Excessive consumption leads to obesity, diabetes, fatty liver and heart disease. Finally, high-fructose corn syrup and aspartame can create resistance to leptin, a hormone that regulates appetite and hunger. Chronic consumption tricks the body into believing it is unsatisfied when it is actually full. Distorting incentives, the sugar program indirectly and inadvertently contributes to an unhealthier American society.

It is fascinating and disheartening that the sugar program has existed for so long. The next Congress always votes to extend a policy that benefits the few — several thousand farmers — at the expense of the many taxpayers. Most people are incognizant of the sugar program. This ignorance is due to dispersed costs and concentrated benefits: A typical family only buys a few pounds of sugar each year and does not notice the effect on its budget. In contrast, the typical sugar farmer nets a profit of hundreds of thousands, if not millions, of dollars a year. The government program has become the sugar farmers’ lifeline.

Why are there so few yet so politically powerful sugar farmers? One would expect sugar, like wheat, to be in a perfectly competitive market. Sugar has the features of a free market — except free entry and exit. Sugarcane is notoriously difficult to grow and reap. With the costs of lobbying and other political affairs, sugar farming becomes an activity for the few. Sugar farmers often influence Congress by donating millions in campaign contributions. The sugar program is corporate welfare at its finest.

The arguments for protectionism are old. First is national security — but sugar is not an essential good and definitely not vulnerable to disruption in international markets. Second is job creation. This argument backfires because each preserved farming job kills at least 10 jobs in another sector. It would be cruel to judge a farmer as worth more than 10 skilled laborers. Last is the “infant industry” argument. The sugar program was legislated in 1789; the sugar industry should be mature enough after 224 years of coddling.

Nearly all economists agree that free trade is positive. Taxpayers and businesspeople do not want their money to support corporatism. Environmental and health advocates know the dangers of sugar and substitutes to land and body. Through economic education, this generation might finally end the American sugar program. Sugar farmers must learn to compete or settle in history museums.

By Eric Yao

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