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Capitol Comment

    Capitol Comment 282 - The Big Sugar Bailout: A Bittersweet Reminder of the Federal Legacy of Everglades Destruction

    06/07/2000

    On May 11, 2000, in one of the most blatant cases of corporate welfare to come down the road in recent years, the U.S. Department of Agriculture (USDA) announced that its Commodity Credit Corporation (CCC) planned to buy and store 150,000 tons of surplus sugar. This most recent bailout of the heavily subsidized U.S. sugar industry involves spending $60 million in taxpayer funds to purchase the surplus. Good weather, expanded plantings, improved productivity, and more imports have brought the domestic price of sugar down 25 percent over the last year.

    On May 11, 2000, in one of the most blatant cases of corporate welfare to come down the road in recent years, the U.S. Department of Agriculture (USDA) announced that its Commodity Credit Corporation (CCC) planned to buy and store 150,000 tons of surplus sugar. This most recent bailout of the heavily subsidized U.S. sugar industry involves spending $60 million in taxpayer funds to purchase the surplus. Good weather, expanded plantings, improved productivity, and more imports have brought the domestic price of sugar down 25 percent over the last year. As a result, sugar growers have been threatening to forfeit to the government at least $550 million worth of the crop, pledged as collateral on the CCC’s federal marketing loans.1

    At a time when the federal government is proposing to spend $ 11 billion on so-called Everglades "restoration" efforts, a $ 60 million expenditure that will aid and abet its continued degradation makes little sense

    Government Guaranteed Profits. While $60 million represents the direct cost to taxpayers, the indirect cost reaches into the billions, because the federal government protects domestic sugar farmers from competition in the world sugar market. The government guarantees sugar growers a minimum price through various loan programs, as well as quotas and tariffs on sugar imports. Growers who put their sugar up as collateral for a loan are allowed forfeit their crop to the government if the price falls below the set “floor.” Essentially, the government promises to buy every pound of sugar that growers are unable to sell at the fixed price. The General Accounting Office (GAO) estimates the sugar subsidy costs consumers $1.4 billion a year — principally to benefit a small number of wealthy sugar farmers.2

    According to the GAO, growers and processors of sugar get about $560 million of the $1.4 billion passed along to consumers. Roughly $336 million (60 percent) goes to sugar growers. Of this $336 million, 150 farms (1 percent of all sugar farms) receive 42 percent of the benefits — $141.1 million, an average of $940,000 per farm.3

    Sugar Subsidy Fuels Environmental Destruction. Regrettably, higher prices are not the federal sugar subsidy’s only costs. The program’s guaranteed price has been a significant cause of the environmental destruction of the Everglades ecosystem. Why is this? Simply put, if the government guarantees sugar producers that they will be able to sell their crop at a fixed price, no matter how much of the crop they produce, or regardless of demand, the producers’ incentives are to intensify farming to produce the maximum possible crop yields. One way to do this is to plant on more land. Since the 1970s, the amount of land dedicated to sugar production has nearly doubled. Today, of the 700,000 acres that make up the Everglades Agricultural Area, nearly 500,000 acres of once-natural wetlands are now used solely to grow sugar. This, coupled with 50 years of dredging, draining, and land clearing has drastically reduced the flow of water across the area and into the Biscayne Aquifer — contributing to a shrinking water base for local wildlife.

    The federal subsidy has also encouraged the overuse of pesticides, herbicides, and fertilizers as a means of boosting production. The use of fertilizers in particular has degraded waters with excessive levels of phosphorous. Vast quantities of this nutrient leaches into groundwater that is ultimately pumped into Everglades National Park and the Loxahatchee Wildlife Refuge. Phosphorous runoff has encouraged the growth of algae and of nonindigenous flora at the expense of native species.4 Although scientifically legitimate, arguments concerning acceptable levels of phosphorous and the efficacy of filtration marshes beg the question: If the federal subsidy had not existed in the first place, would so much of this land have been put to agricultural uses in the first place? No matter how the problem is viewed, ending the sugar subsidy would reduce the amount of harmful chemicals that flow into the Everglades by taking unprofitable lands outs of agricultural use.

    CERP: Schizophrenic Federal Everglades Policy. In an effort to address the environmental damage caused to the Everglades, the federal government, in combination with the state of Florida, is preparing to embark on a massive public works project known as the Comprehensive Everglades Restoration Plan (CERP). Cost estimates for CERP, previously known as the Re-Study, have soared since its inception, rising from initial estimates of around $1 billion to as high as $11 billion.5 Just what is being purchased with this massive expenditure of taxpayer dollars is unclear since even the lead agency, the U.S. Army Corps of Engineers, can make no real promises of environmental restoration. Moreover, critical technologies required for CERP to achieve its stated goals remain untested, and are likely to remain so until well after the plan’s implementation has begun.

    Regardless of whether or not CERP will work, one thing is certain: taxpayers who are being forced to fund the programs that damaged the Everglades, are now also being forced to pick up the tab for "fixing" it.

    Costly Reminder. The "gift" of taxpayer dollars to a few wealthy sugar growers is a costly reminder of how federal agricultural subsidies are not only bad for consumers, who are forced to pay artificially high prices for subsidized commodities, but also for the environment. The ever-increasing acreage devoted to sugarcane planting in the Everglades, as well as the intense use agricultural chemicals, has played a major role in the destruction of this fragile ecosystem. At a time when the federal government is proposing to spend $11 billion on so-called Everglades "restoration" efforts, a $60 million expenditure that will aid and abet its continued degradation makes little sense.

    1US Department of Agriculture Press Release No. 0159.00, "USDA to Purchase U.S. Sugar, Reduce Cost to Government," May 11, 2000.

    2General Accounting Office, Sugar Program: Changing Domestic and International Conditions Require Program Changes, April 1993, p. 3.

    3Ibid., p. 4.

    4Jonathan Tolman, "Federal Agricultural Policy: A Harvest of Environmental Abuse," Competitive Enterprise Institute, August 1995, p. 4.

    5General Accounting Office, South Florida Ecosystem Restoration, An Overall Strategic Plan and a Decision-Making Process Are Needed to Keep the Effort on Track, April 1999, p. 9.