America’s Sugar Policy: A Not So Sweet Deal for Consumers

The House and Senate will soon have the opportunity to vote on whether to give America’s depression-era sugar program a new lease on life. How Congress chooses to deal with this program — perpetuating or phasing it out — will demonstrate whether it has heard the message sent by voters a year ago to eliminate wasteful programs, or whether it will continue politics-as-usual.

Under the federal sugar program, the government guarantees sugar growers — unlike Americans in just about every other business — a minimum price for their product. Defenders of this price-fixing program assert that it costs the taxpayers nothing, benefits small farmers, and protects jobs. They also assert that eliminating the sugar program would mean higher profits for companies that buy sugar and not lower prices for consumers. However, all four of these assertions are false.

Taxpayers pay for the sugar program. The program’s defenders assert that it costs taxpayers nothing. Although it is true that taxpayers do not pay a direct subsidy to sugar farmers, it takes taxpayer money to make the program run. Someone pays for government bureaucrats and agents to administer the program. The government also pays higher prices when procuring sugar for the military and bears higher food stamp costs. It is taxpayers who pay these unnecessarily high costs.

But most importantly, taxpayers pay dearly for this program because they are also consumers. The General Accounting Office (GAO) has conservatively estimated that the sugar program costs consumers $1.4 billion a year and primarily benefits a small number of sugar farmers.(1) The fact that this money is paid at the supermarket rather than on a 1040 form makes it no less costly to Americans.

Fixing prices for the privileged few. Proponents assert that the program protects small farmers. In fact, a small number of farmers get most of the program’s benefits. According to the GAO, growers and processors of sugar get about $560 million of the $1.4 billion in higher costs to the consumer. About 60 percent of this ($336 million) goes to sugar growers. Of this $336 million, 150 farms — 1 percent of all sugar farms — receive 42 percent of the benefits. This is a massive $141.1 million transfer to 150 farms, an average of $940,000 per farm. In fact, the GAO estimated that in 1991 one farm alone received over $30 million in benefits thanks to the sugar program.(2)

Saving jobs or destroying jobs? Supporters of the sugar program say that abolishing the program would destroy jobs. But they’re only looking at one side of the picture. The sugar program diverts resources from the rest of the economy, thereby reducing jobs available elsewhere. If guaranteed prices protected jobs, the government should boost prices on products like paint in order to protect jobs in the paint-making industry. Of course, this would destroy jobs for painters, artists, and anyone else involved in paint-using industries, just as the sugar program destroys jobs in sugar-using industries.

Savings go to consumers? The program’s proponents also assert that eliminating the program would benefit only companies that buy sugar — not typical American consumers. One advertisement characterizes attempts to eliminate government price-fixing of sugar as “[a]nother craven ruse to gouge American consumers”!(3)

The same advertisement asserts that corporations would fail to pass savings along to consumers, but also lists no fewer than 10 major companies that buy sugar and compete for consumers’ dollars. Have supporters of the sugar program never heard of such all-American concepts as “competition” and “the law of supply and demand?” Since no one company has a monopoly on products containing sugar, competition would hold prices down no matter how much any individual company might like to pursue “windfall profits.”

The environmental cost. The economic cost in terms of higher prices and lost jobs are not the program’s only costs. The increase in production of sugar because of the program’s guaranteed prices has caused environmental destruction in the Everglades of South Florida.(4) The Everglades Agricultural Area consists of over 700,000 acres of land,(5) of which over 450,000 acres is used to grow sugar.(6) The program’s inflated sugar prices cause farmers to over-use inputs such as fertilizers, thereby harming the Everglades ecosystem. Ending the sugar subsidy program would reduce the amount of harmful chemicals being placed in the Everglades, creating a cleaner environment as well as a stronger economy.

The only real question is whether Congress trusts the government or consumers to generate jobs and fair prices. If it trusts the government, Congress should extend the sugar program to the rest of our economy. If it trusts the millions of individuals acting on their own free will who make up the market, Congress should eliminate the sugar program.

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

(2) Ibid., pp. 4, 32.

(3) “The Grand Deception,” advertisement, The Hill, October 25, 1995, p. 13.

(4) See Jonathan Tolman, “Federal Agricultural Policy: A Harvest of Environmental Abuse,” Competitive Enterprise Institute, August 1995, p. 4.

(5) Margaret Kriz, “Mending the Marsh,” National Journal, March 12, 1994, p. 590.

(6) U.S. Department of Interior, The Impact of Federal Programs on Wetlands, March 1994, p. 134.

Don Dempsey is an adjunct scholar with Citizens for a Sound Economy.