Texas A&M Analysis Lends Support to U.S. Sugar Policy

Left: Photo by Don Lilleboe - Right: Photo by Ron Olivier

Current legislative proposals to change U.S. sugar policy may be positioned as modest reform; but they would have dire economic consequences on U.S. sugar producers, put U.S. taxpayers on the hook — and leave U.S. consumers dependent on unreliable, subsidized foreign suppliers.  

That’s the conclusion of a paper re-leased in mid-May by two Texas A&M University ag economists.

The paper, titled “Analysis of the Coalition for Sugar Reform Amendments to U.S. Sugar Policy: Potential Effect on Policy and Industry,” was pre-pared by Joe Outlaw and James Richardson for the American Sugar Alliance*.  Outlaw is professor and extension economist at Texas A&M, while Richardson is regents professor and Texas Agricultural Experiment Station senior faculty fellow.  The two economists also serve as co-directors of the university’s Agricultural and Food Pol-icy Center.

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“Our analysis indicates that the proposed reforms, while perhaps of some short-term economic advantage to food manufacturers, would result in significant cost to U.S. taxpayers and sugarcane and sugarbeet farmers and processors, with little or no advantage to U.S. consumers,” wrote Outlaw and Richardson in their report.  “In the long run, these reforms would under-mine the food manufacturers’ stated interest in maintaining a viable, healthy and geographically diverse sugar industry.”

The report’s executive summary reads as follows:
Sugar is an integral ingredient in the nation’s food supply, used as a sweetener, a bulking agent, and a preservative in consumer-packaged goods, baking, canning, beverages, and meat preparations. Sugar also has many non-food industrial uses.  As demonstrated during World War II when U.S. sugarbeet and sugarcane farmers were encouraged to increase production in order to help feed American troops, an adequate domestic supply of this essential food ingredient is important to U.S. national security.

Because sugar is such an important part of the nation’s food supply, reliable supplies are necessary.  This helps ex-plain the long history of U.S. sugar pol-icy and why policymakers, sugar farmers, consumers, and even food manufacturers support maintaining a viable, healthy and geographically diverse U.S. sugar industry.

The United States today is the world’s fifth largest sugar-producing country, the fourth largest sugar-consuming nation, and among the three largest importers in the world.  The United States is also the 20th lowest-cost sugar producer among the 95 largest sugar-producing nations, with most of these being developing countries with far lower government-imposed costs for worker, consumer, and environmental protections.  U.S. sugar-beet farmers, found mostly in northern-tier states, are the lowest-cost beet farmers in the world.

It is estimated that the U.S. sugar industry generates 142,000 jobs in 22 states and $20 billion in annual economic activity.  Employment in the U.S. sugar industry has declined 40% over the last 25 years due largely to in-creased imports from countries using policy tools that stimulate production and exports.  Meanwhile, over the same period, the prices U.S. sugar farmers have received for their sugar have been stagnant, in fact down 40% when adjusted for inflation, even as production costs have significantly increased.

Policymakers in the United States have long recognized that the world sugar market is heavily distorted by foreign subsidies and market manipulations, and have provided U.S. sugar farmers with some form of safety net for more than 200 years.  Major ex-porters of sugar do not respond to the signals of the world market but rather to the policies of their governments that enable them to export sugar below their costs of production and their own domestic prices.

The issue, then, has always boiled down to the question of: How does the U.S. provide a meaningful safety net for sugar producers in a distorted global market?  One option is through a form of government transfer payments to U.S. sugar farmers; while the chosen option is to utilize a no-taxpayer-cost policy where U.S. sugar farmers are expected to derive their income from the market.

* A copy of the entire Texas A&M economists’ 31-page paper can be found on the American Sugar Alliance website: www.sugaralliance.org.

While payments to U.S. sugar farmers have been attempted in a few brief instances over the span of time in which U.S. sugar policy has been in place, this approach has been a costly failure.  For example, from 1891 to 1894, a two-cent-per-pound annual payment or “bounty” was made to sugar farmers.  In today’s terms, this amounts to a payment of 66 cents per pound.

Generally, then, policymakers have sought to achieve a no-taxpayer-cost approach to U.S. sugar policy.  Five of the six most recent farm bills have statutorily required U.S. sugar policy to operate at no cost to taxpayers to the maximum extent possible.  U.S. sugar policy is designed in such a manner that it effectively responds to foreign subsidies and distorted global markets without the need for taxpayer payments to U.S. sugar farmers.

U.S. sugar policy has operated at no cost to U.S. taxpayers over a period of the last 15 years — with the exception of 2013, the year Mexico was found to have illegally dumped below-cost sugar onto the U.S. market.  Measured over a longer period of time, U.S. sugar policy has operated at no cost in all but three of the past 29 years, with one of the three years due to Mexican dumping. Subsequent refinements made to U.S. sugar policy have successfully worked to avoid the conditions under which costs were incurred.

U.S. sugar policy is expected to continue to operate at no cost beyond the life of the 2014 farm bill, with some forecasts projecting no-cost sugar pol-icy to continue for at least the next 10 years, assuming that current domestic and trade policies remain in place.

Maintaining no-taxpayer-cost U.S. sugar policy has depended upon the operation of three core policy tools, including non-recourse loans and flexible marketing allotments authorized by the farm bill, and tariff rate quotas negotiated and provided for under U.S. trade agreements.

In the past, food manufacturers have sought to totally eliminate U.S. sugar policy or, alternatively, to entirely replace the no-taxpayer-cost U.S. sugar policy with a taxpayer-paid pro-gram, the costs of which were once estimated at an unsustainable $1.3 billion per year.  However, having failed to gain traction for these changes, the Coalition for Sugar Reform, has pro-posed what it calls modest reforms to these policies in order to restore balance.

Our analysis indicates that these proposed reforms, while perhaps of some short-term economic advantage to food manufacturers, would result in significant cost to U.S. taxpayers and sugarcane and sugarbeet farmers and processors, with little or no advantage to U.S. consumers.  In the long-run, these reforms would undermine the food manufacturers’ stated interest in maintaining a viable, healthy, and geo-graphically diverse U.S. sugar industry.

     By proposing to weaken the safety net for U.S. sugar farmers to levels that were in place when more than half of American sugar processors closed, the result would be threefold: (1) further injury to U.S. sugar farmers and processors at those times when they re-quire a safety net and food manufacturers are already benefiting from low market prices for sugar; (2) further de-pressed prices received by producers, loan forfeitures, and U.S. taxpayer costs; and (3) ultimately, a substantial loss of U.S. sugar farmers and processors and, consequently, lower domestic sugar supplies and higher prices paid by food manufacturers, which they will pass on to consumers.

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