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Uncle Sam Is a Sugar Daddy

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When the government of a foreign country tells companies in a particular industry how much of its product it can sell; guarantees minimum prices; provides nonrecourse loans; restricts imports of foreign product; buys up excess product; and seeks to stabilize, support, and protect the industry, it is denounced as socialism or central planning.

But when the same thing occurs in the United States, it is called the U.S. Department of Agriculture sugar program.

Sugar has long been one of the most controversial and complex aspects of U.S. agricultural policy because of the many different groups that are affected by it: producers, processors, refiners, harvesters, manufacturers of products containing sugar, foreign sugar suppliers, sugar brokers and traders, employees of processors and refiners, trade groups, and, of course, consumers who purchase sugar from grocery shelves.

The first U.S. tariff on imported sugar was imposed in 1789. In 1842, the sugar tariff became purely protective when refined sugar began to be subjected to a higher tariff than raw sugar, to promote the expansion of domestic raw-sugar production and a domestic refining industry. In 1934, a federal sugar program was enacted as part of Franklin Roosevelt’s New Deal.

As explained by Jose Alvarez and Leo C. Polopolus, two economists associated with the University of Florida, the first Sugar Act, the Jones-Costigan Act, had six main features:

  1. the determination each year of the quantity of sugar needed to supply the nation’s requirements at prices reasonable to consumers and fair to producers;
  2. the division of the U.S. sugar market among the domestic and foreign supplying areas by the use of quotas and subordinate limitations on offshore direct consumption sugar;
  3. the allotment of those quotas among the various processors in each domestic area;
  4. the adjustment of production in each domestic area to the established quota;
  5. the levying of a tax on the processing of sugar cane and sugar beets, the proceeds of which were to be used to make payments to producers to compensate them for adjusting their production to marketing quotas to increase their income; and
  6. the equitable division of sugar returns among beet and cane processors, growers, and farm workers.

The Sugar Act of 1937 added an excise tax that was unrelated to government payments to growers and adjusted quota allocations. It was extended several times until superseded by the Sugar Act of 1948, which only changed the method of establishing quotas. It was amended and extended several times before expiring in 1974.

An interim price-support program was instituted by the secretary of Agriculture in 1977 that allowed processors to receive the difference between a price objective and a defined average market price. In return, processors were required to pay a certain amount to producers of sugar beets and sugar cane. The Food and Agriculture Act of 1977 contained a loan or purchase program in which sugar could be used as collateral. Sugar processors could default on their loan and forfeit their sugar to the Commodity Credit Corporation (CCC) if the market price for sugar was not high enough.

The Agriculture and Food Act of 1981 mandated a price-support program for sugar through 1985. It included a “market stabilization price” for raw cane sugar above the purchase or loan rate to discourage the sale or forfeiture of any sugar to the CCC. Import duties were increased and a system of country-by-country import quotas was established.

The Food Security Act of 1985 basically left in place the major provisions of the previous farm bill.

The sugar program in the Food, Agriculture, Conservation, and Trade Act of 1990 amended the Agricultural Act of 1949 regarding the sugar price-support program and disaster payments. A two-tiered tariff scheme was established, as well as marketing controls on domestic sugar if imports were projected to fall below a certain level.

The sugar program in the Federal Agricultural Improvement and Reform Act of 1996 retained the import quota system while eliminating marketing controls on domestic sugar. It directed the secretary of Agriculture to make recourse loans available to processors of domestically grown sugar cane and sugar beets at 18¢ per pound and 22.9¢ per pound, respectively, to be reduced if foreign subsidy reductions exceed the GATT Uruguay Round Agreement commitments.

The Farm Security and Rural Investment Act of 2002 directed the secretary of Agriculture to operate the sugar program at no cost to the federal government by avoiding sugar forfeiture to the CCC. It directed the CCC to establish a sugar-storage and handling-facility loan program for processors of domestically produced sugar cane and sugar beets. It also directed the U.S. trade representative to determine the annual cane-sugar quota used by each supplying country and permit reallocation of the unused quota among such countries.

The most recent federal sugar program is found in the Food, Conservation, and Energy Act of 2008. It eliminates imported sugar-quota reallocation provisions and the authority of the secretary of Agriculture to adjust loan rates on the basis competing countries’ subsidy reductions. It provides that if a producer agrees to reduce production of sugar beets or sugar cane already planted, such sugar beets or sugar cane may not be used for any commercial purpose other than bioenergy feedstock. It subjects to reporting requirements certain sugar, molasses, and syrup importers, sugar-cane and sugar-beet processors, and cane-sugar refiners. It directs the secretary of Agriculture to collect information on the production, consumption, and trade of sugar and high-fructose corn syrups in Mexico. It also directs the secretary of Agriculture to establish the overall quantity of sugar to be allocated for a crop year at a level to ensure that raw and refined sugar prices exceed loan forfeiture levels. And finally, the 2008 sugar program in the farm bill sets forth provisions respecting allocation assignment in the sale of sugar-beet-processor factories and allocation for new entrants opening a new factory or reopening or acquiring an existing factory.

The 2008 farm bill expires at the end of this year. Late last month, the Senate passed a new farm bill, the 1091-page Agriculture Reform, Food, and Jobs Act of 2012 (S.3240). The sugar program is mentioned in Title I — COMMODITY PROGRAMS, Subtitle C — Sugar, Section 1301. But all the bill does is continue the current program until 2017. Five times the bill states to amend “2012” in previous legislation and substitute “2017.”

The House’s version of the farm bill, the Federal Agriculture Reform and Risk Management Act of 2012 (H.R.6083), was just approved by the House Committee on Agriculture. It is virtually the same as the companion Senate bill with respect to the sugar program.

That means that the sugar program found in Title 7, Chapter 100, Subchapter IV, Part B, Section 7272 of the U.S. Code will continue as is. The secretary of Agriculture will continue to make loans available to processors of domestically grown sugar cane at a rate equal to 18.75¢ per pound for raw cane sugar and to processors of domestically grown sugar beets at a rate equal to 128.5 percent of the loan rate per pound of raw cane sugar. It also means,

A sugar cane processor, cane sugar refiner, and sugar beet processor shall furnish the Secretary, on a monthly basis, such information as the Secretary may require to administer sugar programs, including the quantity of purchases of sugar cane, sugar beets, and sugar, and production, importation, distribution, and stock levels of sugar.

As a condition of a loan made to a processor for the benefit of a producer, the Secretary shall require each producer of sugar cane located in a State (other than the Commonwealth of Puerto Rico) in which there are in excess of 250 producers of sugar cane to report, in the manner prescribed by the Secretary, the sugar cane yields and acres planted to sugar cane of the producer.

The Secretary may require each producer of sugar cane or sugar beets not covered by subparagraph (A) to report, in a manner prescribed by the Secretary, the yields of, and acres planted to, sugar cane or sugar beets, respectively, of the producer.

Except as provided in subparagraph (B), the Secretary shall require an importer of sugars, syrups, or molasses to be used for human consumption or to be used for the extraction of sugar for human consumption to report, in the manner prescribed by the Secretary, the quantities of the products imported by the importer and the sugar content or equivalent of the products.

Uncle Sam is a sugar daddy, and the U.S. sugar industry has a sweet deal.

 

No-cost loans and guaranteed minimum prices benefit sugar producers and processors even as tariff-rate quotas protect them from foreign competition. At least 85 percent of sugar sold in the United States must come from domestic sugar processors. To avoid price slumps, the government can buy up excess sugar and sell it to ethanol producers — even at a loss.

But that’s not all. Politicians who receive campaign contributions from the sugar industry benefit as well. The high-fructose corn-syrup industry also benefits from inflated sugar prices, as it makes their sweetener more attractive to food producers. The USDA and the CCC work to stabilize, manage, and ensure the profitability of the sugar industry — to the detriment of American food manufacturers and consumers.

In looking at the past and current sugar programs contained in the various farm bills, there are several things that come to mind: protectionism, socialism, corporate welfare, crony capitalism, economic fascism. But I think the best way to describe the U.S. sugar program is Soviet-style central planning.

That is shocking to Americans, who have been conditioned to believe that the United States has a capitalistic economic system with free trade, competition, a free market, and limited government interference.

Can you imagine the economic warfare that would characterize the American economy if the production and sale of every good were micro-managed and every industry were protected like sugar and the sugar industry? Can you imagine the government guaranteeing to every business and industry a minimum price on every product they sold? Can you imagine the trade war that would occur between the United States and other countries if every imported good were subject to protective tariffs like sugar?

So why is sugar so different from any other commodity? Unfortunately, it’s not. The truth is that “agriculture,” according to the National Agricultural Law Center, “is one of the most heavily regulated components of the U.S. economy, with virtually every aspect of agricultural production, processing, distribution and marketing regulated in some manner by the federal, state or local governments.”

To justify the necessity of intervention in the economy, the government makes agriculture the great exception. The Agricultural Organic Act that established the USDA on May 15, 1862, authorized the agency to conduct research and development related to “agriculture, rural development, aquaculture and human nutrition in the most general and comprehensive sense of those terms.” From its humble beginnings, the USDA has grown to such gargantuan proportions that it now claims to touch “the lives of every American, as well as people across the globe.”

It would be bad enough if it were only agriculture that the government had control of. But the simple fact is that the government sees exceptions everywhere in the economy — from health care to transportation. From education to air-traffic control, and even the amount of water that toilets are allowed to flush.

The federal government has absolutely no constitutional authority to have anything to do with sugar because it has absolutely no constitutional authority to have anything to do with agriculture. And yet the farm bills with their sugar programs continue. Don’t look for Republicans in the House to put an end to the Department of Agriculture or even the sugar program.

Yes, Republicans talk about free markets and limited government, but when it comes time to vote in Congress on another farm bill they reveal that they are just as devoted to economic interventionism as Democrats.

Only 4 out of 26 Republicans on the House Committee on Agriculture voted against the new farm bill. Sixteen Republicans in the Senate voted for the new farm bill while 30 voted against it.

It almost sounds as though a majority of Senate Republicans favor economic freedom. Almost. It should be remembered that the Senate and the presidency are currently controlled by the Democrats. A look back at Republican votes on previous farm bills shows that when Republicans control the whole Congress or there is a Republican in the White House (or both), there is much less opposition by Republicans to farm bills.

When the Food, Conservation, and Energy Act of 2008 (H.R.2419) was passed under a Republican president, a majority of Republicans in the Democratic-controlled House and Senate voted for it (35-13 Republicans in the Senate and 100-91 Republicans in the House). Although George W. Bush vetoed the bill, it wasn’t because he opposed a farm bill on principle. In his veto message he even said, “For a year and a half, I have consistently asked that the Congress pass a good farm bill that I can sign.” Congress overrode Bush’s veto by similar margins.

In May 2001, when the Republicans were the majority party in Congress and held the presidency, the Farm Security and Rural Investment Act of 2002 (H.R.2646) was passed. The Republican vote was 20-28 in the Senate and 141-73 in the House.

When the Federal Agricultural Improvement and Reform Act of 1996 (H.R.2854) was passed, Bill Clinton was president, but the “Republican Revolution” had given Republicans complete control of both houses of Congress for the first time since the early 1950s. So the Republicans never gave Clinton a farm bill, right? They not only gave him a farm bill, only 27 Republicans in the House and 1 in the Senate voted against it.

Did farm bills cease during the six years in the 1980s when Ronald Reagan was president and the Republicans controlled the Senate? Of course not.

Uncle Sam is a sugar daddy no matter which party is pulling the strings.

Efforts to repeal or roll back the sugar program failed when the farm bill passed the Senate last month. An amendment to the House version of the farm bill that would have reformed the sugar program was offered by vice chairman Bob Goodlatte (R-Va.) but likewise failed. American sugar companies and their trade associations have spent millions on campaign contributions and lobbying to protect the sugar industry. They are opposed by the National Association of Manufacturers and food giants such as Mars and Kraft Foods, who have likewise spent millions.

It’s time to end the sugar industry’s sweet deal. No industry should be protected. No industry should be insulated from competition. No industry should be guaranteed profitability. And no industry should be centrally planned by Uncle Sam.

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