Sugar Welfare

The federal government enforces a program that regulates sugar production and importation, primarily to ensure minimum price levels surpassing those in international markets. This approach has guaranteed higher incomes for sugar producers than they would otherwise receive. As a result, American consumers face elevated prices, increasing household and business expenses.

Since the nation's founding, there have been barriers to sugar imports, with the first tariff established in 1789. However, modern sugar protectionism traces its roots to the Jones-Costigan Amendment of 1934, part of the New Deal initiative. Initially introduced as an emergency measure to support sugar farmers, this amendment was included in the Sugar Act of 1937, establishing a framework of domestic production quotas, subsidies, tariffs, and import quotas. Florida has a proration system that limits its sugar production to fifty percent of its intrastate consumption. This unique region outside the Everglades is the only one on the continent capable of producing sugar profitably without tariffs or government subsidies, yet it faces limitations despite its potential. Growing sugar within the Everglades Agricultural Area would not be profitable without subsidies.

The sugar program continued with only minor adjustments until 1974, a pivotal year when sugar prices tripled, and the Sugar Act of 1948 expired without congressional renewal. The Agriculture and Food Act of 1981, commonly known as the farm bill, significantly reshaped agricultural policy in the United States. A key component was the reintroduction of price support loans, which remain a fundamental part of the U.S. sugar program. These loans, administered by the U.S. Department of Agriculture’s Commodity Credit Corporation, provide crucial financial support to sugar processors.

To maintain stability in the sugar market, the USDA plays a vital role in regulating supply to avert prices from falling below the levels set by agricultural loans. When processors take out nonrecourse loans, they risk losing their collateral if market prices drop. Therefore, it is essential for the USDA to ensure that sugar production remains adequately limited to promote higher prices. This strategy safeguards processors' interests and guarantees that sugar collateral is sold rather than forfeited, thereby avoiding potential losses.

The sugar program's second component, marketing allotments, is crucial for regulating the sugar market in the United States. Each year, the USDA sets an overall allotment quantity (OAQ) that limits the total amount of sugar that can be sold. This method reduces loan forfeitures and ensures that 85 percent of the sugar market benefits domestic producers, as mandated by law.

The feedstock flexibility program, introduced in the 2008 farm bill, plays an essential role in stabilizing sugar prices and preventing loan forfeitures. This program effectively manages the sugar supply by allowing the USDA to purchase sugar from the market and resell it to bioenergy companies for fuel production. By acting as both a buyer and seller, the USDA strategically decreases the sugar available for human consumption. This supply reduction drives prices higher than they would otherwise be, thereby enhancing the financial stability of sugar producers.

Tariff rate quotas (TRQs) are vital to U.S. sugar policy and pivotal in stabilizing domestic sugar prices. These quotas are crucial in preventing an influx of imports that could drive prices down and threaten the goal of maintaining sufficiently high sugar prices. Currently, the U.S. permits importing a minimum amount of raw and refined sugar, a commitment made to the World Trade Organization. This importation occurs duty-free through preference programs.

These market adjustments result in domestic sugar prices that are twice as high as those in the global sugar market, a development that many congressional legislators consider a policy success. A significant portion of these costs goes to sugar industry lobbyists. If the activities financially backed by the American sugar program were instead carried out by a group of producers of a different product, they would almost certainly be deemed illegal, violating the Sherman Act.