Saturday, November 03, 2007

How Sweet It Is

How Sweet It Is

Sugar is sweet, especially if you grow sugar beets or sugar cane. In a 2000 report, the GAO concluded that the sugar program produced welfare gains to sugar producers and processors in 1998 totaling about $1 billion. United States Gen. Accounting Office, Sugar Program: Supporting Sugar Prices Has Increased Users’ Costs While Benefitting Producers (GAO/RCED-00-126, June 9, 2000). About 70% of these gains went to sugar beet producers and processors. More specifically, sugar beet growers in 1998 benefitted from the sugar program to the tune of about $650 million. In 1997, the latest year for which figures were available, there were either 7,097 or 11,800 sugar beet farms in the U.S., depending on whether you rely on the USDA’s census of agriculture (7,097) or the FSA’s estimate (11,800). In either case, a total welfare gain of $650 million spread over 7,000 to 11,000 or so farms is an impressive a per-farm welfare gain.

How did the American people as a whole fare as a result of the sugar program? Not so good, according to the GAO. The GAO computed welfare losses accruing to sweetener users at about $1,938 billion. When this sum is subtracted from the welfare gains accruing to sugar producers and processors, the result in a net loss to the U.S. economy of about $893 million.

Not surprisingly, the sugar program has promoted sugar production. Acreage devoted to sugar beets and sugar cane increased an estimated 8% from 1997 to 2000. In addition, yields have increased as have sugar-per-acre recovery rates. As a result, the U.S. became awash in sugar.

Also not surprisingly, the glut of sugar depressed sugar prices, which sunk to historic lows. In June 2000, the USDA pitched in to help sugar producers by purchasing 132,000 tons of refined sugar at a cost of about $54 million. Prices, however, did not rebound.

The USDA then implemented the “2000 Sugar Payment-In-Kind (PIK) Program” that paid qualifying sugar beet producers up to $20,000 per-person in sugar for not harvesting sugar beet acreage. Producers did not actually take delivery of the sugar. Instead, they were given certificates redeemable in cash by assigning the certificate to a processor. A 2001 Sugar PIK program followed. And a lawsuit followed the 2001 sugar PIK, Sugar Cane Growers Coop. of Florida v. Veneman, 289 F.3d 89 (D.C. Cir. 2002).

Nature gives us the sweetness to sugar-cure our ham. Congress gives us the pork to sinecure our sugar producers. Sweet.


Anonymous D. Daniel Sokol said...

The US system is certainly terrible in the distortions that it creates. However, the situation in the EU is even worse than the US. Both the European Commission and the Swedish Competition Authority have authored reports on EU sugar distortions. Let us also not forget the WTO case against the EU sugar regime.

11/06/2007 5:28 PM  

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