- The Washington Times - Thursday, April 17, 2014

This Easter season, Americans will buy an estimated $2.26 billion worth of such candies as chocolate bunnies, jelly beans, and marshmallow Peeps, the National Confectioners Association estimates. But a key ingredient of candy makers’ sweet success comes courtesy of U.S. taxpayers.

Each year, the U.S. Department of Agriculture supports the sugar growers with generous subsides and loans, and last year taxpayers bought nearly $300 million in sugar in an attempt to prop up the industry.

Advocates for such farm subsidies argue that the problem lies south of the border, but critics point to the sugar industry as another example of powerful lobbyists who have persuaded Congress to help their clients at taxpayer expense.

“The American sugar market can only be described as a government-mandated cartel, which would likely be deemed illegal if it had arisen without government assistance,” wrote Luke Gelber, a media/policy manager at Citizens Against Government Waste. “In today’s climate of slow job growth and fiscal constraint, any program that is regressive, kills jobs and costs taxpayers money should be repealed.”

While pleading that their industry is in danger, sugar growers have found plenty of money to keep lobbying and making political donations, creating little sympathy among those looking to save money in a bloated federal budget. In 2013, one of the largest organizations, the American Sugar Alliance, spent nearly $2.5 million lobbying Capitol Hill.

For continuing to provide taxpayer support to a multibillion-dollar business and failing to enact policies that could protect the industry for less money, Congress and the Agriculture Department share this week’s Golden Hammer, a distinction awarded by The Washington Times to examples of fiscal waste and unnecessary spending.

The government regularly gives out loans to sugar producers to try to support production. According to the USDA’s Economic Research Service, federal loans and price supports for growers were worth 18.75 cents per pound for raw cane sugar in 2013, while refined beet-sugar producers received roughly 24 cents per pound.

The U.S. also heavily restricts most sugar imports from overseas in an attempt to protect American companies, which critics argue hurts consumers at the cash register. The protectionist policies and taxpayer-funded government support have led the U.S. to sport some of the highest sugar prices in the world.

As of March, the USDA reported, the price of raw sugar worldwide was 17.58 cents per pound, compared with 22.03 cents per pound in the U.S. The price of refined sugar was 21.17 cents per pound worldwide but 26.50 cents per pound in the U.S.

Two studies, one by the American Enterprise Institute in 2013 and one by Iowa State University in 2011 estimated that consumers could be paying around $3 billion a year extra from inflated prices.

In May 2013, an effort to reform sugar subsidies was narrowly defeated in the Senate on a 53-46 vote, which left some senators upset.

“We subsidize a handful of wealthy sugar growers at the expense of everybody in America,” said Sen. Patrick J. Toomey, a Pennsylvania Republican whose state includes the headquarters of chocolate company Hershey’s. “It’s heads they win and tails we all lose.”

The USDA said it can do little without changes in the law.

“Congress reauthorized the sugar program in the 2014 farm bill,” agency spokeswoman Gwen Sparks told The Washington Times. “The USDA is required to operate the sugar program under the requirements set forth by Congress and to implement the program at the least possible cost.”

Part of the problem, critics argue, is a piece of the legislation that allows sugar companies to take loans from the federal government and repay them in sugar — leaving the government with stockpiles of the sweet white powder instead of cash.

There is little the U.S. can do with the sugar. It can attempt to get back some of the money by selling the sugar to ethanol producers for biofuel, but it often gets only drastically reduced prices that leave taxpayers on the hook for the difference.

Bloomberg News reported last year that producers could default on as much as $862 million in federal loans because of falling sugar prices.

Meanwhile, in an effort to keep U.S. sugar prices high, the USDA bought $280 million in excess product in 2013, further putting taxpayers at risk for a massive loss of money.

But supporters of the subsidies say the real problem is Mexico. America’s southern neighbor has been heavily supporting its own sugar industry, which is about 20 percent owned by the national government.

Trade agreements have allowed Mexico to sell sugar without regard to U.S. import quotas. But analysts say the Mexican sugar industry is selling the sweet stuff at far below the market rate, a practice known as “dumping.”

The U.S. sugar industry was harmed — some say it nearly collapsed — as a result of the flood of cheap sugar from Mexico. That was when the Agriculture Department bought $280 million worth of sugar in an attempt to take the excess product off the market.

“The only reason the USDA took any action was because of Mexico,” said Phillip Hayes, a spokesman for the American Sugar Alliance. “You have a Mexican industry that dumped more than 1 million tons of sugar into the U.S. market.”

A large number of sugar companies would have gone out of business had the government not made the move, he said. The industry wants fair and free trade, but the influx of sugar from Mexico will continue to cause harm, he said.

“We believe injury has been done not only to producers, but that injury has been done to U.S. taxpayers,” Mr. Hayes said.

Trying to undercut local markets by arbitrarily lowering the price on something, dumping is generally frowned on in international economics. Indeed, a coalition of sugar groups has filed a complaint against Mexico’s practices.

The Commerce Department announced Friday that they will investigate whether Mexico’s practices are violating trade law. An initial assessment is expected in May.

A spokeswoman for the Mexican Embassy in Washington said all officials were in meetings the rest of the week and would not be able to respond to questions until Monday.

Daniel Pearson, an analyst on trade policy at the Cato Institute, a libertarian think tank that supports free trade, said he thinks the sugar industry is often stuck between a rock and a hard place.

Sugar producers don’t always want the USDA to be making large, often unpopular, purchases to stabilize the market, instead believing they are efficient enough to compete on the world stage unassisted. But without federal aid, they might be unable to compete with countries that artificially lower their sugar prices, he said.

In the meantime, consumers are paying for federal policies that keep sugar prices arbitrarily high.

“Both the domestic price support measures and the import price restrictions reduce consumer welfare in the United States,” Mr. Pearson said. “It’s a net loss to the United States economy.”

Congress does not seem motivated to change the way sugar subsidies are handled.

“The history of sugar in this country goes back to before we were a country, because there were sugar policies in Colonial times,” Mr. Pearson said, noting that sugar production has spread to multiple states and congressional districts across the U.S.

“It’s an industry that has grown up with the country and the industry has grown and it really is politically difficult to walk away from policies that support the industry overnight,” he said.

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