Is the US sugar problem solvable?

The United States' sugar policy has been widely criticised both at home and abroad for supporting a relatively small group of sugar producers at the expense of consumers, taxpayers, sugar-using industries, and the environment, says the Competitive Enterprise Institute (CEI).

The programme relies on restricting sugar imports to keep domestic prices high, which especially hurts those developing countries that are low-cost producers of sugar. The artificially high price also provides incentives for domestic sugar producers to increase production into environmentally sensitive areas, says CEI.

The examination of three reform experiences in other areas provides some insight into possible options for sugar reform, says CEI:

Agricultural reforms in New Zealand, which opted for a "shock reform" that left farmers little time to adjust to the new policies. While difficult for many farmers, the reforms did not lead to the collapse of the agricultural sector, as some had feared. In contrast, agricultural production has thrived over the past two decades.

The buyout programme for peanut quota holders enacted after the 2002 Farm Act. The changes abolished a two-tiered price system under which quota holders were guaranteed a minimum price of $610 per ton, while other producers received a minimum $132 and were restricted from selling in the domestic market.

The compensation of tobacco quota holders through a buyout programme. This was enacted after tobacco reform abolished the existing tobacco quota and price support programme.

These cases represent examples of the possible reform scenarios for sugar: the quick dismantling of the existing sugar programme or a buyout option.

The conclusion that might be drawn, says CEI, is that to be successful, reform needs to address several concerns, such as reducing the high costs for consumers and the sugar-using industries, as well as providing a long-term policy framework for sugar growers.

Source: Barbara Rippel, Frances B. Smith and Ivan Ororio, Op-Ed: Is the U.S. Sugar Problem Solvable? April 20, 2006; and Is the U.S. Sugar Problem Solvable? Competitive Enterprise Institute, April 13, 2006.

For text: http://www.cei.org/gencon/019,05281.cfm

For report text: http://www.cei.org/pdf/5263.pdf

For more on Federal Spending: http://www.ncpa.org/iss/bud/

FMF Policy Bulletin/ 02 May 2006