The American sugar market has many types of sweeteners but sugar is the most commonly used. Sugarcane and sugar beets are the plants that produce the amounts of sugar that can meet the demands of the economy. The Farm Bill is a sugar policy that seeks to give sugar producers economic support via domestic market controls, tariff-rate quotas and preferential loan agreements. This means that the government has a say in the sugar industry pricing mechanisms.
Through the Farm Bill the USDA (United States Department of Agriculture) guarantees sugar producers a minimum price despite the prevailing market conditions. This is the price floor and currently, sugar beets producers get 22.90cents per pound of sugar. While the idea behind price floors is to protect the producer, it puts the consumers at a disadvantage since they have to pay artificially high prices. The system forces businesses and consumers to pay close to $4 billion higher than the market rate due to the government controls. This threatens the manufacturers cost of production and ultimately the job security of their employees and the quality of the product they supply to consumers.
The quota system imposes a production quota per Sugar Company and State. Sugar cane constitutes 45.65% while sugar beets makes up 54.35% of domestic production. Producers further have an 85% market share of the domestic market over imports. Sugar beets producers seem to be the biggest beneficiaries of this system since they have a bigger market allocation. However, producers who do not meet their quotas suffer penalties via lower tariff charges. This works in favor of the close to 4,700 sugar growers who do not have to worry about fluctuating market prices. In much of the sugar belt, farms are passed down from one generation to the next. Today, many farm owners are fourth generation thus making it difficult for policy makers to revoke policies like the Farm Bill.
The USDA loan incentives to sugar processors with sugar being the collateral at the price floor. In this way, processors sell their sugar in the market to repay their government loans if the market price increases and if it falls; they forfeit it to the government rather than paying back their loans. Sugar beets are the leading raw material for sugar with total production standing at 28.8 million tons for the year 2011. Nearly 57% of the 4.8 million tons of processed sugar came from sugar beets out of the 8.3 million tons produced.
The U.S imports refined sugar to fill the gaps between production and consumption with recent statistics showing Mexico, Brazil and Canada as lead exporters of sugar to the U.S. This is possible via the re-export programs that the U.S operates where is also exports refined sugar to Mexico and Canada to meet the trade demands of NAFTA (North American Free Trade Agreement). Manufacturing jobs for which sugar is an input incur the burden of outsourcing their production outside the states or the country to beat the high production costs. Analysts estimate that out of every job lost in the sugar production industry in the absence of government programs, three are lost by manufacturers due to the artificial prices. The economic structure of the U.S has retail taking up 30% of the demand for sugar while industrial processing commands the remaining 70%. Confectionary's and dairy products rely on sugar inputs the most during the beverage supplements sugar with HFCS (high fructose corn syrup) due to lower costs of production. This is why manufacturers shift industries to areas with favorable production costs as did the manufacturers of Dum Dum candy.
Reference
Episode 454: The Lollipop War. (2013). NPR. Retrieved October 21, 2014, from http://www.npr.org/blogs/money/2013/04/26/179295426/episode-454-the-lollipop-war
