March 14 (Bloomberg) -- Sweet reason has left U.S. agricultural policy, at least judging from the latest installment in the sugar-subsidy saga.
Because of a plunge in U.S. sugar prices amid a hefty crop of sugar beets and cane, the Agriculture Department estimates that it may have to buy 400,000 tons of sugar from processors who might default on $862 million in government loans. Sugar producers have the option of repaying the loans either with cash or with their harvests if prices fall below a certain level.
This is all part of a confection of federal price supports and subsidies for the industry. Last year, sugar processors took out loans when U.S. prices were about 25.5 cents a pound. Prices have since declined to 21 cents, just a hair above the trigger price that lets them repay their loans with raw sugar.
The sugar, by law, would be sold to ethanol refiners, who would pay 10 cents a pound less than the government paid -- an inducement needed to get the ethanol industry to use the sugar. Aside from the ridiculousness of piling one ill-advised subsidy atop another, this would produce a loss of $80 million for the U.S. Treasury. Some industry analysts estimate the government may have to buy as much as 800,000 tons of sugar to restore balance to U.S. stockpiles, potentially doubling the loss.
The sugar industry says the loan program, along with price supports, helps sustain an industry that employs 142,000 people. Fair enough. There is no gainsaying the importance of jobs in an economy that hasn’t produced enough of them since the 2008 financial crisis.
But like most subsidies, and U.S. agricultural policy more broadly, the program benefits the few at the expense of everyone else. Each year, the federal government bestows $25 billion in handouts on the farm industry. Most of it goes to large agribusinesses and farmers who on average earn much more than the average American. According to one analysis, about three-fourths of all agriculture subsidies go to just 10 percent of the nation’s farms.
What’s more, consumers end up paying twice -- first as taxpayers, and then at the supermarket, where inflated sugar prices cost shoppers an extra $3.5 billion a year, according to an Iowa State University study. Meanwhile, the U.S. sugar market remains protected from the lower prices that prevail around the world: Because of import restrictions, U.S. prices are higher than the world market price of about 18.8 cents a pound.
Congress had a chance to end the subsidies for the U.S. sugar industry last year, when it was drafting a new farm bill, as it does every five years. The proposal was narrowly defeated. It didn’t matter because the revised farm bill died as Congress reached an impasse on a debt deal. The old farm bill, sugar subsidies included, was extended for a year.
Congress plans to take another shot at writing a farm bill this year. A good place to start would be rolling back sugar subsidies. If legislators lacked a good reason before, they should have one now.
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