see also GloboTrends:  commodity

Sugar Industry

In the USA, the sugar intustyr benefits from both a government subsidy (hand out), and an import quota  (limiting the quantity of imported sugar).  Import quotas in the USA  raise the price of domestic sugar prices. 

This problem is very similar to what happened in Europe with the common agricultural policy in which the local government made a subsidy for local producers to "protect" them from cheaper foreign imports.   A domestic price guarantee in the USA has resulted in the American consumers paying an above (world) market price for all sugar that is consumed in the USA.  But, unlike the EU case of agriculture, in the sugar case, the result of higher prices has not resulted in an over supply of US produced product, so the US sugar has not flooded the international markets (and has not depressed world wide prices as a result).  The reason?  Well, the US can not produce enough sugar to even fullfill its own domestic needs (way too many soda's sold :-).  So, in this case, the US subsidy of domestic sugar has resulted in higher prices paid to domestic producers without resulting in a export subsidy (as has happened in Europe with agriculture).

In this case, the USA backs up its domestic subsidy with import quotas to limit the amount of imported sugar.  These import quotas (limiting the volume imported) are necessary because the artificially elevated prices in the USA (thanks to the government handouts) would attract massive amount of foreigners wanting to sell in the USA.  In order to keep a massive flood of "cheap" foreign sugar out, the US government has decided to back up its subsidy program with an additional import quota program.  What a mess!  

One interesting twist is that because the USA does not produce enough domestically, they still need to import some sugar from abroad.  The US has elected to go with a quota system (rather than a tariff), which means that specific quantities of imports are regulated (rather than slapping a % surcharge on all imports).  The licenses for controlling these quantities are given to foreign governments,who then allocate those rights to their citizens.  The result of this strange system is that foreign governments receive all of the economic benefits from owning the licensing rights.  Because the US pays higher-than-market prices for sugar, these licenses are valuable, and the benefits goes to foreign governments (and not to the US govt as would happen if the US used a tariff based system).   These lost earnings from import rights costs the US millions of dollars per year.

Effects on consumers

In order to protect some 40,000 workers in the US sugar industry, all 300 million consumers pay a higher price for their sugar (2x world prices).

The difference is that most consumers use so little sugar, spending some $10 per year directly, that it makes very little impact on their day-to-day lives to pay a higher price for sugar...that most people dont notice, and dont care.   But to the very few sugar producers, it makes a HUGE difference.   So, as a result, the few sugar producers are very active politically, petitioning the government for more protectionism (hand outs), but very few consumers bother to write their congressman about the issue.  As we are in a democracy, the "loudest wheel gets the most grease", or so the saying goes. 

Are these jobs worth saving?

but, if you think about it...should the US really be giving handouts to a very small group of rich sugar producers in Florida (and some in California)?

The vast majority of Florida sugar is being produced by imported labor from the Caribbean.  At your typical sugar mill in Florida, the only Americans working there are the rich owners.  Just about everyone else is from the Caribbean, who are the same people that would be producing and exporting sugar if not for our trade barriers.

So, in effect, we are collectively paying taxes to "save American jobs", but those jobs pay so little that we import labor from the very same countries whose sugar we are shutting out of ours. 

US tax payers are basically paying to line the pockets of the few rich sugar plation owners.  The same workers would be working either in the US or in the Caribbean (in the case of Florida cane sugar), or Mexicans (in the case of California's beet sugar).

Embargo leads to Job losses?

The price of sugar rushed to 28-year highs as bad weather in Brazil and India, the biggest producers, affected crops. Food companies in the United States said they could “virtually run out” of the commodity and warned of job cuts unless the government eased restrictions on imports of tariff-free sugar. America and Europe subsidise their sugar producers.  source:  The Economist, August 2009

Global Sugar Trade

Globalization101.org (February 7, 2008)

http://www.globalization101.org/index.php?file=news1&id=105

Sugar is one of the most regulated and subsidized agricultural products. Globalization101 takes a look at the current state of the industry and what the outlook is for the next couple of years. Reduction in quotas and tariffs are playing a large role in reshaping the industry, as is the increasing popularity of ethanol. Specific analysis is provided for the United States, European Union, Brazil, and Africa.