Wednesday, June 25, 2008

Sugar Sugar

Because I'm fundamentally odd, I found this news story of particular interest:

In an ambitious maneuver to help restore the Everglades, the state of Florida has struck a tentative deal to buy U.S. Sugar Corp. for $1.75 billion and turn many of its 187,000 acres of farmland into reservoirs...

Under the deal, which still has to be negotiated, the South Florida Water Management District, an independent state agency with its own taxing authority, will make the purchase in part with property taxes earmarked for Everglades restoration. Some company assets could be sold to other sugar companies, leaving some cane fields and orange groves still under cultivation. Because the U.S. Sugar holdings are scattered, the state will try to swap land with other sugar cane companies to create a single corridor for water to flow into the reservoirs and on to the Everglades...

U.S. Sugar is based in Clewiston, "America's sweetest town," on the west bank of Lake Okeechobee... Today it employs 1,700 people and produces 700,000 tons of cane sugar annually...
Now those of you that know me know two things: (1) I kinda want to see most of Florida sink into the see and (2) I think that the U.S. Sugar Industry is ridiculously subsidized. From the Cato Institute:
Nowhere is there a larger gap between the U.S. government's free-trade rhetoric and its protectionist practices than in the sugar program. Through preferential loan agreements and tariff-rate quotas, the U.S. government thwarts price competition to maintain an artificially high domestic price for sugar--a price that can be twice the world market price or higher.

The program benefits a small number of sugar producers, but virtually every governmental and non-governmental survey concludes that the program results in a net loss of welfare for the U.S. economy, with U.S. consumers suffering the most. Direct costs to consumers due to higher prices could be as much as $1.9 billion a year and the net welfare loss to the U.S. economy nearly $1 billion. Moreover, the U.S. government spends close to $1.68 billion a year buying and storing excess sugar to maintain those artificially high domestic prices.
Long story short: the US artificially inflates the value of its sugar (and suppresses foreign sugar) to turn a profit for the US Sugar Industry.

Now, with U.S. Sugar Corp getting out of the business, one must wonder if these means that these kinds of trade protectionist policies will also close up shop due to decreased domestic supply. My guess is not in the short run, but with the price of corn and corn syrup on the rise, we may see an increase in the price of sugar to counterbalance the effects of the protectionist policies.

Still, Count Chocoula and the Trix Rabbit have powerful friends, so I'm betting that anyone who tries to threaten Big Sugar will just find themselves in a vat of molasses somewhere in the East River.

Sweet dreams!

1 comment:

Anonymous said...

Interesting, might it also be that keeping the price of sugar artificially high also an indirect subsidy for those fighters for good government policy known as the corn lobby. It seems that corn based high fructose corn syrup didn’t become America’s diabetes causing sweetener of choice on accident.