Sugar Tariffs Cost Americans $3.86 Billion in 2011

The chart above displays annual refined sugar prices (cents per pound) using data from the USDA (Tables 2 and 5) between 1982 and 2011 for: a) the U.S. wholesale refined sugar price at Midwest markets, and b) the world refined sugar price. Due to import quota restrictions that strictly limit the amount of imported sugar coming into the U.S. at the world price, the domestic producers are protected from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan.

Of course, there's no free lunch, and this sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who have been forced to pay more than twice the world price of sugar on average since 1982 (28.6 cents for domestic sugar vs. 14 cents for world sugar, see chart). How much does this trade protection cost Americans?

We can estimate the cost of sugar protection, using some additional data from the USDA (Table 1) about sugar:

1. American consumers and businesses consumed 10.18 million metric tons (22.44 billion pounds) of sugar last year, and therefore every 1 cent increase in sugar prices costs Americans an additional $224.4 million per year in higher prices.

2. The U.S. produced 7.15 million metric tons (15.76 billion pounds) of sugar last year.

3. Due to quotas, Americans were only allowed to purchase 3 metric tons (6.67 billion pounds) of world sugar, or about 30% of the total sugar consumed. Domestic sugar producers ("Big Sugar") are allowed to control 70% of the sugar market every year through protectionist sugar trade policies that strictly limit foreign competition.

4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% of their sugar in 2011 at the world price (average of 31.68 cents per pound) instead of the average U.S. price of 56.22 cents, they would have saved about $3.86 billion. In other words, by forcing Americans to pay 56.22 cents for inefficiently produced domestic sugar instead of 31.68 cents for more efficiently produced world sugar, Americans pay an additional 24.54 cents per pound for the 15.76 billion pounds of American sugar produced annually, which translates to $3.86 billion in higher costs for American consumers and businesses.

(Note: This is an estimate based on the assumptions that: a) the amount of sugar consumed in the U.S., and b) world prices, wouldn't change if the U.S. sugar market was completely open.)

Bottom Line: The cost of most trade protection is largely invisible and hard to calculate, but the cost of sugar protection is directly visible and measurable, since the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all protection, sugar tariffs exist to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and come at the expense of the U.S. consumers and the American companies using sugar as an input, and make our country worse off, on net.

I'm reminded of the recent Quote of the Day from Bastiat: "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race." U.S. sugar policy has a long history, going back to 1789 when the First Congress of the United States imposed a tariff upon foreign sugar, and is a perfect illustration of trade protection that ignores the viewpoint of disorganized, dispersed consumers in favor of the concentrated, well-organized interests of producers.

I think it was our first President, George Washington, who said it made no economic sense for Americans to pay more buying something made or produced here if we could pay much less getting it from somewhere else.

It deos not make us more efficient as an economy. On an indiviual level, it does not allocate our own expense where we profit the most from that expense.

Even he understood back then that the money we save will be spent, or put into use, somewhere else IN the economy.

Those domestic American manufacturers whose “raw materials” come from things produced in our steal and other metals factories (like bicycles) have been complaining about this same issue, as it applies to tarrifs and import limits on foreign sources for what THEIR factory needs. One bicycle maker said he can compete with China, Japan or Korea on the labor and operating costs of production, but not on the materials going into production, because his domestic sources are not really competing on the global market, and our trade policies protect them from trying to compete. He said if he ever decided to move his factories to Asia would not be because he “couldn’t make it here”, but becasue here it cost him too much to get what he needed to make it.

No, an economy is not a zero sum game, and wherever someone here gains, someone else bere may lose. But in the long run, it is not good to award inefficiency just for nationalistic sentiment.

So you’re going to try to claim that US sugar producers have made more money from exploiting regulatory niches than investment banks, mortgage securitization and so on?

Let’s say that this economist’s estimates are correct. That’s quite a leap of faith recently, but let’s stipulate it.

How much have US taxpayers paid for backstopping Fannie and Freddie paper in the last year, for bad paper that the banks offloaded onto the GSE’s? Hundreds of billions of dollars. 10X any amount of “excess” costs of sugar. And those costs will likely be well over $100B next year.

And an economist wants to get his silk panties in a wad about sugar? Holy crap, talk about misplaced priorities.

I have no doubt that if our sugar import quotas ended, someone here in the U.S., maybe not among our current domestic sugar producers, would begin to find a way to produce sugar in American with an efficiency that is globally competitive.

I highly doubt your belief would be realistic. Considering the regulations and such that must be adhered to in this country, there is absolutely no way such producers would likely be able to stay in business. More and more items sold in this country cannot be produced here competitively and is one good reason you see "Made in China" (or elsewhere) stamped on almost every good sold in this country anymore.

Sure, we can keep importing more and more illegal aliens and pay them 50 cents an hour more or less and perhaps that will get your price down to "efficient" competitive levels, but be prepared to have your standard of living on the same level as those illegal aliens, not to mention the same level as those 3rd world countries who are eager to provide you with cheap products. However, since your standard of living will drop along with your net income, those cheap products are likely going to cost you the same percentage of your income as before, maybe less, maybe more.

If the rest of the world lived by the same rules and payed relatively the same rates for labor, perhaps your beliefs would be practical, but as it stands now, I don't see it as a realistic answer.

\ A better place to even the battlefield would be to address absurd union costs and ridiculous regulations that strangle our economy, IMO.

Speaking of raw resources, remember the predicament we are now in concerning rare earth metals. Yes, we got them so cheap from China we couldn't justify keeping open mines here in the U.S., and now that China can cut anyone off at their pleasure, suddenly it's making more sense to actually have our own mines in order to avoid this situation. I can't help but imagine the impact this specific issue would have if we found ourselves at war with China. How long would it take to get our act together to start producing these rare earth metals again from our own country, and would it be in time to prevent either defeat or massive loss of life?

A lot of considerations on either side of the argument, but the bottom line of the cheapest price available is not necessarily the best option, IMO.

The American sugar producers have won the battle, but the long term war is far from won. I recently have had occasion to tour the Windward islands in the Caribbean. Sugar plantations on all the islands have been abandoned. The land is returning to jungle. These are plantations that were there for decades if not centuries. One result in large unemployment on the islands. Try 40 to 50% So what one has now are islands and nations to our south with severe unemployment problems for their citizens being courted by the ChiComs. There influence is everywhere. But the American sugar growers are safe. As an aside: When I was there in the late 50s every car that you saw was American made. Now they are Japanese or European. Sleep well tonight.

“Sure, we can keep importing more and more illegal aliens and pay them 50 cents an hour more or less”

What the H%^$#@ do you think is being done in the domestic American sugar industry????

Yet, the wholesale price of domestic sugar is NOT derived as much from domestic labor costs in the industry as it is that they can get away with their higher wholesale price, because import tarrifs and quotas keep the available suppply down, protecting that price, not because it is impossible for it to be lower, doemstically, and not because it is impossible for domestic sugar producers to become more efficient than they are.

A portion of the higher prices for domestic sugar is money taken away from American manufacturers that use sugar, money they would gladly spend elsewhere in this economy if they did not have to pay those prices.

You sit here complaining about too many imports from other countries, while the artificially high sugar prices you are willing to support is going to lead, eventually, to finished product that use sugar that are now being made in Americs becoming products no longer made in America.

Hershey I know is one outfit that says that day is coming if the sugar quotas and tarriffs are not lowered.

“I can’t help but imagine the impact this specific issue would have if we found ourselves at war with China. How long would it take to get our act together to start producing these rare earth metals again from our own country, and would it be in time to prevent either defeat or massive loss of life?”

You are mixing up apples and oranges in your argument.

Sugar is not a rare commodity.

Sugar is not a strategic commodity in terms of our national defense.

Sugar, unlike many precious metals, we are fully capable of supplying for ourselves domestically, to ANY extent it is NECESSARY for us to do so.

That abaility does not REQUIRE us to restrict sugar imports the way we are. We will be fine with lower sugar import retrictions, economically and certainly strategically.

Keep the apples and oranges separate.

I don't doubt that many illegal aliens are being payed under the table for their labor in the sugar industry, but I did not claim that higher wholesale price is derived from that. While I don't know the numbers of illegals in that industry, at least efforts are being made across the board to rein in those employers who are using such labor. Maybe not sufficient efforts, but better than nothing at this point.

The perverse side of the illegal immigrant labor issue is the fact that those savings are not being passed on to the consumer. That is likely true for most industries benefiting from cheap labor. It's not too difficult to see where those savings go.

You keep whining about raw materials pricing but that has little to do with the end cost of our products. Once again, reign in the outrageous regulations and absurd union costs, not to mention overhead from investor payouts (have to please those investors and cough up dividends, not a major problem but it has an effect that can't be ignored at all levels of a corporation) and employers (an issue that does exist, but not a major problem overall), and you'll get a better balance, IMO. There are a lot of factors to consider and the price of raw materials is low on the list.

Hershey can kiss my ass if they leave. I couldn't care less. That move will not come from raw material pricing. If they do move, there is no reason their finished product should also not have a tariff as their sidestepping the rules we have saddled ourselves with in this country should end up with that result. In your example, it is more than possible for a company to step in and replace Hershey if they are able to squash union uselessness (see Foreign Automakers for a very good example) and even more if they can in any way reduce the overbearing burden of excessive and unnecessary regulations.

The playing field can be leveled with occasional impositions of tariffs, and they should always be used sparingly, but again, the crying of those who bitch about not getting the lowest possible price is the song of ignorance, IMO. If I would see the benefit at the consumption level, I could be more for it, but that is not the result I've witnessed in my lifetime.

“You keep whining about raw materials pricing but that has little to do with the end cost of our products.”

I am really sorry but in your ignorance you ignore that that is not me “whining” but the owners and management of many manufacturing companies that KNOW that to be one of their biggest problems, that is THEIR position, and they ought to know.

It is fine that you understand that some companies are most beleaguered by many other problems, such as unions and regulations.

Your mistake is in using those additional problems as scapegoats and excuses for ignoring our problems, to domestic manufacturers, arising greatly on occasion from our own import restrictions. Ignoring that those issues exist and are real does not make them figments of the imagination of the manufacturers that report them.

Sugar is not a rare commodity.

Neither are rare earth metals in reality. Overzealous environmental regulations along with the disparity in labor costs once again makes this an apt comparison.

Sugar is not a strategic commodity in terms of our national defense.

I would beg to differ. An Army functions best with well fed and relatively happy soldiers. That is a truism that cannot easily be dismissed, and sugar is a very important ingredient that cannot easily be replaced. The primary reason it would not be considered a strategic commodity at this time is because we still produce that commodity in significant volume. Take that away and you are right back at the same spot we once were at concerning rare earths.

Sugar, unlike many precious metals, we are fully capable of supplying for ourselves domestically, to ANY extent it is NECESSARY for us to do so.

Again, just like rare earths, sugar can be produced here if the playing field is level, but if it is so much cheaper to get elsewhere, sugar will NOT be produced here under your guidelines. Rare earths are a perfect example of what will happen under "free trade".

Sugar, unlike many precious metals, we are fully capable of supplying for ourselves domestically, to ANY extent it is NECESSARY for us to do so.

And I disagree with your analysis. We used to have rare earth mines in this county but due to the cheap prices from China, those were shut down, remember? We are quite capable of producing all, or at least most, rare earths in our own country if our absurd regulations are made much more realistic, and you are now seeing that effort being made due to the fact that our government now sees exactly what is at stake from this terrible short sightedness. Not due to cost mind you, but due now to their unavailability on a whim from China.

Again, you dismiss this as a comparison that is not apt, but I believe you are severely mistaken.

but the owners and management of many manufacturing companies that KNOW that to be one of their biggest problems, that is THEIR position, and they ought to know.

Okay. If you truly believe that then I own a bridge in New York that I am willing to sell you at a steep discount!

The number one reason Hershey wants to leave is the cost of labor. They can produce their products much cheaper in other low labor cost countries and even with the additional cost of shipping they will pad their bottom line significantly once the labor costs that burden them have been slashed. This has happened again and again over the last 50+ years but you ignore that fact as if it hasn't happened over and over again.

Again, tariffs aren't the best solution to all problems, but if you truly want to keep our manufacturing base alive and kicking you are going to have to apply them sparingly or simply adjust to having your standard of living adjusted to that of the lowest common denominator.

Eventually, you will start seeing Americans fleeing this country in droves, right behind the illegal immigrants fleeing as well, towards better paying jobs in countries that will eventually surpass ours in standard of living. In fact, I believe you're starting to see that happen now in small numbers, and if our country continues down its current path, it will become a flood of people exiting the gates for a new "promised land".

“If I would see the benefit at the consumption level, I could be more for it, but that is not the result I’ve witnessed in my lifetime.”

That is another one of your statements demonstrating a disdain for any financial benefit that is not a benefit demonstrated in the retail consumer price. You have directly complained about an improvement in cost going to investors dividends, and executive compensation instead of a lower price to you.

You’ve never run a company built on capital others have taken the risk to invest.

By your logic a business whose largest problem, in comparison with their competitors, is in attracting new capital for improving the business, and you would have them go ahead and fail to do that, by raising their divdends, and give it all to you in a lower grocery store price, down from a price that is already the lowest in the market.

Your biggest failure is your disrgard for the business as a consumer, who is as entitled as you are to look for the “best price” and to complain when it is “excessive regulation” that is keeping him from getting it.

Again, if you believe that "excuse", you are only kidding yourself. How many manufacturing jobs have left this country for low labor cost countries over the last 50+ years?

If you believe them, that is your right. I choose to believe they are following millions upon millions of manufacturing jobs to low labor cost countries.

After a little googling, I see that Hershey is doing interesting things to reduce the cost of their union labor, including bringing in some foreign students last year to work in a plant for a short time. Although a local union protested this and forced Hershey to make some "amends", I see the pattern is more to my belief than what you believe. They have also already moved at least 600 jobs to Mexico if I read that article correctly.

I doubt the sincerity of their claim concerning raw materials. They are doing exactly what hundreds of other companies have done over the last 50+ years. They're moving out of this country for cheaper labor, period.

Nonsense. Although I have not been the owner of a small company, I have always worked for very small companies that are lean and run on a very tight budget, except for my time in the Army. They have also been small enough to not be beholden to investors, except for one short employment that ended after said investors got cold feet. I am intimately familiar with the mechanics at all levels of a small business, and although they are not directly comparable to a mid to large size business that does depend on such, once you've entered that arena the rules change dramatically.

I'm not necessarily saying those changes are for the worse, but the dynamics change and so do the results. In any case, such issues do not address the topics I'm referring to, so I'll get back on track, which is your disdain for tariffs that you believe are driving Hershey from production in this country, and again, after some more reading of several union and Hershey related articles published over the last 2-3 years, I am more than convinced that my analysis is right on the money.

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