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Sugar Daddies in Congress

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“The absurdity of the federal sugar program is legendary. Every year the government grants sugar processors nonrecourse loans linked to the amount of sugar the government says they can produce at a set price per pound,” writes the WSJ.

Read more here about one of Washington’s worst business welfare schemes.

Americans pay nearly twice as much per pound as foreigners do for sugar, thanks to U.S. import restrictions and subsidies. We’ve tilted at this corporate welfare for decades, but new political forces are aligning to take another run.

The absurdity of the federal sugar program is legendary. Every year the government grants sugar processors nonrecourse loans linked to the amount of sugar the government says they can produce at a set price per pound: 18.75 cents for raw cane sugar and 24.09 cents for refined beet sugar. If the market price is below the loan price when it’s time to sell, the processors simply forfeit their crop to the U.S. Department of Agriculture in lieu of repaying the loan. They can still make a profit thanks to the price guaranteed by the loan.

To ensure that imported sugar doesn’t drive down U.S. prices, provoking a sugar dump on Uncle Sam, there are also import quotas. Anything above the quotas gets hit with a hefty tariff—16 cents a pound on refined sugar.

Yet all of this central planning is harder than it sounds. According to a January 2014 USDA report, for the 2013 crop year the government’s net cost “to remove” sugar from the marketplace was $258 million. But sometimes there’s not enough sugar, as in 2010, and prices skyrocket. If the secretary of agriculture decides that shortages will drive prices too high, he can increase the quota. But he has to make sure that more imports won’t mean lower prices and thus sugar forfeitures to the feds. All the risk lies with consumers or taxpayers—not producers.

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Debbie Young

Debbie, editor-in-chief of Richardcyoung.com, has been associate editor of Dick Young’s investment strategy reports for over three decades. When not in Key West, Debbie spends her free time researching and writing in and about Paris and Burgundy, France, cooking on her AGA Cooker, and practicing yoga.