Market Overview

Sugar Tariffs Cost Americans $2.5 Billion in 2009

The chart above displays refined sugar prices (cents per pound) using monthly data from the USDA (Tables 2 and 5) for: a) U.S. wholesale refined beet sugar price at Midwest markets and b) the world refined sugar price. Due to trade restrictions on imported sugar coming into the U.S. at the world price, the U.S. sugar beet producers have a sweet deal, assisted by their government enablers, who protect them 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 twice the world price of sugar on average since 1982 (27.2 cents for domestic sugar from beets vs. 13.8 cents for sugar from cane, 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. Americans consume about 9.412 million metric tons (20.75 billion pounds) of sugar per year, and therefore every 1 cent increase in sugar prices costs Americans an additional $207 million per year in higher prices.
2. The U.S. produces about 6.9 million metric tons (15.4 billion pounds) of sugar annually, mostly from sugar beets.
3. Due to quotas, Americans are only allowed to import about 2.2 metric tons (4.85 billion pounds) of cane sugar every year, or about 23% of the total sugar consumed.

4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% their sugar in 2009 at the world price in 2009 (average of 22.1 cents per pound) instead of the average U.S. price of 38.1 cents, they would have saved almost $2.5 billion. In other words, forcing Americans to pay 38.1 cents for inefficiently produced beet sugar instead of 22.1 cents for efficiently produced cane sugar, costs Americans an additional 16 cents per pound for the 15.4 billion pounds of American sugar produced annually, which translates to almost $2.5 billion. (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.)

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.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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