Big Sugar Has a Sweet Tooth for Subsidies

Algae blooms are impacting Florida’s Treasure Coast just in time to ruin the Fourth of July holiday weekends of visitors.  A state of emergency has been declared. If the bloom doesn’t clear, summer vacations will be canceled; those who make their living in resort areas have already been impacted.

Is this merely the vagaries of Mother Nature? It is not. Instead, this is a case of government-subsidized destruction that is supported by both political parties. Government subsidies for the domestic sugar industry have helped to create the algae blooms. The blooms have been going on for years and have killed wildlife such as dolphins, manatees, and pelicans, as well as causing beach closings.

On top of price supports, the government enforces a system of tariffs and quotas on imported sugar.

One source of the algae is Lake Okeechobee, the second biggest freshwater lake in America. The fertile earth surrounding the lake has supported Florida’s sugarcane industry.  Sugar plantations then send their farm contaminants into the lake. When water levels in the lake get high, the Army Corps of Engineers releases algae contaminated water into the St. Lucie River, a seven-mile estuary connected to the coast.

Runoff from the plantations adds about 15 billion gallons of contaminated water a year to the lake. This contaminated water is low in oxygen and high in nitrogen and phosphorus, conditions which help breed algae.

Cause-and-effect in complex eco-systems is hard to trace. What percentage of the algae growing is due to sugar plantations? We don’t know for sure. What we do know is this, sugar plantations are contaminating the water. In the absence of government subsidies, sugar plantations in Florida might not even exist.

Government Sweethearts

World prices for sugar are lower and sometimes considerably lower than the domestic price of sugar. The Manhattan Institute’s Jared Meyer and Preston Cooper explain how government subsidizes the sugar industry:

"The program that supports the American sugar industry has many facets. Most infamous is a subsidy program in which the U.S. Department of Agriculture gives loans to sugar farmers and allows them to repay those loans with raw sugar if sugar prices fall below 20.9 cents per pound. This program functions as an effective mass purchase of sugar, which drives up prices for consumers and thus doubly subsidizes the industry…

The government also enforces a system of tariffs and quotas on imported sugar, limiting the supply of cheaper sugar that can be imported from abroad. This results in wide spreads between global and domestic sugar prices."

The cost of all this? Economist Mark Perry explains the cost of the sugar subsidy in 2012:

"By forcing Americans to pay an average of 43.4 cents per pound in 2012 for inefficiently produced domestic beet sugar instead of 26.5 cents per pound for more efficiently produced world sugar, US sugar policy forced Americans to pay a “premium” of almost 17 cents per pound for the roughly 17 billion pounds of American sugar produced last year.  In total, that 17 cent per pound “premium” translates to almost $2.9 billion in artificially inflated costs for the domestic sugar purchased by American consumers and businesses in 2012."

The high-fructose corn syrup industry did not exist prior to the sugar price support program.

From Big Sugar to Big Corn

One intervention leads to another. The Department of Agriculture sells the purchased sugar at a discounted price to ethanol producers. Ethanol production is another industry which arguably would not exist without government subsidies. Subsidized ethanol production further damages the environment.

Not only is the sugar subsidy costing billions of dollars, but it is also shifting the jobs of confectioners overseas to take advantage of the lower world sugar price.  Trump has proclaimed he will never eat Oreos again because the cookie manufacturer is shifting production to Mexico. Manufacturers in Mexico can purchase sugar at the world’s price; no doubt that influences their purchase decisions.

As importantly, sugar subsidies are helping to destroy our health as Michael Wohlgenant explains:

"The high-fructose corn syrup industry did not exist prior to the early 1970s, when the current sugar price support program was implemented. The industry came into existence only because of the high sugar prices created by the program. Now, however, the high-fructose corn syrup industry accounts for about half of all sugar consumed in the U.S., much of which is used by the soft drink industry. Increasingly, questions have been raised about the possible health effects of high-fructose corn syrup, including its relationship to obesity, diabetes and liver damage. If the program were eliminated, sugar prices would fall and the proportion of high-fructose corn syrup in our diets would decline significantly."

Subsidizing sugar plantations in Florida makes no more sense than subsidizing pineapple plantations. Theoretically, pineapples could grow commercially in Florida; but Florida pineapples would cost more than those grown in other locations. Thus, the free market utilizes land that could be growing pineapples for more efficient uses. In the same way, if sugar subsidies were ended, land currently utilized for growing sugar cane would revert to high valued uses.

Allowing contaminated discharges into Lake Okeechobee is another form of subsidy. The cost of this subsidy is paid by homeowners whose property values are affected and by the tourism industry whose visitors stay away when impacted beaches are closed or contaminated.  

Walt Disney World resort is a mere hundred miles from Lake Okeechobee. They are known for keeping their property pristinely clean. Why? The ability of Disney to charge premium prices is directly impacted by the quality of the consumer experience. On the other hand, Lake Okeechobee is an unowned resource; and through political contributions, the sugar lobby known as Big Sugar has obtained considerable bipartisan political clout.

Bernie's Sugar Daddy

For example, in 2014 American Crystal Sugar Company donated to 221 members of Congress, 109 Democrats and 92 Republicans. How about Bernie Sanders? After all he has railed against corporate corruption and many see him as a critic of corporate greed. Sanders supporters take note; he too takes Big Sugar’s money.

Sugar subsidies are an example of the well-known principle that government grows when a program has benefits that are concentrated and costs that are diluted. The sugar industry has a much stronger interest in promoting subsidies then we as individuals have in opposing them. Big Sugar’s millions of dollars of campaign contributions are a small price for them to pay to ensure that their interest comes before the interests of taxpayers, property owners, consumers, and the environment.

When we subsidize something we get more of it. Government subsidies for Big Sugar means we get more sugar from Florida and more destruction of the environment. Environmentalists who favor a larger role for government might want to take note.

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