August 13, 2010
The federal government operates a complex system of supply controls, price supports, and trade restrictions on sugar. The system protects the incomes of sugar producers by guaranteeing a minimum price for sugar in the domestic market. As a result, U.S. consumers have been paying more than twice the world market price for sugar.
The federal sugar program invokes memories of Soviet-style central planning. This was recently illustrated by a National Journal article [$] that reports that planners at the U.S. Department of Agriculture have been “confounded” by tight sugar supplies.
From the article:
Contrary to expectations, the United States has not been flooded with foreign sugar, which in turn has resulted in tight supplies and high prices, and complicated the management of the U.S. sugar program, according to USDA officials.Lawmakers and analysts expected the U.S. sugar market to see a surge in foreign sugar, especially from Mexico and Brazil, but Mexico is exporting far less due to production and Brazil exports are delayed amid weather problems.Speaking this week at the American Sugar Alliance International Sweetener Symposium, USDA officials described how this unexpected tightening affected the sugar program. ‘Neither CBO nor USDA expected undersupply to be the issue,’ said Daniel Colacicco, director of dairy and sweetener analysis at USDA's Farm Service Agency.Higher sugar prices have pleased the U.S. growers but angered sweetener users.Because Congress expected an oversupply, the program includes detailed instructions on how to control supply, including a program to use surplus sugar for ethanol production. However, Colacicco noted, ‘there is no comparable mandate to ensure adequate supply at fair prices.’The farm bill orders USDA to operate the program so that prices do not become so low that sugar growers exercise their right to forfeit sugar to the government. As a result, USDA has been ‘conservative’ in making decisions to allow increased imports, Colacicco added. But sugar analyst Frank Jenkins said USDA has underestimated sugar demand, leading to "precariously low" inventory.
The government’s bungling of the sugar supply is a good example of what Friedrich Hayek called the “fatal conceit.” Try as they may, government planners cannot direct economic activity as efficiently and effectively as the market. Then again, the federal sugar program really only exists to enrich a particular interest at the expense of the broader public. Viewed this way, it has been a resounding success.
See this Cato essay on agricultural regulations and trade barriers for more on the federal sugar program.