Wednesday, January 23, 2008

"I can't call her sugar 'cause sugar never was so sweet"**

Sugar has enjoyed a massively protected status in the USA since 1937 (with the exception of a couple years in the mid 1970s). Tariffs, Quotas, Price Supports, Loans, and Restrictions on Domestic Production have all kept the US price of sugar well above the world price (I don't have exact numbers but I'm pretty sure it has generally been over double the world price). Here is a summary of US sugar policy over time.

Now Sugar has finally met NAFTA and it looks like Sugar will continue its winning streak.

NAFTA had a lot of its provisions phased in, with the more controversial ones pushed back. In the case of sugar, it was 15 years, i.e. now.

As of January 1, Mexican (and Canadian!!) sugar can freely enter the US market. However, the government is still committed to controlling the price of sugar! The new idea is that the Feds will buy up the Mexican exports and (wait for it, 'cause it's freakin' awesome) convert it to ethanol.

That's right folks, it's a perfect storm of stupidity that could get pretty expensive.

And it gets better: According to the WSJ (hat tip to John Thacker):

"Even sugar growers can see the fuss this might create unless Mexican exports are restrained. So they are now circulating still
another set of recommendations in Congress that would explicitly control the amount of sugar Mexico is allowed to ship to the U.S., and vice-versa. No new competition would enter either market. To supervise this cartel, the sugar lobby wants Congress to establish a new binational commission. The proposal would also ban the re-exporting of foods (notably candy) that use sugar imported from a third country, and would sharply limit how much sugar could come from third countries. In other words, sugar would be renegotiated right out of Nafta only weeks after it finally took effect."

The articles concludes as follows:

"So Congress and the Bush Administration have to choose: Either defend the economic benefits from an integrated North American market, or bow to one of the world's richest and most destructive special interests.

Anyone wanna bet on the outcome? My money's on the "destructive special interests".

** Muddy Waters y'all!!


John Thacker said...

The "buy sugar at 21 cents per pound and sell it for 6 cents to ethanol producers" may even actually tick off the corn lobby, which has generally supported the sugar lobby so as to boost their own ethanol and corn syrup protections. That's probably why they have the second set of recommendations, in order to bring back Mexican sugar quotas. The first set of stupidity is already in both the House and Senate farm bills for this year.

So dumb.

Norman said...

The real question is, why am I training to be an Economist when I should clearly just join the sugar mafia and get some protection money from uncle sam?

br said...

Why leach off an existing mafia. How about this...

Mr. President,
It is vital to the interest of national security that textiles be manufactured in the United States. In the event of another world war, if our clothing supply lines are cut...

Angus said...

Lol, Norman that's good advice from BR, you gotta get in on the ground floor if you want the real money, though as things stand now, Unca Sam is planning a big new transfer to Mexican sugar growers.

John Thacker said...

See, sugar is really upset about CAFTA. They're still upset at Sen. Coleman for voting for it, so he's sucking up to them now.

So far, the White House is still fighting the bill, but we'll see what happens. I do love the remarks from all the complaining subsidizing congressmen in that piece that "the administration has showed no willingness to compromise on anything" on the farm bill. But I'm still not enthusiastic about the chances.