Not the sugar buzz I was hoping for
Sometimes the twists and turns of farm and trade policy makes me dizzy. Today's example: sugar.
To explain this properly, I'd probably need the creators of the Meatrix to make a short animation, but I'll give it a try, with my information coming from a New York Times article digested by FarmPolicy.com.
Under the terms of the North American Free Trade Agreement (NAFTA), on January 1, 2008, Mexican sugar can be imported into the U.S. without tariffs or quotas. That makes for an unwelcome New Year for the domestic sugar industry and the corn industry. Ironically, both of these industries are protected by government programs. The domestic sugar industry is supported by complicated combination of loans, quotas, and import restrictions. Although the industry likes to point out that the program operates without any federal funding, we all pay for it through higher sugar prices. The sugar lobby is one of the most generous
legal bribers campaign contributors in Washington among food growers, giving $2.7 million to House and Senate incumbent candidates in 2006, according to the Center for Responsive Politics. Corn production, of course, is supported by billions of dollars federal subsidies each year, allowing the producers of HFCS to buy their raw material at a price below the cost of production. (See CRS reports RL34103 and RL33541 for much more about sugar policy and proposals.)
But NAFTA also means that Big Corn will be able to export government-subsidized HFCS to Mexico, which might displace the use of sugar in Mexico (and wipe out Coca-Cola made from real sugar?), thus leading to more exports to the U.S. That's good for the corn industry, probably bad for the domestic sugar industry.
The Food and Farm Bill to the rescue?
Congress is ready to step into this mess with modifications to the already messy sugar support program through the Food and Farm Bill. And, wouldn't you know, the solution involves ethanol. To paraphrase Homer Simpson in Marge vs. the Monorail: "Ethanol. Is there anything it can't do?"
A provision in the Food and Farm Bill would require the federal government to buy surplus American sugar and sell it to ethanol manufacturers at a discount . (Who pays the difference? Us taxpayers, of course.) The ethanol plant operators aren't happy about the sugar plan because it will require expensive new equipment to add the sugar (refined sugar, not sugar cane) to their fermentation tanks. And the USDA is not very happy either, saying that they want flexibility to sell the surplus sugar for other uses like animal feed or industrial use. They are also concerned that the program has no upper limit -- the USDA could be on the hook for immense sugar purchases.
Ethanol, of course, owes much of its success to government subsidies and tax policy. It costs more to make the distillate than people will pay, so there is a federal tax credit. And also federal mandates for biofuels productions which are spurring the construction of new ethanol plants.
In other words: when confronted with free trade, set up more government programs as protection.
It certainly helps to have a powerful lobby in Congress, preferably one that tosses around big checks
as legal bribes as campaign contributions. That way, Congress will step in with some special programs or tax breaks. Little guys, like the organic strawberry growers of California who are being undercut by Mexican organic strawberries, or small almond growers struggling to deal with the pasteurization rule put in place by the big growers, are out of luck until they can pony up some dough in Congress.
The sugar industry also has the advantage that it can be made into ethanol. Imagine if the Topps meat company had been able to make ethanol out of that potentially E.coli contaminated meat -- they'd probably still be in business, earning great returns for the private equity firm that bought them.
All of this makes me wonder when this Rube Goldbergian system of subsidies that support loan programs and incentives which are backed by quotas is going to become so unstable that it will break apart like a jalopy going down a bumpy road.