U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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U.S SUGAR SUBSIDIES AND THE
CARIBBEAN’S SUGAR ECONOMIES
By: Bilal Maneka, Research Associate at the Council on Hemispheric Affairs
July 31, 2013 · in COHA Daily News, COHA Research, Economic
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Agricultural policy is a highly controversial topic in the United States, for while
Washington pushes economic openness for other nations, it actively employs
July 19, 2013 Issue
protectionist policies when it comes to its own closely held economy. This is
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especially true with sugar. The U.S. government heavily subsidizes its sugar
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sector, imposes quotas on sugar imports, and then hectors developing
Indigenous
countries on the wisdom of cutting back on their own subsidies. These
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measures protect private U.S. sugar producers from foreign competition,
in Costa Rica
allowing them to seek unreasonably high prices in the U.S. market. U.S.
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consumers are likely to lose from these policies, as they end up paying higher
Latin America
prices at U.S. supermarkets, and, moreover, Caribbean sugar prices also
have been adversely affected by U.S. protectionism in the sugar industry.
The Caribbean Sugar Economies
The implementation of sugar quotas by the United States has led to colossal
losses for Latin American sugar economies. Sugar quotas have often been
used for political objectives against Caribbean countries. Since 1985, millions
of U.S. dollars have been spent—and wasted—in an attempt to revive the
sugar industry by poor Caribbean-basin countries. Narrowly implemented
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U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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U.S. trade policies have pushed Caribbean sugar economies to the verge of
collapse. The United States annulled the Cuban sugar quota in 1961, just two
years after the Cuban Revolution. Likewise, Nicaragua’s “quota was reduced
to zero” when the Sandinista National Liberation Front overthrew the U.S.backed Somoza regime. [1] The United States now has an absolute trade
embargo with Cuba after U.S.-owned sugar companies in Cuba were
nationalized in 1961. Before the revolution, 69.1 percent of Cuban trade
overall and 54.8 percent of its sugar trade was with the United States. [2] The
revolutionary government nationalized the sugar industry, a move that was
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seen as against free market principles. Yet Washington violates similar
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principles by keeping its sugar policy narrowly in place. Such double
standards that block sugar imports from struggling Caribbean markets will
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continue to impair and distort U.S.-Caribbean relations.
Although the U.S. government blamed Fidel Castro for unfairly nationalizing
the country’s sugar factories owned by Florida’s Fanjul family, most Cubans
saw the family’s control over its major commodity as a form of colonial-style
domination. Fanjul was likened to the East India Company on the Indian
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subcontinent during the British Raj. Under Fanjul’s domination of the Cuban
sugar industry, the majority of sugar produced went to United States, leaving
a shortage for domestic consumers who ended up paying higher prices.
Nationalist sentiments, mixed with a desire to free the economy from U.S.
interference, led to nationalization of American companies. The Fanjul family
still owns sugar factories in Latin America, especially in Mexico and the
Dominican Republic, although its major sugar plants are now in Florida.
American environmentalists have voiced serious concerns about the Fanjul
family’s sugar production in Florida, as it enormously damages the
Rachel Garcia 8 Aug
Everglades and the Florida Bay, and results in drainage and biochemical
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discharge that harms native animal habitats. [3]
La pura vida RT
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Costa Rican choice to
Remnants of the previous neo-colonial relations, that at one time defined
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dominated, can nowadays be found in the United States’ sugar policy, which
U.S.-Caribbean interaction as a hierarchical relationship of dominator and
has prevented equitable trade arrangements with poor Caribbean countries.
The sugar industries in Guyana, Jamaica, Barbados, Trinidad, and Belize now
Council on
face difficulty in exporting sugar due to protectionist U.S. sugar policies. In
Hemispheric
most Caribbean islands, the Agriculture Production Index, a measure of
Affairs (COHA)
Like
2,954
aggregate agricultural production in a given time period, has been declining in
the past few decades because of U.S. farm subsidies. For instance, in
Jamaica the index declined by 16.6 percent from 1996 to 1997. [4]
While it cannot be denied that factors such as poor governance,
diseconomies of scale, lack of technical know-how, political instability, and a
low world price for sugar affect Caribbean sugar production, U.S sugar policy
has had the strongest negative effect on Caribbean sugar economies. In fact,
the reason that the world price of sugar is at a historical low right now is
because the United States and the European Union have driven down the
global price for sugar by imposing trade restrictions on foreign imports. In
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U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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2002, “Cuba shut down half its once-mighty sugar industry,” and shortly
thereafter in 2003, Trinidad’s state owned sugar company decided to make
“all of its 9,200 employees redundant.” [5]
Some advocates of the United States’ sugar policy argue that in a globalized
world, Caribbean countries can target other larger markets. But European
sugar policies are hardly any different from those of the United States.
Indeed, Europe’s agricultural sector is one of its most subsidized sectors.
Tereos, the French sugar conglomerate, hauled off one of the biggest E.U.
subsidies, taking a total of $223 million USD last year alone. [6] Studies also
show that countries geographically closer to each other trade the most. It
would not be very profitable for struggling Caribbean economies to export a
non-durable commodity like sugar to the other side of the globe, on account
of high shipping costs. It is more likely that African countries would export
sugar to E.U. countries, as they are closer to Europe. Here, it makes more
sense for Caribbean economies to export to the United States.
Ever since the Great Depression of the early 1930s, Congress has prioritized
its Farm Bills over other important decisions and policies. The whole notion
behind the Farm Bill was to create a dynamic domestic food supply and
make the United States less dependent on other nations for food. Due to an
excess of global food supply in the 1930s and the stock price decline during
the Great Depression, U.S. farmers suffered a huge blow from falling prices
for agricultural commodities. President Roosevelt came to the ‘rescue’ of
farmers by implementing the Farm Bill to support domestic farm prices during
the Great Depression. Since then, sugar lobbies have misused the Farm Bill.
It comes with a huge opportunity cost to the United States, as farm policy
benefits only a few. The CATO Institute’s trade policy analysis estimates that
the total cost of U.S. farm support programs was $1.7 trillion USD over the
past 20 years. [7]
Arrangement of the Subsidy Program
The pending U.S. Farm Bill once again favors the sugar lobby by providing it
with subsidies and monopolistic access to the domestic market, which could
have serious ramifications for U.S. sugar policy in the coming years. Although
the Farm Bill failed to initially pass in the House this year by a vote of 234 to
195, private sugar lobbies have not given up, and are pressing to ensure that
it passes in this session. Every year the U.S. government gives out $25 billion
USD to agribusinesses, with 75 percent of all subsidies going just to 10
percent of the country’s farms. [8] As a consequence of U.S. policy, sugar
prices in the United States have now soared to three times the world price
and currently stand at about 20 cents per pound, compared to less than 10
cents just a decade ago. American consumers and shopkeepers bear the
burden of the deadweight loss brought about by sugar subsidies and import
restrictions. Inflated sugar prices cost consumers $3.5 billion USD annually,
in addition to the tax payments that fund the generous payouts to
agribusiness. [9] Sugar subsidies and protectionist policies demonstrate
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quintessential special interest lobbying, and result in a generous but largely
undeserved gift to well-connected economic interests. Anti-protectionists
insist that the U.S. domestic sugar market should be opened up to
unrestricted trade.
Subsidies to sugar producers are transmitted from the U.S. government to
farmers through a “complex system of loans and quotas.” [10] Loans are
usually granted directly to processors instead of farmers, so there is hardly
any wealth transfer from top to bottom. Production workers and laborers earn
minimum wage. Provided the harvest yields revenues higher than the cost of
the loan, the loans are repaid to the government and profits are retained.
However, if profits are meager, the company can pocket the advance from
the government and leave the bureaucrats to either sell the sugar at a loss or
pay to store it and hope for a price rise later. This price control mechanism
allows the government to prevent sugar prices from falling.
Last year, sugar prices in the United States only fell from 25.5 cents per
pound to 21 cents per pound due to poor harvests, but private companies
were able to repay their loans in the form of sugar instead of cash. [11] This
quarter, the United States Department of Agriculture (USDA) plans to buy
sugar from producers at an approximate cost of $38 million USD in order to
increase sugar prices, which will maximize benefits for the producers.
[12] The USDA plans to sell the sugar to ethanol-producing firms for a much
lower price than it initially loaned it out at. [13] This practice results in huge
losses for the government. According to this fiscal year’s forecast, the
government plans to buy 400,000 tons of sugar—leading to a federal loss of
$80 million USD when sold to ethanol producers. [14] In the past nine years,
sugar processors have borrowed $8.8 billion USD from the government at
very low interest rates ranging from 1.125 percent to 1.25 percent in 2012.
[15] (By way of comparison, student loans are usually at about 7
percent interest, a situation so unfair it scarcely requires comment.)
Additionally, the USDA does not care how the processors spend the
borrowed money, which means that this loan mechanism is unregulated. [16]
This means that the borrowers can even spend the amount for their personal
use if they chose, and thus taxpayers’ money routinely winds up in the hands
of sugar-producing families. The nation continues to incur losses from sugar
companies’ success in lobbying for the maximization of their personal
welfare.
According to the Wall Street Journal, sugar companies were amongst the
largest donors to politicians in the 2012 election cycle. [17] Politicians and
congresspeople, in return, vote in favor of federal farm subsidies. That is
precisely the reason why the Farm Bill is expected to pass, as it has had no
problems in getting House approval in the past. According to the USDA, $644
million USD still remain unpaid by sugar producers for the current fiscal year,
and payments are due August 1. [18] Economists speculate that these
companies are most likely to default, inflicting more damage on U.S.
taxpayers. With a national debt of about $16 trillion USD, it makes little
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U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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economic or social sense to spend billions of dollars on such a policy, which
comes at an enormous cost to society. Furthermore, according to a report by
the conservative CATO Institute, the Farm Bill is also subject to fraud and
corruption. $1.3 billion USD in subsidies have been directly transferred to
farm owners who did not use their farms for produce; $500 million USD,
annually, is improperly recorded as contributing to production. [19]
Another aspect of U.S. sugar policy is the quota system. Quantities of
imports above the quota limit are subject to stiff duties. Sugar imports that
exceed set quotas are struck with “a prohibitively high duty of 16 cents per
pound,” which is “sufficiently high to make sugar imports unprofitable.”
[20] In 1998, the Dominican Republic, the Philippines, and Australia had some
of the least restrictive quotas, allowing more of their sugar to enter the United
States, whereas Peru, Panama, El Salvador, Colombia, Mexico (despite the
North American Free Trade Agreement), Costa Rica, and other Caribbean
countries had the most restrictive penalties in place, keeping their sugar out
of the U.S. market. [21] These statistics vary across time, but sugar prices in
the United States have remained above the free market price. Today, Brazil,
one of the largest producers of sugar, is subject to a similar quota, along with
40 other countries. [22] Many of these are impoverished Caribbean countries
that have been producing sugar for centuries. Tropical and naturally fertile
Caribbean islands with perfect weather conditions are innately suitable for
sugar harvest. Cuba, Belize, Barbados, Guyana, Jamaica, St. Kitts & Nevis,
and Trinidad & Tobago are amongst the major sugar producers in the region.
Excluding Cuba, these islands form the Sugar Association of the Caribbean
(SAC). [23]
Source: IMF
Conclusion
The Farm Bill is clearly a measure that rewards the sugar lobby and harms
the poorest of the hemisphere. Daniel Griswold of the CATO Institute
correctly noted that “the highest trade barriers remaining in the United States
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U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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are aimed at products that are disproportionately consumed by poor people
at home and produced by poor people abroad.” [24] The poor people of the
hemisphere are most affected by such an irrational farm policy.
In relative terms, producing an ounce of sugar in the United States is much
more expensive than producing the same ounce in the Caribbean. To
understand the scale of opportunity cost of sugar subsidies, a 2006 report by
the Commerce Department revealed that each preserved job in the U.S.
sugar industry represents three jobs lost in confectionery manufacturing due
to the resulting hike in sugar costs. [25] 20,000 jobs in the confectionary
industry are lost every year due to the sugar policy of the United States.
[26] In a world where global economies are indelibly interconnected,
protectionist policies by the United States can have serious ramifications for
countries in Latin America and the Caribbean.
In 1984, New Zealand’s government eliminated all of its agriculture subsidies
and repealed its protectionist policies. This allowed for foreign competition,
innovation, and adoption of better technology in its farming sector. Today,
New Zealand is one of the largest exporters of quality agricultural products
around the globe. The United States should look to the example it provides.
U.S. consumers would be better off buying lower cost sugar from Caribbean
basin countries, and Caribbean farmers living in poverty need fair access to
the U.S. market. The United States portrays itself as the biggest supporter of
free market economies, yet it violates the very basic idea of the free market
system through its sugar policy.
Bilal Maneka, Research Associate at the Council on Hemispheric Affairs
Please accept this article as a free contribution from COHA, but if re-posting,
please afford authorial and institutional attribution. Exclusive rights can be
negotiated.
For additional news and analysis on Latin America, please go
to: LatinNews.com and Rights Action
References
[1] Professor Najjar, Nabil Al and Baliga, Sandeep. “Sugar Daddy: Quotas and
the U.S. Government,” Kellog School of Management, Northwestern
University. HBS Case Study, 2004. Accessed July 17, 2013.
[2] William M. Leo Grande, ‘Cuban Dependency: A comparison of prerevolutionary and post revolutionary International Economic Relation, 1979,
pp, 1-29
[3] Schwabach, Aaron. “How Free Trade Can Save The Everglades,” The
Goergetown International Environmental Law Review, Accessed July 15,
2013.
http://www.coha.org/u-s-sugar-subsidies-and-the-caribbeans-sugar-economies/
Page 6 of 10
U.S Sugar Subsidies and the Caribbean’s Sugar Economies
8/10/13 7:19 PM
[4] Dr. Ahmed, Bilal. “The Impact of Globalization on Caribbean Sugar And
Banana Industries,” The society for Caribbean studies annual conference
papers, University of Nottingham 2-4 July 2001. Accessed July 23 2013
[5] “The Caribbean Sugar Industry, Sweet And Sour,” The Economist. August
28 2003. Accessed July 13, 2013, http://www.economist.com/node/2024522
[6] Walt Vivienne. “Even In Hard Times, E.U. Farm Subsidies Roll On,” Time.
May 14 2010. Accessed July 17, 2013.
http://www.time.com/time/business/article/0,8599,1989196,00.html.
[7] Griswold Daniel. “Making the Case For Free Trade,” CATO Institute.
October 30, 2004. Accessed July 17, 2013.
http://www.cato.org/publications/speeches/making-case-free-trade
[8] “That Sickening Sugar Subsidy.” Bloomberg.com. Bloomberg, 13 Mar.
2013. Web. 26 July, 2013. http://www.bloomberg.com/news/2013-0313/that-sickening-sugar-subsidy.html
[9] Beghin, John and Elobeid, Amani “The Impact of U.S. Sugar
Program,”sugarreform.org. November 17 2011. Accessed date 20 July 2013.
http://sugarreform.org/wp-content/uploads/2011/11/The-Impact-of-the-U.S.Sugar-Program-Beghin-Elobeid-Report-11.17.11.pdf.
[10] “Sugar’s Sweet Deal.” Forbes. Forbes Magazine, n.d. Web. 26 July 2013.
Joshua Zumbrun. 6/30/2008. http://www.forbes.com/2008/06/27/floridasugar-crist-biz-beltway-cx_jz_0630sugar.html. Accessed Date: July 20 2013
[11] ”That Sickening Sugar Subsidy.” Bloomberg.com. Bloomberg, 13 Mar.
2013. Web. 26 July, 2013. http://www.bloomberg.com/news/2013-0313/that-sickening-sugar-subsidy.html
[12] “3 Firms Got Most Sugar Aid.” Wall Street Journal (n.d.): n. pag. Sage.
Web.
<http://search.proquest.com.resources.library.brandeis.edu/wallstreetjournal/docview/1371707651/13F2A898FB716DFDA24/2?
accountid=9703>.
[13] “That Sickening Sugar Subsidy,” Bloomberg.com, Bloomberg, 13 March
2013, Accessed 26 July, 2013, http://www.bloomberg.com/news/2013-0313/that-sickening-sugar-subsidy.html
[14] “3 Firms Got Most Sugar Aid.” Wall Street Journal (n.d.): n. pag. Sage.
Web.
<http://search.proquest.com.resources.library.brandeis.edu/wallstreetjournal/docview/1371707651/13F2A898FB716DFDA24/2?
accountid=9703>.
[15] Alexandra Wexler, “Bulk Of U.S. Sugar Loans Went To Three
Companies,” Wall Street Journal , June 26 2013, Accessed July 23,
http://www.coha.org/u-s-sugar-subsidies-and-the-caribbeans-sugar-economies/
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U.S Sugar Subsidies and the Caribbean’s Sugar Economies
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2013. http://online.wsj.com/article/SB10001424127887323689204578569332949046260.html
[16] Fox, Lauren. “Tempers Run High in Congress Over Student Loan
Debate.” US News. U.S.News & World Report. 09 July 2013. Accessed July
23, 2013.
[17] ”3 Firms Got Most Sugar Aid.” Wall Street Journal (n.d.): n. pag. Sage.
Web.
<http://search.proquest.com.resources.library.brandeis.edu/wallstreetjournal/docview/1371707651/13F2A898FB716DFDA24/2?
accountid=9703>.
[18] Alexandra Wexler, “Bulk Of U.S. Sugar Loans Went To Three
Companies,” Wall Street Journal , June 26 2013, Accessed July 23,
2013. http://online.wsj.com/article/SB10001424127887323689204578569332949046260.html
[19] Chris Edwards, “Ten Reasons To Cut Farm Subsidies,” CATO Institute.
June 28, 2007. Accessed: July 21 2013.
http://www.cato.org/publications/commentary/ten-reasons-cut-farmsubsidies.
[20] Professor Najjar, Nabil Al and Baliga, Sandeep. “Sugar Daddy:Quotas
and the U.S. Government,” Kellog School of Management, Northwestern
University. HBS Case Study, 2004. Accessed July 17, 2013.
[21] Ibid.
[22] “Sugar’s Sweet Deal.” Forbes. Forbes Magazine, n.d. Web. 26 July 2013.
Joshua Zumbrun. 6/30/2008. http://www.forbes.com/2008/06/27/floridasugar-crist-biz-beltway-cx_jz_0630sugar.html. Accessed Date: July 20 2013
[23] Armstrong, Delroy Anthony. “The Potential Impact of Trade Policy
Changes on Caribbean Sugar,” Louisiana State University. August 2004.
Accessed July 19, 2013 http://etd.lsu.edu/docs/available/etd-1121103010631/unrestricted/ Armstrong_thesis.pdf.
[24] Griswold Daniel. “Making the Case For Free Trade,” CATO Institute.
October 30, 2004. Accessed July 17, 2013.
http://www.cato.org/publications/speeches/making-case-free-trade
[25] Sens: Shaheen, Lugar, Toomey, “Sugar subsidies out of date,” The Hill
Op-Ed. August 8 2012. Accessed July 19, 2013.
http://www.shaheen.senate.gov/news/in_the_news/article/?id=4207ed0f5056-a032-52bf-e9c405ebb514,
[26] Website Homepage, http://www.candyusa.com/, Accessed July 21,
2013.
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Comments (1)
A.C. Kahn-Stein
August 1, 2013 at 2:49 pm · Reply →
Long and a little complicated but interesting read
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