06.05.2019 0

Zero-for-Zero ends the worldwide sugar subsidy insanity

By Rick Manning

Storms and record flooding continue to bedevil much of the farm belt with places like Nebraska, Iowa, South Dakota, Minnesota, Wisconsin, Missouri, Illinois, Oklahoma, Arkansas and Texas with many farmers fighting for survival and trying desperately to catch up on planting cycles in areas where the water has receded.

Some of these areas have already been hard hit by China’s decision to cut back on soybean and other agriculture purchases resulting in lower demand and hence lower prices for soybeans.  And while President Trump has taken action to lessen the impact of the Chinese trade action, many face the triple whammy of having the very silos where they have stored grain for the past season destroyed in the flooding.

Sugar growers in the Midwest face much of the same devastation but for them, they have an even more pernicious problem – massive subsidization of foreign sugar growers are flooding the international markets driving the prices down to about half the cost of producing sugar.

The U.S. Department of Commerce has done a good job in dealing with Mexican sugar dumping into the United States, but subsidies around the world continue to dramatically distort the price of sugar around the world.

While a U.S. Department of Agriculture report published last month shows that in spite of low prices, sugar production around the world remains near record high levels.

The failure of sugar production to go down worldwide in the teeth of significantly lower price returns demonstrates the distorting effects of production subsidies around the world.

Dr. Darren Hudson, the Combest Endowed Chair for Agricultural Competitiveness and Director of the International Center for Agricultural Competitiveness at Texas Tech University, just released a report, “An Examination of Foreign Subsidies and Trade Policies for Sugar” which bluntly  asserts why world markets aren’t working, “The reason: Subsidies fueled production increases elsewhere.”

Dr. Hudson continues, “During our research, we found that import tariffs designed to keep subsidized world market sugar at bay were present in each country.  Many also had price control systems in place to boost returns for domestic producers.

“Indirect subsidies, which provide debt forgiveness and payments for input purchases, were likewise common. And there’s been a noticeable uptick in ethanol-related programs to push more sugar into fuel production instead of food.

“These subsidies all affect the world market, and as prices continue to fall, I predict that more government policies will be passed to help producers weather the storm.  Ironically, each new policy passed by a sugar exporter further distorts the market and necessitates additional subsidies, creating a downward spiral.”

As a sugar importer, the U.S. markets and domestic sugar producers are directly and adversely impacted by the worldwide subsidized sugar glut.  And while some in the U.S. political system complain about our nation’s sugar policy, it is important to realize that it is reactive in nature – featuring import quotas and loans to sugar producers which are repaid to the federal government with interest.

However, the entire worldwide system is trapped in a vicious cycle of overproduction based upon subsidization, justified by market defying prices, resulting in additional subsidization to cover the lower prices which again results in even lower prices – effectively a wash, rinse, repeat never ending cycle.

It is time for the world to get off of this market distorting treadmill, and the United States should lead the way. Representative Ted Yoho (R-Fla.) has an answer which Congress can do right now to begin to reset the market – it is called the Zero-for-Zero sugar policy.

Zero-for-Zero would end U.S. sugar subsidies contingent upon exporting countries similarly ending theirs.  With our trade negotiators in active talks with key sugar producers like China, Mexico, Japan, Canada and the European Union, and anticipated talks with India and others in the near future, Congress can help bolster our nation’s trade negotiating hand, simply by passing legislation which ends U.S. sugar subsidies upon certification that key exporters have ended their market distorting practices.

Domestic sugar producers may or may not be able to survive in a worldwide market where prices are determined based upon normal supply and demand principles, but failure to act on Zero-for-Zero legislation dooms our nation to doing the same thing while expecting a different result.

And that is the definition of insanity.

Rick Manning is the President of Americans for Limited Government.

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