The U.S. sugar lobby is promoting a supposedly free market idea: to get rid of the U.S. sugar support program if Brazilian producers give up their sugar subsidies. They call this concept “zero-for-zero.” It sounds good on its face. Agreeing to discontinue costly protectionist programs would help consumers in both countries, which have a long history of policies that block competition and raise consumer prices.
The U.S. sugar program is an outdated Great Depression-era central planning relic that allocates the domestic supply, restricts imports of sugar, sets prices substantially higher than the world price, and buys up surplus sugar and sells it at a loss to ethanol producers. The program costs consumers an estimated $3.5 billion per year and results in approximately three job losses in the sugar-using industries for every one job saved in the sugar-producing sector.
For decades, Brazil had heavily subsidized its sugar and ethanol industries. However, Brazil has opened up its market, and, according to a U.S. Department of Agriculture report, the country drastically cut back its government support. In the 1990s, Brazil eliminated its sugar price controls and by 1999 government-decreed producer prices for sugar were also eliminated. Those reforms made Brazilian sugar more competitive and less reliant on Brazilian taxpayers. Brazil continues to be one of the world’s leading sugar exporters and one of the most efficient producers.
While Brazil has moved toward free market policies, the U.S. has remained stuck in neutral. Big Sugar – represented by a handful of powerful special interests in a small number of states – has been holding U.S. consumers hostage for decades, and continues to do so.
Brazil could undoubtedly do more to move toward a free market, but the major political challenge of freeing up the sugar sector and moving toward consumer-friendly free market policies is domestic, not global. Attempts to divert attention from the cronyist policies that prop up the U.S. sugar industry seek to obscure the public’s growing realization of the sugar program’s wasteful, anti-consumer nature.
There is growing support for reforming the sugar program from both the left and right. The sugar lobby has responded not by negotiating an end to its special privileges but by seeking to rally around the flag and bash Brazil. And they’ve enlisted a few groups with little experience in agricultural policy to sign on to their agenda.
The U.S. sugar lobby’s “zero-for-zero” campaign doesn’t explain how to accomplish this feat – which may be precisely the point.
One of the only ways that sugar producers could try to get Brazil to cut its subsidies would be to file a complaint with the U.S. International Trade Commission. Yet, there is little evidence that Brazil’s sugar policies adversely affect U.S. sugar producers. After all, Brazilian sugar producers face a restrictive quota for exporting sugar to the U.S. – currently set at 155,000 tons of sugar annually, or only about 1.5 percent of U.S. consumption. Even if proposed sugar reforms were enacted, that quota could only be increased by the U.S. Secretary of Agriculture if there is a supply shortfall.
The threat of a trade war with Brazil should not be taken lightly. Perhaps the sugar lobbyists don’t know that the U.S. lost a World Trade Organization (WTO) dispute brought by Brazil about the U.S.’s trade-distorting cotton subsidies. The WTO gave Brazil the go-ahead to retaliate against the U.S. by imposing sanctions. The country first proposed a list of retaliatory measures that would have suspended intellectual property rights for numerous U.S. goods and services. In negotiations, Brazil agreed instead to U.S. payments of $150 million per year to the Brazilian cotton industry until the U.S. changed its cotton program. Does anyone seriously believe that if the U.S. complained about Brazilian sugar subsidies that the cotton retaliatory measures might be reconsidered?
Currently the U.S. is negotiating two major trade agreements that could lead to increased economic growth, presenting itself as a leader in trade liberalization in the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership. America’s negotiation partners in those agreements will be watching America’s progress – especially in the farm bill – in reforming its own protectionist programs. What happens on the sugar program will be sending a strong signal.
It’s never easy to try to change another country’s policies. It’s a much better idea to change our own, and phasing out the outdated and wasteful sugar program would represent a good start. Americans are beginning to realize that we cannot get rich by picking each others’ pockets. The growing support for sugar reform offers great promise for a reinvigorated U.S. agricultural policy. Efforts to stall that momentum do a disservice to all who care about America’s future prosperity.