Corporate Welfare – The Sugar Edition

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The US Farm subsidy program has some real consequences to consumers, especially consumers of sweets. Free trade is in reality a myth.

The sugar program may be the most harshly criticized of a number of farm subsidies which are included in the mammoth legislation. The Bush administration had previously called for reform to the decades-old plan, along with other subsidies, at a time when consumers are facing record food and commodity prices.

“There is an overwhelming consensus among economists that it is good for producers, but bad for consumers,” said Russell Roberts, an economics professor at George Mason University in Fairfax, Va.

Rather than the Bush administration’s called-for reform of the sugar program, the newest version includes increases in non-recourse loan rates, a shift in market allotment policy to guarantee that 85 percent of U.S. sugar demand comes from domestic sugar and restrictions on the disposal of excess sugar supply by the United States Department of Agriculture.

The changes raise the price of a program, which according to its charter is supposed to cost nothing to taxpayers, to an estimated $333 million per year, according to the Congressional Budget Office.

The biggest complaint from the Sweetener Users Association in the latest farm bill is the guarantee of 85 percent of domestic sugar demand to U.S. producers, according to a source at the USDA. The guarantee places a cap on sugar imports with the exception of Mexico, an exemption it gained under NAFTA.

[Click to read more of: Sugar’s money, influence continue to plague domestic candy companies]

The high price of sugar encourages confectioners to relocate their plants outside of the US.

Since 2002, when the previous farm bill went into effect, the price of candy, on average, has increased 17 percent, according to the Consumer Price Index generated by the Bureau of Labor Statistics.

“They’re skyrocketing,” said Todd Moore, chief operating officer for Chicago Chocolate Co., of prices. While Moore’s company doesn’t produce its own chocolate – it purchases chocolate from Chicago-based Blommer Chocolate Co. to make its products – the increase in commodity costs still affects it.

“The price of chocolate has gone up probably 30 to 40 percent, and I’m sure some of that probably has to do with the price of sugar,” Moore said. As Moore spoke, he was in process of writing a letter to his customers informing them of the company’s first price increase in three years.

The current price of domestic sugar hovers around 21 cents per pound, while the world price is near 10 cents per pound.

Some manufacturers have moved to Canada or Mexico to combat what they say are the high sugar prices they are forced to pay. In the past two years, Northfield, Ill.-based Kraft Foods Inc. moved what were its Life Savers candy operations to Canada. …

Another Chicago company, Ferrera Pan Candy Co. also expanded its candy making operations in Mexico and Canada, while reducing its domestic production.

“You can’t import sugar, but you import candy bars more freely,” Roberts said.

Sugar subsidies also factor in on ethanol manufacturing – corn is cheap, sugar isn’t, so more corn gets grown at the expense of nearly everything else.

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