Big Sugar

From Bloomberg:

Because of a plunge in U.S. sugar prices amid a hefty crop of sugar beets and cane, the Agriculture Department estimates that it may have to buy 400,000 tons of sugar from processors who might default on $862 million in government loans. Sugar producers have the option of repaying the loans either with cash or with their harvests if prices fall below a certain level.

…The sugar, by law, would be sold to ethanol refiners, who would pay 10 cents a pound less than the government paid — an inducement needed to get the ethanol industry to use the sugar. Aside from the ridiculousness of piling one ill-advised subsidy atop another, this would produce a loss of $80 million for the U.S. Treasury. Some industry analysts estimate the government may have to buy as much as 800,000 tons of sugar to restore balance to U.S. stockpiles, potentially doubling the loss.

Comments

Yup a big slump in prices. Doesn't look like it's going back up anytime soon either.. Looking at the trend: http://www.futuresforecasts.com/sugar-futures.html

"to restore balance to U.S. stockpiles": an unbalanced stockpile is a dangerous thing. Avalanche!

Sounds like a sweet deal for sugar producers.

We can not allow a sugar gap!

Why.

*cue macro gymnastics*

Why?

Mostly because of Nixon. And Earl Butz.

Earl Butz was the one who said farmers needed to industrialize and be raw material suppliers instead of being the suppliers of finished goods that you could eat without it going through a factory to add value through 17 industrial steps.

Note that the one thing not considered is selling the sugar at a loss to Coke and Pepsi if they replace the HFCS with pure cane sugar. That would make those products less industrial and thus harm the food business.

That would be as bad as the farmer market movement. We can not allow Americans to discover food that has not been processed in a chemical factory.

Those that are in favor of minimum wage must surely be in favor or minimum prices for all goods and services.

Sugar don't vote. Unless Sugar is a prostitute or hip-hop producer, then they have to be pandered to.

Sugar don't vote but the sugar industry does have political clout. And clout that seems to exceed what you would think, given their political contributions.

Can anti-minimum wage people actually not see why this is different?

All else being equal I want to shift money in the direction of workers, particularly low wage workers. So enacting a law like the minimum wage that gives those workers an advantage is obvious plus, especially when you take into account the stimulative effects on the economy of that kind of redistribution.

On the other hand I don't give much of a crap about the sugar industry, and policies designed to put more money in their pockets are pure corporate welfare.

Is this where Sumner would say, "Never argue from a price change"? An increase in the labor price floor tends to drive out the lowest marginal product workers (i.e., the least skilled, like minority teens from the inner city) and attract those who previously found leisure preferable (retirees, married women, affluent teens and college students, ...). Therefore, even if, statistically, average wages rise -- even if employment and consumption rise -- those who really need the help will be worse off because they now have no job instead of a low-paying job.

Who cares about all of your Koch brothers babble? We must do something so I can feel okay with doing nothing personally about this problem.

Minimum wage laws give low wage workers an advantage by fining or jailing anyone who wants to hire a low wage worker?

Quite unlikely to be an advantage for them....

Yeah, the government by law has to unload it onto ethanol producers who won't compete with the sugar market. Last December they did something similar, Pacific Ethanol bought ~2 year's worth of operating feedstock from the government.

Meanwhile, we're losing our candy industry to Canada and Mexico because sugar price supports keep the price 2X to 4X the world price. There's a carve-out for soft drink manufacturers in the form of high-fructose corn syrup, which can replace sugar in beverages but not in candy or most other foods because it doesn't set up into a solid the way sugar does. If not for sugar price supports, high-fructose corn syrup would not be an industrial commodity.

The "carve-out" as you put it exists because HFCS is in liquid and most candy isn't. That's not a carve-out per se, because prior to the invention of HFCS soft drink manufacturers still just ate the cost of expensive sugar. It's mostly a technical innovation. But of course your point about artificially propped up sugar prices still stands.

While we also make it illegal...similar to the FDA fail on Trans Fat.

Eventually all sugar will be bought by the government, sold to ethanol producers, bought back as ethanol, then buried in the ground so that it doesn't contribute to global warming.

And dug up from the ground to restart the virtuous cycle. Aggregate demand!

Govt "loses" $80 million in tax dollars on sugar subsidies/gimicks--no one blinks or even knows about it--a blip in the Fed budget.

Burger King takes their $88 million they paid in taxes (last year), moves to Canada and the whole world freaks out. They are unpatriotic.

Strange world.

Any idea how much of the Burger King american sourced profit could be moved to canada?

Jc---here is their cash flow sheet for the past 4 years.

http://markets.ft.com/research/Markets/Tearsheets/Financials?s=BKW:NYQ&subview=IncomeStatement

What is forgotten in this is that MOST of BK operations are franchise-based. The local owner/operator pays taxes (Fed,State and Local) on their operations but pay various fees to the parent company, BK. I am guessing (I don't know) but the total taxes the franchicees pay must be greater than want the Corporate BK pays.

I welcome correction on that point. Thanks.

The question for me then is whether the franchise fees paid to a Canadian parent are taxed in canada or the us.

Burger King is just the latest example; there are thousands more companies which could profitably escape taxes abroad, adding up to billions in tax revenues.

Whereas this is just a one-off ridiculous industry subsidy scheme; it's not like there are thousands... oh, never mind.

I, for one, support the King's move.

I think that the sugar industry, and whoever wrote the current rules for the sugar industry, are unpatriotic as well. And I assume the kind of people who are outraged about Burger King's move feel the same.

G,

$80 million in tax dollars on sugar subsidies/gimicks is an unbearable offense against "free trade", "free markets", the American Way, etc.

$80 billion in food stamps isn't even worth mentioning.

Modern libertarianism.

The way to eliminate the need for food stamps is requiring higher wages for workers.

Unless you want to have a law that says to euthanize anyone who does not have enough income support on their own to survive and thus can only live through handouts or theft.

We no longer have the society that Locke et al imagined where those without property or employment could forage and hunt in the vast common land of the Americas, the unowned land that was ten times or more and thus infinitely more than the land that was owned. Today, if you do not own land that can feed you on its own, you must rely on others to give you the food you need to survive because ownership denies you the right to forage and hunt - you don't own it.

You can get enough to eat to survive on a few dollars a day.

But some people aren't legally allowed to work for low enough wages to be able to get a job. The two possibilities are minimum wage or 0, nothing in between.

It's your requirement for not legally allowing people to work for what they can get from potential employers that forces them to rely on handouts or theft.

Thank the House Republicans and the Senate Republicans for this in defeating an amendment to phase out the sugar subsidy:
http://dailycaller.com/2012/06/25/sugar-lobby-sweetens-deal-for-house-republicans-protecting-subsidy/

Here is the party split and data on agribusiness lobbying:

http://www.opensecrets.org/industries/indus.php?Ind=A

What I think is interesting is that we raise food prices for poor people while cutting food stamps.

B,

"What I think is interesting is that we raise food prices for poor people while cutting food stamps."

Wrong country. Since 2000 the number of food stamp recipients has rise from 17 million to 45 million. Spending has grown from $17 billion to $80 billion.

Food stamp spending is now 80% of the farm bill.

That's the liberal/left definition of "cutting food stamps".

Of course, it's also typical of "libertarian" rhetoric these days to get hysterical over a trivial subsidy and ignore the welfare elephant. Libertarianism used to be based on a rigorous standard of personal responsibility.

Now it's personal license and government handouts.

How bizarre that we'd spend more money on food stamps in year 7 of a global economic crisis than we did in 2000, at the peak of a gigantic economic boom.

It's not like the rules of who is allowed to get foodstamps have been broadened, and indeed there are constant attempts to make them harder to qualify for. Why should we only feed the hungry in boom times when there aren't as many of them?

They're not hungry. They're fat.

QL,

"How bizarre that we’d spend more money on food stamps in year 7 of a global economic crisis than we did in 2000, at the peak of a gigantic economic boom."

Bush was relentlessly pro-welfare and pro-cheap labor. He promoted food stamps as part of his "compassionate conservatism". He even advertised food stamps in Spanish.

"It’s not like the rules of who is allowed to get foodstamps have been broadened"

Wrong. See "Rep. Tom Cole says food stamp spending doubled under Bush, doubled again under Obama" in PolitiFact.com. Quotes

"The increases were largely a rebound from the deep cuts the program sustained in the 1996 welfare law and strengthening the program’s ability to support working families," said Dottie Rosenbaum, who worked in the Congressional Budget Office at the time. She’s now a senior policy analyst with the liberal Center for Budget and Policy Priorities."

and

"Ron Haskins, a senior fellow at the Brookings Institution who advised Bush on welfare policy at the time of the 2002 farm bill, said the goal then was to expand food programs for low-income working families. The bill made it easier for states to administer the programs and to get more eligible people signed up."

PolitiFact rated Rep. Tom Cole's original claim as "True".

Steve-O,

"They’re not hungry. They’re fat."

Another one who didn't get the memo. Obesity is now defined as a symptom of hunger. Back to the reeducation camps for you.

QL,

More from PolitiFact

"One last point: The number of food stamp beneficiaries had started to head upward under President George W. Bush, partly because of more aggressive efforts to get eligible Americans to apply for benefits, and partly because of changes in the rules that had the effect of broadening eligibility. The experts we spoke to agreed that both policies began under Bush but were retained by Obama.

The changes produced consistent increases in the number of average monthly beneficiaries. The number rose in seven out of the eight years of Bush’s presidency -- most of which were years not considered recessionary. All told, the number of recipients rose by a cumulative 63 percent during Bush’s eight-year presidency."

It's amazing how 16 Republicans voting against it managed to be a Senate majority all by themselves.

The Republicans who voted against it deserve blame, no doubt, but this is bipartisan stupidity.

Dan, Did yo read the article?

Yes. 16 Republicans and 30 Democrats voted against the amendment. The article only mentions donations to Republicans, but as the graph you linked shows, large donations were also made to Democrats, with the two companies that I identify as sugar companies giving significantly more to Democrats.

"Blame some Republicans and even more Democrats for defeating the amendment" would be a more accurate assessment.

Dan, You evidently read it for your own bias. Had one vote changed, the motion to table (passed at a 50 to 46, would not have passed.

Perhaps you read, but did not understand, the article or the significance of 50, which any one of the 16 could have changed.

If only John Heinz Kerry had become President, then we could all rage about Big Ketchup

Dan: Don't you understand? The Republican party is supposed to be the grownup party. You can't blame the greater number of Democrats for voting for stupid legislation cause that's what they do.

Further, we only want the grownup party to act like grownups when bad things have happened. Maybe. The rest of the time we want hookers and blow for everyone!!! And when get STDs and drug-addled, well why didn't the grownups stop us?!?

So, Bill, that means if any one of the 16 Republicans or 30 Democrats changed their vote it would have passed. Or am I incorrect about that? Was it only the Republicans who had the ability to change the result with their vote?

p.s. I am more annoyed than anyone that some Republicans support stuff like this. But that isn't the same as blaming only Republicans for a clearly bipartisan issue.

jody,

"The Republican party is supposed to be the grownup party"

30 years too late. America has no grownup party.

Peter,
Now that the grown up party is over, some of the grown ups will be ducking out soon, headed to the grown up after party. I heard it was in Hong Kong. Maybe I'll see you there.
A'ight. Later, man.

Yeah, Bill, he actually bothered reading it, unlike you I suspect. Willing to bet you just read the headline and assumed the vote was 50 Democrats vs 46 Republicans.

Bill, just FYI, I can literally feel a different tone to your comments when you are partisan concern trolling and when you aren't. It's not a criticism, just an observation.

Besides, never reason from a vote tally: too much log-rolling, strategic signaling and attendance voting to know much in general.

Andrew, When you begin a statement that you "feel a tone" and then follow with "partisan" and "trolling" and other such buzz words without ever addressing the issue of farm state Republican welfare for the rich, it must have hurt.

Distraction doesn't work.

That farms happen to be located in red states and politicians like being reelected is a known issue.

If they were blue stats the politicians would respond to the same incentives the same way, and that's a compliment.

Bill,

Why are you trying to make this a partisan wedge issue?

Because it is. Myopic might be one way also to describe it also.

No, it wasn't until you piped up.

I thought senators represented state interests more than parties.

Or am I that naive.

Why do both Republicans and Democrats receive money from lobbying groups before, during and after campaigns, regardless of who wins?

I suggest the Canadian model, which restricts campaign donations to citizens, and excludes both unions and corporations from explicit support, in kind or in $$, of electoral campaigns.

Why do Americans want expensive American sugar when Brazil is so well suited to cheap sugar cane production?

Better to buy Brazilian sugar and sell them wheat and corn, imo. Instead, you spy on them when there's no good excuse.

It's just a classic case of a small but well funded and well organized group winning out against a vague notion of the public interest. No one really supports these subsidies except for the sugar industry, but not many people besides the sugar industry are going to vote or give money based on this issue.

Americans don't want expensive sugar, unless they are sugar producers.

We can't sell them corn, we "need" it for our cars.

I guess it's up to me to give the obligatory:

"In America, first you get the sugar. Then, you get the power. Then, you get the women."

Homer Simpson

+1

Beat me to it.

I hate the Farm Bill in particular, and ag policy in this country generally, soooooooo much, but a mix of custom and the Constitution give disproportionate representation to agricultural communities, so one suspect that will be subsidizing them for the forseeable future.

It's seems like regular crop insurance. So, is it only a hefty crop this year or a consistent overcapacity for years?

Is the most advanced financial system in the world incapable of offering such tools to these businesses?

The "insurance" part of things should only come in the most extreme cases where, say, continental drought or regular flooding enters the third year and all the crop insurers are borderline going bust ... THEN, the government steps in and hands out $80 million to sugar beet growers.

My 2c on the matter. The status quo kills African babies by the mountain load because smallholders have to compete with subsidized American farm production, making it impossible for hundreds of millions of families worldwide to accumulate capital, thereby helping to reinforce cycles of poverty.

As long as Florida remains a battleground state for the Presidential election, then sugar producers will keep their political power. They are HUGE contributors to both parties. It's a shame.

Thanks for the update!

The sugar lobby has had a grip for decades. That they were even able to pass a bill that opened up our sugar industry to foreigners was huge. I'm enjoying my sugar colas of my youth, btw. Original Dr. pepper, tho, yuck! If you want to try it, you can order it from the plant. Maybe if the sugar lobby didn't have such a grip, we'd have more candy companies here or we'd be making more of our candy here? But those determinations were made long ago, now we just inverse.

I should have said opened the US up to sugar imports.

WLIIT,

The U.S. has imported sugar forever. Imports have been restricted (by tariffs and quotas) since 1789. But the U.S. has consistently imported sugar.

And they also allowed more imports this last time. I seem to recall a 2-year wait before the last restrictions were loosened.

Seems like $80M to keep the sugar growers in business would be a decent proposition if there was some need to keep a reserve capacity of sugar production. Some strategic purpose served by keeping these guys ready to grow sugar instead of moving to other crops. But I can't see one. At the same time, letting them fail catastrophically also seems like a bad idea. What about some middle ground where they're "covered" by the govt. but with strings attached; after the govt. picks up your tab, you have to start transitioning to some other crop.

Or if the price drop is thought to be temporary, couldn't this be covered by agriculture insurance? Roll the cost of intermittent price fluctuations into the premiums. Makes the growers less profitable in boom years and more profitable in bust years. (Either due to price or weather events.)

Subsidies become a trap. The fairest thing would be to announce that all agricultural subsidies would be eliminated over a ten year phase out

"letting them fail catastrophically also seems like a bad idea."

What's so bad about it? Isn't it possible that these hyper-farmers could turn to some other crop? They also grow potatoes and wheat in the Red River Valley, not just sugar beets. US ag policy has distorted not only the price of sugar but also farm land, motor fuel, machinery and many other things. Too bad a free market doesn't actually exist.

It's entirely possible that they could shift to a different crop. And they should. My only point was that it might be beneficial to allow this process to happen gradually by phasing out the subsidies over time, or attaching strings to them.

Why should farmers get bailed out but not bakery companies? Hostess went bankrupt in part because of high input costs.

If you drive up the price of sugar, you kill the international competitiveness of bakers and confectionaries.

Steel price subsidies hurt American carmakers.

It's not just a question of helping American farmers over foreign farmers. We have to remember that most farm products are inputs into someone else's business.

Crop insurance tied to price is simply price support when when insurance is subsidized by the government.

Just another fig leaf.

Maybe we can have real sugar in Coca-Cola sodas! Of course the only food group bigger than 'Sugar' is 'Big Corn'

I've been drinking real sugar for a couple of years; in my area it first came in via Mexican Coke.

Might there be a place for stockpiling sugar in the form of a strategic reserve as a near substitute for gasoline fuel? Thus, they could smooth out petroleum and sugar prices shifting back and forth keeping the total reserve ratio roughly in the useable range of a gasohol mixture. Not that they wouldn't screw that up too, so it is mainly a rhetorical question.

I think corn syrup would be a cheaper way to do it (stockpile). Being fluid, it would also be easier to manipulate. Imagine a future when cornlines instead of pipelines crisscross the country :)

Wouldn't they still be made out of pipes? It's not like they're called oillines now.

The Quebecois have beaten y'all to it. http://en.wikipedia.org/wiki/Federation_of_Quebec_Maple_Syrup_Producers#Strategic_reserve

Amusing (especially the maple syrup heist part of it). However, maple syrup requires very specific weather conditions for production. Sap only runs when it is above freezing during the day and freezes at night. It is entirely possible that an unusual year could result in hardly any syrup being produced. So, as silly as the story seems, it makes sense to have a reserve.

I was really hoping this would somehow be about the Canadian rock band.

Can't win all of them I guess, unless you're threatening to default on loans to the gov.

The linked article is from March 2013. Maybe should be noted since the quotes from the article are all in the present tense and it was posted in Aug 2014

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