I made a career change at age fifty-five from architecture to goat farming. It was my wife’s idea to move to her family’s 130 year-old homestead in Follett, Texas. Once a month my goat buddies and I would drive 90 miles due north to the Dodge City sheep and goat auction. At that time goats were bought and sold for 70 to 80 cents a pound. The max price you could expect was $0.80 X 80 lbs = $64. In order to meet our big city income goal of $10,000 a month we needed to produce 1,875 goats a year. As the boys say around the quick-stop lunch table, “it didn’t pencil-out.”
The stocking rate in the High Plains Texas Panhandle was one cow or six goats for every 25 acres or 1,875 / 6 x 25 = 7,812 acre ranch. Thomas Jefferson 1785 divided the land into mile square, 640 acre sections which in our case meant 7,812 / 640 = 12 sections. We threw our pencil away and moved back to Houston for further reflections on our career choice. Not wanting to throw in the towel I scoured the countryside buying goats wholesale for delivery to ethnic markets in Houston which led me to the Angora goat mohair subsidy story.
Back in 1995 Newt Gingrich’s contract with America Congress passed the ‘Freedom to Farm Bill’ promising to curtail agricultural subsidies. However, farming in twenty-one states was the economy and their senators were reluctant to kill the golden goose subsidies or in ag parlance whose ox were they going to gore. Texas had 1.5 million Angora goats, 90% of the national total that contributed 75 billion dollars to Texas GDP through the mohair subsidy. Forty state senators repealed the mohair prop over the objection of the two senators from Texas. All but 250,000 Angoras were devoured, Hallal style, from 1995 to 2000. Good ol’ George ‘W’ no sooner took office in January 2001 than by executive order rescinded the Federal Mohair subsidy.
Currently, the US Government spends 30 billion on agricultural subsidies. That is 40% of all government give-aways and doesn’t include the costs to the environment, unemployment and free market imbalance. What follows is Sugar Baby Subsidies example that clearly illustrates what Bernie is always screaming about, “socialism for the oligarchs and rugged capitalist individualism for the poor.”
Lawmakers across the political spectrum, from Senator Barbara Mikulski (D-MD) to Senator Marco Rubio (R-FL), support using taxpayer dollars to subsidize the American sugar industry. In the House, 46 percent of members—109 Democrats and 92 Republicans—received money from American Crystal Sugar in this election cycle.
Dominican Republic-Central America Free Trade Agreement, or CAFTA-DR, which went into effect in the Caribbean nation in 2007, signatory countries were required to enforce their own labor laws. The deal was promoted as a tool to improve worker conditions — just as the Trans-Pacific Partnership agreement is being advertised now — but such promises are frequently broken.
The program that supports the American sugar industry has many facets. Most infamous is a subsidy program in which the U.S. Department of Agriculture gives loans to sugar farmers and allows them to repay those loans with raw sugar if sugar prices fall below 20.9 cents per pound. This program functions as an effective mass purchase of sugar, which drives up prices for consumers and thus doubly subsidizes the industry. The USDA then sells this sugar at a steeply discounted price to ethanol producers. Last year the USDA spent $53.3 million on the program. Including the loans that could not be repaid, the government spent $171.5 million.
The government also enforces a system of tariffs and quotas on imported sugar, limiting the supply of cheaper sugar that can be imported from abroad. This results in wide spreads between global and domestic sugar prices. In the absence of protection, consumers and sugar-using producers alike could save several cents a pound on sugar bought from other countries.
Such savings would have positive consequences for America’s growth. An Iowa State University study by John Beghin and Amani Elobeid concluded that if the sugar program were abolished, U.S. sugar prices would fall by roughly a third, saving consumers $2.9 billion to $3.5 billion.
The study also found that employment in industries that depend on sugar as an input, such as confectioners, would add 17,000 to 20,000 new jobs in the absence of the sugar program. Already, confectioners are moving production abroad to take advantage of lower foreign sugar prices. Eliminating the sugar program could reverse this trend.
Surprisingly, repealing the sugar program would increase employment in the sugar industry itself. In absence of federal meddling, American sugar refineries would be able to use cheap sugar from abroad rather than expensive, protected domestic sugar for their operations. The Iowa State University study estimates that domestic sugar refineries would expand output by 24 percent in the absence of the sugar program.
The sugar program also incentivizes sugar cultivation in environmentally-sensitive areas. Chemicals from fertilizers used in sugarcane production in Florida are seeping into the Everglades, causing contamination of groundwater and habitat loss for native wildlife. The majority of the world’s sugarcane is produced in equatorial countries such as Brazil and Mauritius, and it makes little sense to grow the crop en masse here in the United States. Removing distortions caused by the sugar program would make such environmental damage much less economically desirable.
Why do federal sugar programs still exist? They cost consumers and producers money, decrease employment and economic growth, harm the environment, and only benefit a few farmers.
Even though these policies force consumers to pay more for sugar, the total savings from eliminating sugar subsidies would only be around $10 per American consumer. On the other hand, 20,000 sugar farmers gained $1.7 billion in transfers last year. That means each sugar farmer effectively received $85,000 in other taxpayers’ money.
It would be economically irrational for everyday Americans to even spend enough time worrying about sugar subsidies to read a few articles on the topic. The time they spent doing so could be more efficiently used in other ways by working or enjoying leisure time. Alternatively, it makes sense for sugar farmers to spend most of their time and energy fighting tooth-and-nail to protect their preferred treatment, as their livelihoods depend on this.
While $10 may not seem to be a lot of money, when the political process becomes too beholden to special interests the consumer costs of preferred treatment slowly start to increase. Everything from biofuel mandates, to dairy subsidies, to wind and solar power tax breaks have strong, concentrated benefits and dispersed costs—adding up to thousands of dollars in extra, government-imposed costs for American consumers.
Congress should abolish the sugar program once and for all. An economy where the politically-connected are able to exert undue influence over government is unfair and harms economic growth. What America produces ought to be determined by what makes sense for consumers and the economy, not by arbitrary and distortionary government intervention. http://www.economics21.org/commentary/sugar-subsidies-are-bitter-deal-american-consumers