Case Study : Sugar Subsidies Drive Candy Makers Abroad Assignment Help

Sugar Subsidies Drive Candy Makers Abroad

Back in the 1930s at the height of the Great Depression the U.S. government stepped in to support the U.S. sugar industry with a combination of subsidies, price supports, import quotas, and tariffs. These actions were meant to be temporary, but as of 2015 they are still in place. Under policies approved in the 2008 farm bill, the government guarantees 85 percent of the market for U.S. producers, primarily farmers growing sugar beets and cane. The remaining 15 percent is allocated for imports from certain countries at a preferential tariff rate. The government also sets a floor price for sugar. If the price falls below the floor, the government steps in to purchase excess supply, driving the price back up again. The surplus is then sold at a loss to producers of ethanol. A significant U.S. sugar harvest in 2013 required the government to spend some $300 million to prop up U.S. sugar prices. As a result of these policies, between 2010 and 2013 the U.S. sugar price has averaged between 64 and 92 percent higher than the world price of sugar.

American sugar producers say that the federal programs are necessary to keep big sugar-producing countries like Brazil, India, and Thailand from flooding the U.S. market and driving them out of business. Opponents of the practice include numerous small candy producers. Many of them complain about the high U.S. price for sugar. Increasingly they have responded by moving production offshore. For example, the Spangler Candy Company, the maker of Dum Dums, has moved 200 jobs from Ohio to Juarez, Mexico, where it makes candy canes that are then imported back into the United States. Similarly, Adams & Brooks, a California-based candy company, has shifted two-thirds of its production across the border to Mexico in response to higher U.S. sugar prices.

A recent academic study suggest that the U.S. sugar policies primarily benefit 4,700 sugar producers, while imposing costs of $2.9 to $3.5 billion per annum on U.S. consumers due to higher sugar prices. The same research predicts that removing the support programs would lead to the net creation of 17,000 to 20,000 new jobs in the United States, while dramatically reducing imports of products containing sugar.

Given the benefits of removing sugar support programs, and all the talk about deregulation and reducing the budget deficit in Congress, many observers thought that 2013 would be the year that the sugar programs were finally abandoned. The farm bill was up for renewal, and the sugar support programs were held up as an example of how wasteful government subsidies are. However, sugar producers spent some $20 million on political lobbying between 2011 and 2013. Partly due to their influence, the U.S. Senate voted 54 to 45 against any reform in the sugar programs. The majority included 20 out of 45 Republican senators, most of who publicly rail against this kind of government intervention. Apparently, however, political expediency required that they support intervention in this case.

Case Discussion Questions:

1. Who benefits from subsidies to U.S. sugar producers? Who loses?

2. Do the benefits of U.S. government support to the U.S. sugar industry outweigh the losses?

3. What do you think would happen if the U.S. government removed all support for U.S. sugar producers?

4. Government support programs for sugar producers were introduced in the 1930s, yet they are still in place today, long after the original rationale disappeared. What does this tell you about political decisions relating to international trade?

5. If you had the power to make changes here, what would you do, and why?

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Answer 1

During the Great Depression in the United States, the U.S government decided to support the sugar industry by introducing a combination of subsidies, import quotas and price supports to the producers.

- This action primarily benefits a number of 4,700 sugar producers producing sugar from beet and cane along with their communities who are involved in the production of sugar.

- The employees working in the sugar-producing industries would have lost the jobs; however, because of the subsidies now, they are in business and being able to support both the sugar industry and their lifestyle.

- The US farmers who grow sugarcane and beet get benefited due to the subsidy.

- The producers of ethanol get their raw materials from government subsidy.

- The subsidies also have benefitted the politicians of the US constituency who are in charge of the areas where sugar crops are grown.

However, subsidy from the government negatively impacts on and which seems to be affecting the citizens of the country directly.

- The common people in the country pay an extreme price for sugar in comparison to any other countries.

- The downstream industries like the producers of cola, candy, bakery, and chocolates are ought to pay a relatively higher price in purchasing sugar as their raw material in the U.S market.

- Also, subsiding sugar producers have a negative impact on the sugar producers, farmers, employees and the communities of the regions along with the government of the enormous sugar-producing nations like Thailand, India and Brazil, creating an obstacle in the international free trade - an effort taken by the international regulatory institutions (Al-Najjar, Baliga & Forman, 2017).

Answer 2

To understand the benefits and losses in the U.S sugar industry, it is important to analyse the cost-benefit of the producers. The losses are outweighing the benefits in terms of the U.S government's support by providing subsidy to the industry of sugar production. A cost of $2.9 to $3.5 billion per year is imposed on the consumers of the US which is way higher than any other country and the sole reason of this is the hike in the sugar prices (Lewin, 2018). It is evident with the same analysis that it will be more economical if the United States government imports sugar from Brazil, India and Thailand as it will cost way lesser than the cost they are bearing to run the sugar industry. If the sugar industries are called off, farmers indulged in producing sugar crops can also choose to grow other crops which have a comparative advantage in the market. The downstream industries who are taking away their production offshore to places where the due to the upraise in the cost of the essential raw material, will sustain within the national boundary which will create a vacancy of 17,000 to 20,000 new jobs within the country which will work as a factor to reduce the import of sugar-containing products.

Answer 3

Since 1930's, the indulgence of the US government in the sugar industry has been evident with the steps they took to subsidise the production which was planned to be there in the system temporarily in order to set a floor price for sugar and the benefits of the sugar producers (Taylor, 2017). However, until now the U.S government has not withdrawn their support which has not been proved to be very much helpful to the citizens of the country.

- For this step taken long back, the taxpayers in the country are ought to pay billions which are affecting the economic growth of the country as the money is getting wasted for something which is providing nothing in return.

- The consumers are the one who pay for the sugar subsidies working as a nexus in between the business and the political class.

- The price propping by the government to keep the prices high artificially is another major concern.

- Along with this, the sugar production is also being the biggest reason in the destruction of thousands of jobs in the country.

- Hence, with the removing of the support of the U.S government from the sugar industry will be all beneficial and also create a job vacancy of 17,000 to 20,000 within the country.

Answer 4

There are many factors that have affected the decision of continuing the subsidy for the sugar program in the U.S. it has been a political matter since then which is to be considered as one of the strongest reasons is not calling off the supports. A lot of studies have been conducted to find out any positive sides to the subsidiary, however, all the analyses summarize that there are no possible positive sides in continuing the subsidy for the sugar program. All the citizens along with the people working in the government body are well aware of the situation and personally oppose it as well but because of the amount, the sugar producers spent on creating the lobby they vote in favour of them (Van Kooten, Orden & Schmitz, 2018). Apart from this, there is another factor which is affecting the decisions is the political vote bank that they get from the number of farmers and the manufacturers of the sugar industry at the cost of so many people in the country. It is to be said that here, the political decisions are based on the biases of one's profit in being in the helm of constitutional power at the cost of betterment in the international trade.

Answer 5

For several decades, the government of the US has taken the charge to operate the program of controlling the production and importation of sugar in the country and the primary motto of this step is to set a minimum price for sugar within the country (Beghin & Elobeid, 2017). However, with the passing years, it is evident that the lowest price in the country is significantly highest among the other countries resulting in making the taxation system too expensive for the commoners. I want to start with conducting a survey to the sugarcane producers in the US so that I can get the idea of present situation of them. In addition, the education of the market to the farmers of US sugarcane is very important.

- If I had the power to make changes to the decision of the U.S government, the first thing I would have done is calling off all the supports to the sugar program to make a better place for international trade. Doing this would have helped in bringing down the artificial upraise in the price of sugar which will stop the downstream businessmen from going offshore and create a vacancy in work within the country.

- I would have increased the import rate in the country from countries like Brazil, India and Thailand who are rich in producing sugar and can provide sugar at a reasonable price. This step will not only bring the price of sugar down but also be beneficial to free trade.

- Holding on to something which proves to be totally harmful to everyone is stunting the growth of development that can happen in other sectors. Something similar to this is happening in the United States for which it is high time now to call of all sorts of government supports from the sugar industry.

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