The Mad Economist

August 5, 2009
The Honorable Thomas J. Vilsack
Secretary
U.S. Department of Agriculture
Jamie L. Whitten Federal Building
1400 Independence Avenue, S.W.
Washington, DC 20250

Dear Mr. Secretary:

The organizations and companies below urge you to increase the sugar import quota
immediately. Your experts forecast unprecedented shortages without prompt action.
According to USDA's World Agricultural Supply and Demand Estimates, the United
States will end the next fiscal year with less than 13 days' worth of sugar on hand, unless
imports are increased. If this forecast is accurate, our nation will virtually run out of sugar.

The shortage does not have to happen. The only reason markets are forecast to be
so tight is the restrictive U.S. policy on sugar imports. Imports are subject to restrictive
quotas.

But you have the authority to increase the sugar import quota, and we urge you to do
so immediately, both for the current fiscal year - where high prices already indicate a
painfully tight market - and for the upcoming year.

Without a quota increase, consumers will pay higher prices, food manufacturing jobs
will be at risk and trading patterns will be distorted. Please act now in the interest of all
Americans.

Sincerely,

American Bakers Association
American Beverage Association
Blommer Chocolate
Competitive Enterprise Institute
ConAgra Foods, Inc.
Consumer Federation of America
Council for Citizens Against Government Waste
Emergency Committee for American Trade
General Mills, Inc.
Gonella Frozen Products
Grocery Manufacturers Association
The Hershey Company
Independent Bakers Association
International Dairy Foods Association
Kraft Foods
Krispy Kreme Doughnut Corp.
Mars, Incorporated
National Confectioners Association
Nestle USA
Pepperidge Farm
Sweetener Users Association
Unilever United States, Inc.
U.S. Chamber of Commerce

I say to myself this is bizarre.  So, I've spent the last fews days trying to figure out what is going on. 

In my sleuthing around, I find out that the U.S. uses price supports, domestic marketing allotments, and tariff-rate quotas (TRQs) to influence the amount of sugar available to the U.S. market. The program is used to support U.S. sugar prices above comparable levels in the world market.  In order to keep the program off the Federal Budget,  the program relies on import quotas to limit imports, so that a certain target price can be maintained.

The rates for raw cane sugar are:

18 cents per pound in FY 2009,
18.25 cents per pound in FY 2010,
18.50 cents per pound in FY 2011, and
18.75 cents per pound in FY 2012-13.

The rates for refined beet sugar are:

22.9 cents per pound in FY 2009 and
128.5 percent of the loan rate for raw cane sugar in FY 2010-13.

So, I ask myself, what is the world price?  In turns out that over the last 15 or so years, the average difference between the world price and the domestic price is about ten cents a pound:

I mean this is about double the world price.

If we look at US Sugar Consumption over the same time period:

It turns out that the US consumes about 900,000 tons a month -- that is a lot of donuts and cokes.  You figure in a year that is about 10 million tons.  If you figure the US population is 300 million, that means people eat about  67 pounds of sugar a year.  Yikes.

So, how much is the subsidy we pay to sugar farmers.  I looked at the price difference per month and multiplied it by the monthly US production of sugar:

So, over the last 15 or so years, we as consumers pay sugar producers a subsidy of about $150 Million per month or about $1.8 Billion a year.

So who gets all this dough.

Let's look at who grows sugar cane and sugar beets:

Farm Count, by State:

Sugar Production ('000 Tons), by State:

Now let's look at the implied sugar subsidy by multiplying the tons by $0.10/Lb.

Sugar Subsidy ($million), by State:

If we put this on a 'Per Farm' basis, we can estimate how much subsidy goes to each farm, on average, by state:

Sugar Subsidy ($thound) per Farm, by State:

Good grief.  When all is said and done we are paying sugar beet farmers an average of $238,200/year to grow their crop.  We are paying sugar cane farmers average of $1,026,600/year to grow their crop.  That's one million bucks a year folks. That's real money.  We're talking a serious case of Welfare for Farmers.  I need to get in on this racket.

How did I get off on this tangent anyway?  I was taliking about a sugar shortage not farm welfare.  This post is already too long, that will just have to in the next one.