Farm bill is sweet for Big Sugar

May 16, 2008|By JAY HANCOCK

Those champagne corks heard on the Inner Harbor yesterday may well have been popping at Domino Sugar, where the high prices and corporate welfare are sweeter than anything that gets loaded on the trucks.

Congress' veto-proof passage of the 2008 farm bill ensures that Domino's proprietor, the Fanjul family, and fat-cat farmers across the nation will keep wallowing in trade protections that disappeared decades ago for other industries.

But while the bill is good for Domino, its 400 Baltimore jobs and a few agri-corporations, it hurts everybody else.

If you're having trouble figuring out why the legislation makes people so upset, a good place to start is to understand how it lets Domino and other producers charge twice the global market price for sugar and makes sugar welfare even worse.

This was the year that should have made a semi-honest industry out of Big Sugar.

Mexican sugar was finally supposed to be freely available to U.S. buyers under NAFTA, which went into effect in 1994. That might have loosened Big Sugar's grip and lowered high prices that are hurting candy and cereal manufacturers.

But consumers on both sides of the border just learned (again) that 14 years aren't enough to make the North American Free Trade Agreement do what it promised.

First, sugar concerns in both countries balked at full competition and proposed "managed trade," a nice way of saying continued protection.

(Ever wonder why U.S. soda makers switched from sucrose to yucky corn syrup? Thanks to trade barriers, real sugar got too expensive.)

Now the farm bill continues to guarantee 85 percent of the U.S. market to U.S. sugar growers, who are led by the politically connected Fanjuls.

"That is in direct violation of the World Trade Organization rules," says Sallie James, a trade policy analyst at the libertarian Cato Institute.

And in a ghastly mating that could have been conceived only by Midwestern congressmen, the Agriculture Department's sugar program will team up with the equally terrible ethanol program.

Senate Agriculture Chairman Tom Harkin of Iowa and House Agriculture Chairman Collin Peterson of Minnesota backed an addition to the farm bill that requires the government to buy sugar at inflated rates and sell it cheaply to people who will distill it into the ethanol equivalent of rum, which will be blended with gasoline.

At least sugar contains more energy than the fuel needed to turn it into ethanol. Corn, the usual U.S. ethanol feedstock, doesn't.

But rather than allow ethanol makers to buy cheap foreign sugar, Congress mandates a new market for limited supplies of American sugar, which could drive prices (and profits for growers) even higher.

By approving the farm bill, the same Congress that decries tight supplies and painful prices in energy has intentionally inflicted the same forces on consumers of sugar and other food. This, when food inflation is worse than at any time since 1990.

The sugar lobby tries to justify the deal by noting that Mexico and other countries have their own protection programs for growers.

But here is all you need to know about that. A couple of years ago, the Commerce Department found that the price of U.S. refined sugar was 24 cents a pound - more than twice the global price. If other governments are propping up sugar farmers, they're doing a terrible job.

Canadian sugar prices were less than half those in the United States. Mexican sugar prices were about two-thirds of American prices.

The Government Accountability Office figured U.S. sugar policy costs consumers $1.9 billion a year in high prices. Taxpayers will fork over another $1 billion-plus in the next decade in subsidized loans and buyback programs used to prop up those prices, the Agriculture Department calculated.

Under the farm bill, taxpayers will now be thrice abused, with the government buying sugar at 24 cents or whatever it is and selling it to ethanol makers for a nickel or less a pound.

But what about those 400 Baltimore manufacturing jobs and the thousands employed by the Fanjuls' Florida Crystals, Domino's controlling parent, and Upper Midwestern sugar beet farmers?, sugar welfare supporters will say. Isn't protecting them worth the cost?

The Commerce Department found that, for every sugar farm job protected by federal sugar policy, three jobs were lost at food manufacturers. Brach's, LifeSavers and Hershey have all moved American jobs to Canada or Mexico.

It wasn't long ago that sugar policy victimized Domino and congresspeople raised hell about how the Baltimore plant couldn't buy the raw cane it needed and had to lay people off. That was before a Fanjul-led consortium bought it, ensured a supply and put it on the side of the protectionists. (It's unclear how the ethanol provision will affect Baltimore; Domino's spokesman was out of the country and unreachable.)

And what an impressive side it is. Domino, the Fanjuls and other sugar interests have spread hundreds of thousands of dollars among Republicans and Democrats alike to ensure Big Sugar can continue to pick the pockets of taxpayers and consumers.

It's a cost of doing business for them, and a fairly substantial one. But with the government guaranteeing their profits, they can well afford it.

jay.hancock@baltsun.com

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