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Sugar Policies

The United States and Europe have a long history of protectionism when it comes to agriculture in general and the sugar industry in particular. One of the downsides of having a cheap source of imported raw goods is the domestic producers of those goods are crowded out. Mostly for political reasons, two of the world’s economic strongholds have struggled to protect their farmers.

 

 

Policies in the U.S.

 

The first sugar tariff was introduced in the U.S. in 1789: a one-cent-per-pound tariff was levied on all imported raw sugar, mainly as a source of revenue for the government (Heston 42). Over the years, the tariffs became more complex, varying according to the degree of processing of the targeted sugar import (42). In 1842, the objectives of the tariffs grew from simply government revenue to the protection of domestic sugar-producing and –processing industries (Alvarez and Polopolus). In 1846, an ad valorem duty was applied to sugar imports, that is, a tax based not on weight but on value. The previous tariffs had amounted to the equivalent of a 40% ad valorem tax; in 1846, this tax was reduced to 30%, and it was reduced again in 1857 to 24%. Among the reasons for reducing the tariff on imported sugar was the cost passed on to consumers of imported sugar (Heston 44). Between 1789 and 1930, 30 such Acts were made in the U.S. affecting sugar tariffs and taxes (Alvarez and Polopolus).

 

In 1934, the first of a slew of Sugar Acts was passed in the U.S. Alvarez and Polopolus outline the main features of the 1934 act:

  1. the determination each year of the quantity of sugar needed to supply the nation's requirements at prices reasonable to consumers and fair to producers;
  2. the division of the U.S. sugar market among the domestic and foreign supplying areas by the use of quotas and subordinate limitations on offshore direct consumption sugar;
  3. the allotment of these quotas among the various processors in each domestic area;
  4. the adjustment of production in each domestic area to the established quota;
  5. the levying of a tax on the processing of sugarcane and sugar beets, the proceeds of which were to be used to make payments to producers to compensate them for adjusting their production to marketing quotas to increase their income;
  6. the equitable division of sugar returns among beet and cane processors, growers, and farm workers.

Thus the 1934 law had at its core the objective of protecting domestic sugar producers from low-price imports through the use of various protectionist measures such as tariffs, quotas, and taxes. Most imported sugar would have originated from developing Latin American countries.

 

The 1934 Act was followed by the 1937 Sugar Act, which added on a tax solely for government revenue. In 1948, another Sugar Act modified the way quotas were applied, allowing Cuba to export more to the U.S. During the Second World War, the US had received a significant amount of its sugar from Cuba (still under American control at the time), keeping prices for American consumers far below the high world price during that time. Protectionist measures have continued in the U.S. until today, culminating most recently with the 2002 Farm Act signed by President George Bush (Alvarez and Polopolus).

 

 

Policies in Europe

The European Union (E.U.) has been the target of criticism in recent years for the protectionist stance it takes towards European farmers, specifically those cultivating sugar-beets. Current policies date back to the Common Agricultural Policy (CAP) shortly after World War II, during which many European nations had undergone rationing and food shortages. The objective of the CAP was to decrease or eliminate European reliance on foreign agricultural goods by subsidizing European farmers. Today, the E.U. states that the policy “emphasises direct payments to farmers as the best way of guaranteeing farm incomes, food safety and quality, and environmentally sustainable production” (“In Brief”).

One of the consequences of the CAP was the production of copious surpluses by the European agricultural sector. Although the E.U. website asserts that “[b]eef and butter mountains, milk and wine lakes are now a thing of the past” (“In Brief”), Thurow and Winestock maintain that the E.U. produces an annual surplus of six million tons of sugar, about 20% of the annual world sugar production, which is exported on the world market; economists have calculated that without this flood of European sugar, the world price of sugar would increase by about 20%. Low prices in turn harm sugar cane producers, mostly in developing countries, who are generally not subsidised by the government (in following with the dictates of the International Monetary Fund). The cost to developing countries is estimated to be about US$50 billion in lost export revenues, according to the United Nations, which essentially offsets the annual US$50 billion in aid bestowed upon developing nations.

On top of this major effect on the world sugar market, the CAP requires huge expenditures from the E.U. In fact, 50% of the E.U. budget goes to CAP spending, which is nearly twice as much (in dollar values) as the United States spends on its agricultural subsidies (Thurow and Winestock). Despite the fact that sugar production is much more costly in Europe than it is in some developing nations, the E.U. is second only to Brazil in its sugar exports (idem). Thus despite the IMF and World Bank mantras of comparative advantage and free trade, the European sugar industry remains inefficient and protectionist.

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