Thursday, March 25, 2010

Sugar in America, or What can go wrong when you legislate localism.

Last week the difference between what America and the rest of the world pays for cane sugar hit a ten year high. America pays almost forty cents per pound. The rest of the world pays less than twenty cents.

The reason is America protects its ten thousand local cane sugar producers with legislated import restrictions. We can't buy the sugar that the rest of the world does. It's an old system, one we've had in one form or another since 1816. And, with such a long history, it's a textbook issue of how things can go strangely, bizarrely wrong when you legislate localism.

One bizarre effect has been on corn. Faced with high cane sugar prices engineers went to work to figure out how to reduce other foods to sugar. They found corn. It converts to sugar relatively easily, turning into corn syrup and high fructose corn syrup. However, it was still more expensive to harvest and convert it than to buy cane sugar.

Lucky us. Corn is subsidized by taxes. The subsidies lower the cost of corn by so much it makes business sense to replace cane sugar with corn syrup. Corn, it's useful to note, is usually grown with chemical fertilizers.

Now, in a bizarre turn of events, corn growers love high sugar prices, too. They support the import restrictions because it means there's more demand for corn.

The thing is, there's no need for us to be growing sugar cane.  It could even be bad for us to do so. There are very few places in America where the environment is suited to it. Ecologically speaking, it doesn't make much sense to grow something in an inhospitable environment. As James McWilliams wrote in his book Just Food, "An environmentally sound food system is one in which productive endeavors naturally gravitate to geographical locations where the impact on resources is minimized. In other words, producers prodce in the right places."

The Caribbean and Africa, however, are perfect environments to grow sugar cane.  That's  the right place to produce it. In fact they grow tons of it. They sell it to everyone else in the world. Except us. It's worth noting much of it is organic because poor farmers usually can't afford fertilizer.

So here's the final bizarre effect. Most of the places in the Caribbean and Africa that grow sugar cane are impoverished. They would love to do business with us and sell their natural, ecologically sound product. We don't let them. What we do instead is refuse their sugar but give them a significant amount of humanitarian and economic aid.

When you follow up these bizarre turns it may hurt your head. First we prohibit poor nations from selling us sugar. Then we use our taxes to subsidize corn growers for a substitute. Then we use more taxes to send aid to the poor nations.

How much more effective would it be to just let us do business with Africa directly, to not give handouts?

I wrote a previous post on sugar here.


Susan Ederer said...

It is important to know that Michigan produces sugar -- from sugar beets. In fact, most Ann Arbor area stores carry either (or both) Big Chief or Pioneer sugar -- made in the Bay City and Saginaw areas.

Having grown up in Saginaw, a fully loaded sugar beet truck headed to the refinery is a familiar fall sight. Of course, Madonna commented on the refinery smell by saying Bay City (her hometown) was "stinky."

While beet sugar may be caught up in the price issues related to cane sugar and corn syrup, Michigan residents sill have an opportunity to buy locally or regionally and support Michigan farmers.

Mo Frechette said...
This comment has been removed by the author.
Mo Frechette said...

Good point. And, in response to the comment, "beet sugar may be caught up in the price issues related to cane sugar and corn syrup," the answer is: "It absolutely is."

Beet sugar costs about twice as much to produce as cane sugar. If the cane sugar import restrictions were removed beet sugar would be priced out of the market.

It's important to note the cost differences are not entirely tied to the gap in wages. Michigan beet farmers and refiners do earn more than their sugar cane equivalents in Africa and the Caribbean. But that's not the main driver in the cost difference. That comes from oil: beet sugar is far more fossil fuel intensive to produce than cane sugar.