Taxpayers face a particularly troublesome Catch 22 as the United States government readies to buy $38 million of sugar on the “free” market to prop up prices and avoid paying even larger subsidies to sugar beet farmers in Minnesota and elsewhere.
While the House and Senate struggle to reach a compromise on the overall farm bill, it’s clear typical subsidies for row crops will be cut. In fact, there is a push to completely phase out traditional subsidies that some criticize pay farmers for not growing crops.
The sugar industry has developed as another one of those niche constituencies that has secured for decades subsidies that essentially distort market signals while subsidizing businesses that shouldn’t be propped up by taxpayers in these times of fiscal austerity.
For the first time in a decade, the U.S. Department of Agriculture will buy up to $38 million of sugar in order to prevent up to $300 million in government payouts to sugar producers who would via government programs be able to walk away from their loans and get paid.
Historically low sugar prices trigger a provision in most government-backed loans to beet and cane sugar producers that allows them to walk away from the loan and forfeit the sugar used as collateral. If that happened, USDA estimates taxpayers would be on the hook for $110 million to $320 million, according to a report in the Star Tribune
So, the USDA is going to buy up to $38 million of sugar on the domestic market to prop up prices so sugar producers will not default on their loans.
Minnesota has one of the largest sugar beet industries in the country and some members of Congress seem reluctant to challenge it outwardly and openly. But that is what is necessary.
The sugar industry is already protected from competition by tariffs and loan guarantees. Many small business owners would love to be protected from the perils of the free markets in ways the government protects the sugar industry.
There may have been a time in history where sugar subsidies were justified. Many industries along the way have needed help to get a foothold in the domestic market and to make our economy less susceptible to the whims of foreign producers, but by and large, those issues were irrelevant years ago.
The current situation on sugar is a lose-lose for taxpayers. They either pay $38 million to subsidize and industry that doesn’t need it or they pay $300 million.
Even the American Sugar Alliance, a trade group seems to recognize the dilemma, said in the statement that the current market intervention by the government is the “least costly option for taxpayers.” Food companies that are part of the group Coalition for Sugar Reform told the Star Tribune the USDA action also was least costly option to “help stave off the very real taxpayer costs that are coming down the pike as a result of the outdated U.S. sugar program.”
Congress needs to reform this program and move toward eliminating subsidies. Taxpayers and the user groups represent a coalition that should have more influence than the rather small, localized sugar industry.
America is becoming a place where more and more taxpayers are on their own, leaving them to deal with job losses, complete industry meltdowns and severe austerity. They shouldn’t have to prop up the sugar industry with what’s left of their paychecks.