The PJ Tatler

Everyone’s Sugar Subsidies Need to Go

We compete on nearly all things in a global market.  In far too many instances, it is hardly a free one.

Taxes/tariffs on – and legal and regulatory roadblocks to – imports, and subsidies and other government props for domestic industries abound in nearly every nation.

The world of sugar is one of the worst.  We don’t exactly have free market clean hands, but:

Reality and Free Markets vs Brazilian Big Government

Our sugar tariff regime is in part in response to ridiculously huge Brazilian subsidies – $2.5 billion worth last year alone….

And the Big Government parade continues unabated.  Brazil just announced for 2013 $480 million in new sugarcane ethanol tax breaks and $1.9 billion in Joe Pesci-style ethanol loans.

All of this Leviathan largesse has led to Brazil controlling 50% of all the world’s sugar exports.

Protectionism on our part?  Sure.  But what would happen if we unilaterally disarmed?  The European Union did, and

Brazil’s leading role as a sugar exporter was further heightened when the European Union (EU), which supplied as much as 20 percent of global exports in the 1990s, shifted from a net exporter to a net importer following sugar policy reforms in 2005. This shift removed a traditionally important supply source from global markets and has made sugar importers more reliant on Brazilian exports.

Well that’s not good at all.  Except for Brazil – which is hoping we’ll follow the EU’s lead.

Then there is Mexico – our chief North American sugar competitor.

The Mexican sugar industry is a nightmare mess (shocker).  Half of Mexico’s industry would’ve gone belly up in just the last ten years – had the government not stepped in and purchased poorly performing mills.  (See: The U.S. auto bailout.)

Today, the Mexican government still owns 20% of the industry – making it the nation’s biggest producer.  (See: The U.S. auto bailout.)

Mexican government sugar mills produce one million tons a year – just about exactly the amount Mexico exports to the U.S.  These exports raise prices in Mexico – while undercutting them here.  This price dynamic may be why U.S. companies are having such trouble sending their sugar to Mexico – which in turn helps Mexico maintain this price dynamic and their government-run industry.

See how warped a once free market can get when the government starts getting involved?

How do we straighten out this government-caused mess?  By getting it out – on all sides.

What we should…do now is zero-out our protectionist sugar regime – in exchange for Brazil (and Mexico, and…) simultaneously doing the same.

We can – and absolutely should – use all our considerable trade negotiation prowess to effect this regulations-and-subsidies clean slate.

We free marketeers have been trying for decades Sisyphus-style to get the United States to unilaterally pull the plug on our sugar protectionism.  We have gotten exactly nowhere.

And we now know that doing so EU-style would be devastating to our farmers and their industry.

We should instead return to an actual, across-the-board free market.  The good old days of no governmental impediments and cheap sugar.

How sweet would that be?