13

According to this article there seem to be lots of countries that subsidy sugar production:

  • Pakistan struggles to export sugar surplus as global prices plunge
  • Morocco sees sharp rise in cooking gas, sugar subsidies
  • China slaps heavy penalties on sugar imports
  • (India’s) government extends stock limits on sugar traders for six months

Of course this might create a disadvantage for farmers within a country not providing such subsidies, thus leading to some sort of spiral (keep or increase subsidies to compensate for subsidies within other countries).

This article argues about distortions these subsidies create:

Global subsidies make sugar the world’s most distorted commodity market, where prices swing violently and dip well below production costs. U.S. policy protects consumers from that roller coaster and has kept prices affordable and stagnant for the three decades.

Also, there are significant health issues related to sugar (requires free account) - I think the article refers to sugar, not all sugars.

As a side note, energy subsidies make much more sense as they have an impact on virtually all products and services.

Question: Why are sugar subsidies so prevalent?

  • 3
    Are sugar subsidies/tariffs higher than those for other agricultural products? – lazarusL Jun 8 '18 at 12:36
  • 1
    @lazarusL - I do not know, but sugar is a particular case since it behaves more like an additive (added for taste, not nutrition) rather than actual food which is required. Or taking it to the extreme: humans might very well survive if factories fail to produce sugar, but would have major issues if basic agricultural products are not produced. – Alexei Jun 8 '18 at 12:39
  • 11
    I think the unsatisfying answer is going to be: because sugar producers are well organized and politicians are corrupt. The interesting thing would be if there was some historical or industrial phenomenon that made sugar producers more organized or the politicians they deal with more corrupt. – lazarusL Jun 8 '18 at 12:43
  • 1
    Only your first two bullet points are examples of sugar subsidies that lower prices to consumers and thus increase consumption and their apparent issues. While the Chinese tariffs protect domestic sugar growers they do so by raising sugar prices for consumers. US's import quotas on sugar have the same effect, they increase the price Americans have to pay for sugar. India's "stock limits" are intended to stabilize prices, keeping them from shooting up in short term, but will likely have the unintended side effect of increasing them in the longer term. – Ross Ridge Jun 9 '18 at 5:44
25

Why do sugar subsidies and tariffs exist? The classic answer is that sugar producers organize to increase their profitability at the expense of the general public. The increase in profits is highly concentrated among sugar producers, so they are willing to do a lot to keep the profits coming. The expense to the general public is widely dispersed, so there is little political will to fight it. Politicians are then faced with supporting the corrupt system, or losing elections. This problem is a common one in politics and is refered to as dispersed costs and concentrated benefits.

But the interesting question is actually, why sugar? Of all the industries in the world, why is sugar so well organized and able to capture politicians so well. One answer to that question goes back to the 1930s United States. In the midst of the great depression, agricultural prices were falling and displaced farmers were clamoring for help. Roosevelt's Democratic party came to their aide with bills supporting farmers. In the case of sugar, they first tried tariffs, taxes on sugar imports, but the poor Caribbean countries where sugar was grown just kept reducing their prices. In response:

In 1934 the United States shifted its sugar protection policy from emphasizing the tariff to a comprehensive system of quotas... The sugar program created substantial quota rents to support the incomes of producers, and provided a degree of price stability far beyond that in the world sugar market. As a consequence, participating producers supported the continuation of the program, and instead focused their lobbying activity on increasing their respective shares of the quota rents.

Source

Once the sugar producers got these benefits, they had money and incredible incentive to keep them around. Other sugar producers around the world were forced to follow the US model of subsidy and quota, or be left unable to compete.

  • 4
    Why sugar? I'm don't know for US but back in the time sugar was one of the most valuable commodites exported from the new world to Europe this backed the rise of a strong oligarchy capable of much political hassle and somewhat they manged to survive to today. This is special true where plantations was (and still are) a thing – jean Jun 8 '18 at 17:31
  • @jean Thanks for the comment. If you have sources which explain how powerful sugar oligopolies survived to modern times, I'd love to include that information in this answer. – lazarusL Jun 8 '18 at 19:43
  • I expect it dates back a lot further: to the 1600s, the sugarcane plantations in the Caribbean, and economic competition between the Spanish, the French, the Dutch, and the British. – Mark Jun 11 '18 at 20:06
9

You actually largely answer your own question--

[...] thus leading to some sort of spiral (keep or increase subsidies to compensate for subsidies within other countries)."

Sugar subsidies are globally prevalent because nations don't want to have their own domestic industries lose to global competitors, as well as to protect domestic farmers. Sugar subsidies in the US have existed since 1789, and they are a classic example of concentrated benefits with dispersed costs--everyone hurts a little because of distorted prices and macroeconomic deadweight loss, but the producers of the sugar are helped a lot. This means that sugar subsidies are reauthorized year after year across the globe, and specifically carved out of international trade agreements such as NAFTA (although the TPP would have limited all agricultural subsidies).

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.