Discussion Question: A U.S. company (like Jelly Belly) makes its gourmet jellybeans in the United States, and sugar is about half the cost of production. Can the Company changes U.S. sugar policy? if not, what its other options?
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Case Study How Sweet It Is (or Isn't) Do you like to eat things that are sweet? If you do, and if you live in the United States or Japan, then you are a victim of your country's protectionist policies toward sugar. The domestic price of your sugar is about double the world price. For the United States, on average during 2015-2017, the domestic price of raw sugar was $0.27 per pound, while the world price was $0.16 per pound. For the United States, sugar protection costs consumers about $3.5 billion per year. If you live in either of these countries, have you ever sent a letter to your legislative representative asking him or her to oppose sugar protection, a policy that is clearly against your interests? Have you contributed money or time to a group that lobbies the government to end sugar protection? Do you know anyone who has ever done so? Presumably not. Why not? While $3.5 billion per year sounds like a lot of money, it is only about $11 per person per year. As discussed in the text, the average gain for any one person to oppose this protection is small. It's not worth your effort. The situation is different for sugar producers. For the United States, the increase in domestic producer surplus is about $1.5 billion per year. These gains are concentrated in a small number of firms. It is worth it for them to actively seek policies that restrain sugar imports. Two companies, American Crystal in North Dakota and Minnesota, and Flo-Sun in Florida, have been particularly active, contributing millions of dollars in recent years to Democratic and Republican congressional candidates and political parties. For Flo-Sun, owned by two brothers, Alfonso and Jose Fanjul, one estimate is that protectionist sugar policies add $65 million per year to their profits. A few million bucks to defend this profit stream is definitely a good investment. Another group active in lobbying is the American Sugar Alliance, representing major U.S. sugar growers. In addition, the high domestic price for sugar expands demand for corn sweeteners, a close substitute for sugar. Corn farmers in theAmerican Midwest like the sugar protection, and they have a major influence on the positions taken by their states' representatives and senators. The Coalition for Sugar Reform, which includes food manufacturers that use sugar, consumer groups, taxpayer advocates, and environmental groups, is active in opposing sugar protection. It has some good arguments on its side. As Jeff Nedelman, a spokesperson for the coalition, said, "This is a corporate welfare program for the very rich."* The coalition points out that jobs are being lost as sugar-using firms shift production to other countries where sugar prices are cheaper. Furthermore, by polluting and disrupting water flows, the protected sugar production in Florida is also a cause of serious environmental decline in the Everglades. These are good points, but they are no match for the money and organization of the proponents of protection. Foreign sugar producers, many of them poor farmers in developing countries, are also hurt by protectionist policies in importing countries. Researchers estimate that the world sugar price would rise by 17 percent if the United States removed its sugar policies. But it is not easy for foreign interests to have an effect on the U.S. political process. Foreigners don't vote, and political opponents can charge that legislators who openly side with foreigners against U.S. workers and companies are "anti-American." So the sugar protection policies continue. For the United States, the net cost to the country is close to $2 billion per year. It is not that sugar is so large or important a part of the economy that we have to protect it. In the United States, about 15,000 people work growing sugar, and about 14,000 people work in sugar refining. If we shifted to free trade, employment would probably decline by less than 3,000. The small number of people who lose their jobs could be reemployed with little trouble in other sectors of the economy. Instead, we see the pure political economy of protection, with the producer interests in this case much better organized and effective than the consumers are
