The Strict U.S. Sugar Quota: Supporters and Opponents and Why It Isn't Working

Sugar protectionism has been a contentious issue in the U.S. since close to the beginning of our nation's history in 1789. The sugar quota, which was established in 1934 via the first Sugar Act, is no less contentious. We know that quotas are bad because they are limit consumer choices, raise prices consumers pay and lead to more volatility in the market, so let's look at who supports and opposes the U.S. sugar quota, the degrees to which they support or oppose it, and how high the opponents want the quota raised numerically. One strong supporter of the sugar quota (specifically a lower one) is the federal government (specifically the Department of Agriculture) largely because of its own sugar program but moreover because the quota is effectively tax revenue for it stemming from higher sugar prices domestically due to the limited sugar quantity and the fact that tariffs (although low within the quota amount) are paid on imported sugar. One of the large incentives for the government that stems from the production is quota rents, which we discussed in class. In this case, the government does get quota rents in the form of specialty sugar certificates, which are effectively quota licenses. U.S. sugar farmers and the American Sugar Alliance also support a relatively lower quota (although not as strongly as the USDA)  because they don't believe that the supply of sugar is facing a shortage, and because of their general belief that the USDA's actions have shown that the U.S. sugar program is feasible. Food and beverage manufacturers are the leading opponents of the quota and want the quota's impact to be lessened by persuading the USDA to raise the sugar quota amount. Their primary reason for opposing the quota recently was the fact that U.S. sugar supplies were down by 2.8% last year. They recommended that the quota amount should have been increased by 961,000 tons so as to provide a comfortable supply for sugar consumers. The Sweeteners Users Association also opposes the quota and this year it wanted the quota amount increased by between 728,000 and 961,000 tons because of its reasoning that an increase would help to improve sugar stocks in U.S. markets.

After more thought about the issue, I came up with this question: Why is the sugar quota not working?. Well, the sugar quota is not working because the sugar industry is not an 'infant industry' in the U.S. since it was active since around the time of our country's beginnings in 1789 and prior to that point in time. Also, large domestic sugar producers have not represented the interests of consumers or many investors, but have lobbied the government for minimum prices and lower quotas through special interest groups instead. Thus, since the quota is still in place, making the supply of sugar more limited, they have directed a substantial amount of capital away from smaller sugar producers, and thus have limited the small sugar producers' ability to raise capital from a broader range of investors. This distortion of capital movement that the quota has created has allowed a small influential number of sugar producers to keep the labor force in the sugar industry low. This, in turn, keeps the amount of capital low and thus holds down the net welfare in the U.S.. While many investors view an increase in the sugar quota as  a precursor to more volatility in the market, sugar prices are only more volatile with a lower quota left in place than the volatility that would result from just a flat across-the-board tariff. As we can see, quotas create even more instability than tariffs, and the tariff-based nature of the sugar quota added onto the quota makes for an especially negative combination. The sugar quota, if left unchanged from now on, would take away potential tax revenue that the government would have been ensured to collect had a tariff, and only a tariff, been in place. Thus, in practice, quotas and tariffs are not equivalent in practice, but the two compounded together only makes problems worse.   

Sources Researched:

http://www.reuters.com/article/2012/03/28/usa-sugar-quota-idUSL2E8QS1SO20120328

http://online.wsj.com/article/SB10001424052702303816504577314034112332296.html

http://www.tampabay.com/opinion/columns/end-the-import-quotas-on-sugar/1081947

http://edis.ifas.ufl.edu/sc019