U.S. Sugar Subsidies: Too Sweet a Deal?
A turf war has broken out over one of the humblest commodities traded on world markets: sugar. On one side are small-scale farmers in some of the poorest regions of the world; desperate to increase their incomes and improve their living standards, these farmers seek increased exports of sugar cane. On the other side are farmers in some of the richestnations in the world who are equally intent on preserving a system of quotas and subsidies to support production of sugar cane and sugar beets. Caught in the middle are processed food and beverage companies that use sugar in baked goods, ice cream, jams and jellies, soft drinks, and a range of other products. Of course, there is also an impact on consumers: Sugar subsidies result in higher prices forpopular food and beverage products.
The debate over agriculture policy is of the struggle. Worldwide, agricultural subsidies amount to approximately $300 billion each year. The subsidies issue has been central to the current round of global trade negotiations; it has also been debated at the World Summit on Sustainable Development. Brazil, Australia, and Thailand rank first, third and fourth,respectively, among top sugar exporters; the European Union ranks second. Collectively, Brazil, Australia, and Thailand have challenged the European Union’s sugar export policy at the World Trade Organization.
In Europe, protection of the agricultural sector was a response to the shortages and rationing that occurred during World War II. Thanks to an initiative known as the Common Agricultural Policy(CAP), European farmers supply virtually all of Europe‘s food consumption needs. Ag producers also made gains in the 1960s in negotiations relating to the creation of the Common Market — the precursor to today's European Union (EU). Today, the European Union spends more than $90 billion each year to support domestic agriculture; ironically, the EU also spends $25 billion in development aid forlow-income nations. French president Jaques Chirac is a particularly vocal advocate of EU farm policy, and farmers in France are well organized. The current EU farm bill expired in 2006.
Europe’s agricultural policies have led to sugar beet production in Sweden and Finland - countries not renowned for favorable growing conditions — as well as France. The impact of the sugar regime is clear:European farmers operate with quotas that specify how much they can produce. The farmers are also guaranteed prices for their crops that are roughly three times higher than the world price. Furthermore, the EU produces much more sugar than it can use; as a result, about 6 tons of European sugar are dumped on the world market each year. Moreover, EU sugar supports benefit former colonies such asMauritius and Fiji which sell raw sugar to the EU at the higher, protected prices. However, these imports are offset by an equivalent amount of exports from the EU; the annual cost of this practice to EU taxpayers is estimated at $800 million.
ln the United States, the current sugar regime can be traced back to the Sugar Act of 1934. The act was designed to stabilize prices; today, as in Europe, the U.S.price for raw sugar is about three times the world market price. The General Accounting Office estimates that the program costs Americans $2 billion to store surplus sugar over the course of 10 years. ln contrast to Europe, however, the United States exports only a fraction of the 8 tons of sugar it produces each year; quotas limit sugar imports to about 15 percent of U.S. consumption. The U.S.government pays approximately $50 billion in farm aid each year; in May 2002, President George W. Bush signed a new farm bill that actually increased support to some farmers. Not surprisingly, the European point to the bill as evidence that the United States is hypocritical on trade issues. U.S. sugarcane and sugar beet produces rank first in contributions to political campaigns, ahead of both...
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