THE U.S. SUGAR PROGRAM: A Matter of National Security or Corporate Welfare?

ESSENTIAL QUESTION:

Is the U.S. Sugar Program a necessary defense against disruptive global trade practices or lavish corporate welfare at the expense of the American consumer and commerce?

Government policies often impact the mechanisms that the free market uses to set prices and every president has to deal with how to shape those government policies. In this lesson, students examine one example of government intervention in markets by looking at the U.S. Sugar Program to understand price floors and import quotas. Students will utilize the Structured Academic Controversy method to explore the U.S. Sugar Program as it is administered by the USDA. Through research and civil discourse, a clear understanding of the elements of the program will emerge. Students will gradually construct their own opinions on the merit of this policy. 

Introduction

The U.S. Sugar Program is a set of policies with origins dating back to 1934 and the Great Depression. Today, this set of guidelines written by Congress and administered by the USDA provides a great deal of financial support and risk reduction for America’s sugar processors as well as the sugar cane and sugar beet growers. The sugar program provides a price guarantee to the processors of sugarcane and sugar beets, and in turn, to the producers of both crops. This safety net consists of four tools:

  • price support loans
  • marketing allotments to limit the amount of sugar that each processor can sell
  • import quotas to restrict the amount of sugar allowed to enter the U.S. market
  • a sugar-to-ethanol policy—available if marketing allotments and import quotas fail to keep market prices above guaranteed levels.

The latest iteration of this program was constructed in 1981. Since then, sugar has been subject to a higher degree of government control than any other major agricultural commodity. It provides an ironclad set of protections for the 142,000 people employed in the industry. But critics are quick to note that American consumers have to pay more for products that contain sugar than if the ingredient were purchased at world market prices. In addition, industries that use sugar in their products have to pay more, making it difficult for them to compete with international players not burdened by this program. They claim that for every job protected in the sugar industry, a greater number of jobs are lost in these vertically positioned industries.

Conversely, it is the contention of supporters that the program is vital to defend against the unlawful dumping of sugar into our market by foreign competition. They feel the sweetener industry wouldn’t be able to stand up against the likes of Brazil and Mexico who purposely sell sugar at reduced prices. This is accentuated by the belief that the costs of producing sugar are quite high in the U.S. compared to its competitors. The result would be a loss of control over our food industry which could compromise national security. This program is part of the larger farm bill that Congress addresses. It stands out in this legislation for the passion exhibited by parties on both sides in the emotional reward of protectionism and the fallout this kind of policy can create.

Learning Objectives

  • Describe the tools used in administering the United States Sugar Program.
  • Analyze the costs and the benefits of the program for producers and consumers.
  • Explain the effects of the United States Sugar Program on industries that do business with the sugar industry.
     

Process

  1. Tell students the day before to listen to the Planet Money podcast: The Lollipop War as preparation for this lesson or listen to it as a group in class. As an assessment of their understanding, discuss the following questions after listening to the podcast.

    1. What measures does the U.S. government use to protect domestic sugar producers? (Possible answers include: price supports guaranteeing a minimum price for sugar regardless of the world price, mandating a minimum amount of domestically produced sugar and limiting sugar imports.)
       
    2. What are the main economic arguments for continued protection of the U.S. sugar industry? (Possible answers include: the sugar program counters the farm policy intervention that helps sugar farmers in competing countries, jobs will be lost in great numbers if sugar isn’t protected.)
       
    3. What are the main arguments in opposition to the U.S. Sugar Program? (Possible answers include: the program raises the price of sugar for consumers and producers, raising the cost of living and driving producers of confection to other countries.)
       
  2. Project the power point presentation in the classroom and open to Slide 1. Tell the students that they will participate in a debate-style activity to explore the validity of the U.S. Sugar Program. Assign each student either the role of a supporter or a critic of the sugar program, dividing the class in half. Pair up classmates with the same role assignment and have them sit together during the first phase of the presentation.
     
  3. Distribute a copy of Activity 1, The Structured Academic Controversy Capture Sheet, to each student. Tell them that they will use this template to gather evidence from different sources to build an argument supporting their position. As instructed on the sheet, have them highlight their assigned position. Have them read instruction #2 on Activity 1 and fill in the boxes as they proceed. Students will gather their information from the power point as well as the podcast. Have students recall from the podcast what evidence was presented that supported their case. Tell the students that they will do a reading for their third resource.
     
  4. Display Slide 2. Indicate to the students that the sugar that they enjoy in their treats and beverages comes from a market that has had a lot of government attention since the Great Depression. The American Sugar Alliance is an industry group who, according to their website, “is a national coalition of sugarcane and sugar beet producers, including sugar farmers, sugar processors, sugar refiners, sugar suppliers, sugar workers and others dedicated to preserving a strong U.S. sugar industry.” Producers of sugar in the U.S. enjoy a significant degree of protection from the uncertainties of the market.
     
  5. Display Slide 3. Remind the students of the contention that has existed for years between the political parties in Congress. Senators Franken and Rubio have rarely ever been on the same side of an issue, so it is highly unusual for them to be agreeing on a piece of legislation. Many of their constituents are employed in the same industry: sugar. Sugar cane is grown in Florida; sugar beets in Minnesota.
     
  6. The map on Slide 4 illustrates the distribution of sugar production across the country. The depth of the blue color indicates a higher concentration of work. The students should now realize why Senators Rubio and Franken are so supportive of the sugar program. Ask students what other states rely on the U.S. sugar program. (Possible answers include Louisiana, Idaho, North Dakota, and Michigan).
     
  7. Display Slide 5. Students will not be surprised to hear that the U.S. is the world’s biggest consumer of sugar and sweeteners. Tell students that alternatives to sugar generally mean high fructose corn syrup (HFCS) which is used widely in the beverage industry and can be a cheaper option. If a student has a can of some sweetened carbonated beverage, have them read for the class how soon HFCS is mentioned in the list of ingredients. The U.S. does consume sugar produced in other nations (Mexico and Brazil for instance) but the amount of imported sugar allowed in the country is heavily regulated by the government. The most recent farm bill establishes an Overall Allotment Quantity (OAQ) stating that a minimum of 85% of estimated sugar consumption must come from domestic sources.
     
  8. Display Slide 6. The slide reviews the governmental and institutional support for these regulations. Tell students who have been assigned the role of Sugar Program advocate that they should pay close attention to the statements on this slide. Each statement advocates for the need to protect the sugar industry in its vulnerable state. Tell students that protectionism is the application of trade barriers such as price supports, quotas and tariffs to defend American jobs from being threatened by foreign competition. A quota is a prescribed limit on the quantity or total value of a product from foreign sources that is allotted in the domestic market. A tariff is a tax imposed upon the importer of a product from overseas that eventually is passed on to the consumer. The loss of thousands of jobs and allowing the industry to remain competitive against what the industry believes is unfair foreign competition are reasons to not allow the defeat of the sugar policy.
     
  9. Display Slide 7. The primary goal of the program is displayed. Much of the risk is taken out of a business venture if there is a guaranteed minimum price for your product and your competition is hampered from participating in the market. Tell students that regardless of the price that sugar producers receive world-wide, U.S. processors can count on a minimum price per pound that is consistently higher. Slide 7 also describes the tool box used by the USDA to provide security for the domestic sugar industry.
     
  10. Display Slide 8. Tell students that a sugar processor borrows the money needed to buy the raw sugar and refine it for consumption. If the market price at the time the loan is due is above a pre-set loan forfeiture level, then the loan will be repaid. If not, the processor simply turns over the sugar to the USDA as satisfaction for the loan. The current “loan forfeiture rate” through 2018 is 20.87 cents/lb. for cane sugar and 25.2 cents/lb. for beet sugar (https://www.fas.org/sgp/crs/misc/R43998.pdf).
     
  11. Display Slide 9. Students are reminded that these guarantees are a form of price floor that sets the commodity price at a comfortable level for the producer but at a higher price for the consumer than normal market forces sometimes prescribe. The result often is a greater incentive to produce than consume and a surplus is sometimes the outcome.
     
  12. Display Slide 10. In order to maintain the price of U.S. sugar at a higher level than world prices, the USDA controls the amount released into the market by buying up excess sugar from processors and limiting the amount of foreign sugar to 15% of the total amount for sale. This is a quota. In recent years, domestic farmers have been unable to produce enough to meet 85% of the demand so imports have been increased. Prices of imported sugar are always adjusted through tariffs to be higher than the loan forfeiture prices, making the domestic allotment the first consumed.
     
  13. Display Slide 11. Students are reminded of the impact an import quota has on a domestic market. By significantly reducing the access of foreign competition it allows the domestic producer an unusual amount of security from the cyclical nature of free markets. In turn, it reduces the number of choices a consumer might normally have.
     
  14. Display Slide 12. To present this as a cost-free program to the American taxpayers, the USDA sells the sugar it purchases or receives through extending credit to the ethanol industry to generate fuel. By taking sugar that would otherwise be used for human consumption off the market, the market price can be maintained above the loan forfeiture rate. The graph reveals a number of things related to the world sugar market. Students will notice that the price for sugar in America is consistently higher than the rest of the world pays. Point out the significant price drop throughout 2012 and most of 2013. When sugar manufacturers borrow money from the USDA, they are guaranteed a price for their sugar when it’s time to repay the loan. If the price in the market moves below that prescribed price, then the USDA has to spring into action to reverse the direction. In 2013, they bought 400,000 tons of sugar and resold it to ethanol producers, creating the desired effect of raising U.S. prices even if world prices didn’t.
     
  15. Display Slide 13. Students should read the two statements made in opposition to the U.S. Sugar Program. Tell the students playing the role of Sugar Program critic that they should pay close attention to the statements on Slide 13. Have them read instruction #2 on Activity 1 and gather evidence for their position in the table provided. Makers of candy have to pay higher prices for sugar than their foreign counterparts if they want to produce in the U.S. This has led many manufacturers to move operations overseas. One example provided in the podcast had candy cane makers moving the process overseas. In addition, the Mondelez food conglomerate that produces Nabisco Oreos moved its cookie-making operation to Mexico citing high sugar costs. (http://www.globaltrademag.com/global-trade-daily/news/adios-chicago-oreo-production-to-roll-into-mexico). The second statement is a fierce rebuke from Senator John McCain. Ask the students why John McCain is not likely to support the Sugar Program. (Students could refer back to the jobs map and notice how little Arizona depends on the sugar industry for jobs.)
     
  16. Activity 2 (http://sugaralliance.org/a-strong-farm-safety-net-is-essential-right-now) should be read by each student playing the role of Sugar Program advocate and Activity 3 (https://www.creators.com/read/froma-harrop/10/13/scandal-in-candyland) should be read by each student serving as a critic of the program. Have them read the article and use the bottom third of the table on page 1 of Activity 1 to organize the evidence from the article favoring their position.
     
  17. Give the students 10 minutes to finish the table in Activity 1. When the students have completed the table, have each pair turn to page 2 and complete section 3 by working with their partner to draw a consensus of the pair’s position. Give the students 10 minutes to come up with their consensus.
     
  18. After the pairs have a consensus statement, form as many groups of four as possible with two advocates and two critics in each group. Rearrange seating so the pairs can face each other for deliberation. Each student should have their copy of Activity 1 for the remainder of the process.
     
  19. Display Slide 14, which shows a set of ground rules the students should remember while completing the remainder of the activity. Remind students that this is a consensus-building activity and discussion should remain civil at all times.
     
  20. Everyone should now move to section 4 of Activity 1 and read the instructions. Have the groups decide the order and then each pair will present their position while the opponents listen diligently. The listening pair should write down details of that position in section 4 presented by the opponent. If there are questions to be posed after positions have been offered, they should be written down as well. Each pair should be given the opportunity to present and the opponents the opportunity to question. Again, the tone should always remain respectful. Give the students 10 minutes to present their opinions and ask their questions.
     
  21. Tell the students, once the presentation of positions is complete, that the groups should move on to section 5. Have all the students read the instructions. Tell the students that strict dedication to their roles should be set aside and the opposing pairs should now work toward finding common ground between the positions. Have the four students discuss openly where they agree and where they disagree and each student should record this discovery in Activity 1. The assignment will not be complete until each group of four has constructed a consensus position that is agreeable universally.

Conclusion

  1. Ask the students to respond to the final question on Activity 1. Ask the students, from the initial moments of the podcast through the power point presentation and deliberation, how did their opinion evolve over the U.S. Sugar Program? (Answers will vary, but at a minimum, some probably went from no opinion to having an opinion.)
     
  2. Tell the students that many industries seek protection from international competition. In general, who benefits from trade barriers? (Industries that produce the product domestically and workers associated with the industry.) Who are harmed by trade barriers? (Consumers of the products pay more. Producers who buy protected products to use in the production of their goods. Workers whose jobs are in industries which rely on purchasing the protected products.)
     
  3. Tell the students that many economist have noted that trade barriers result in inefficiencies. Ask the students what examples they saw with sugar that seemed to be inefficient. (The policies generated surplus sugar. The surplus sugar was sold to ethanol producers. The domestic sugar is produced at a higher price than imported sugar.)
     
  4. Ask the students why trade protections are popular with politicians. (The benefits to a small group – the protected industry – are large and so the supporters lobby the politicians with vigor. The costs of the protection are spread out among many consumers and are not visible, so politicians are not as responsive to complaints about the protections.)

Extension Activity

Extension activity not available.

Assessment

As a final exercise, have students respond to the following question in a full paragraph.

Despite sugar and sweeteners being consumed by just about every American and more money being allocated for protection of the sugar industry than all other major commodities combined, very few Americans have any knowledge of this Program’s existence. Why is there so little public awareness of this generous Programs protection of such a ubiquitous product as sugar? (Possible answers include the fact that to individual Americans little cost is incurred, farm bills do not enjoy the high profile that other policies do (health care, defense, and education for example), there is bipartisan support for sugar protection so there is rarely any demonstrative debate over the policy, many Americans maintain the belief that protecting American farmers is always the right thing.)