This past week, the Agriculture Department bought more than 7,000 short tons of refined beet sugar from a private processor and sold it to an ethanol company — at a $2.7 million loss for taxpayers.
Under the federal Feedstock Flexibility Program, a little-known farm program dating back to 1934, the department has the power to divert sugar supplies away from grocery stores and into gas tanks. This sugar-to-ethanol program is a handout to sugar producers at the expense of American consumers and taxpayers, and it highlights the fact that U.S. farm programs need serious reform.
Federal sugar policies are a grab bag of supply restrictions, and their goal is to keep sugar prices high. Coupled with programs such as tariff-rate quotas restricting foreign imports, the sugar-to-ethanol program has certainly led to higher prices. Researchers from the American Enterprise Institute found that higher sugar prices caused by U.S. sugar policies cost American consumers and businesses nearly $4 billion last year.
Higher sugar prices may benefit domestic sugar producers, but it hurts American households in the form of higher prices at the grocery store. Higher prices have the biggest impact on low-income households, as they spend a bigger percentage of their earnings feeding their families. Why is the federal government propping up sugar prices for corporate sugar producers, forcing American households to pay sugar prices nearly twice as high than the rest of the world?
Supporters say that sugar prices should stay high in order to keep sugar companies from defaulting on their federal loans, but this distracts from the big picture. The government should not have extended these loans in the first place, particularly if the threat of default were so imminent.
This is an alarmingly inappropriate level of government intervention in the marketplace. Federal agencies should not be brokering deals between private companies in the marketplace, nor should they be taking million dollar losses for these deals. Nor should federal agencies be writing the terms of the loans in that are so tilted away from taxpayers — if sugar producers were to default, they would repay the federal government with sugar, not with cash. That’s no sweet deal for taxpayers.
This sugar-to-ethanol program is not an anomaly in farm programs. Similar supply restriction programs clutter the commodity title in the farm bill and mess up the nation’s agricultural markets. Last year’s alarmist calls over the so-called “dairy cliff” — $8-per-gallon milk prices — stemmed from a similar program for dairy supplies. These buyback programs are a terrible foundation for U.S. farm policy. To paraphrase the ever-quotable economist Milton Friedman: The government created these problems, and the best solution is less government, not more.
The House and Senate going to conference on the farm bill will not fix this problem, because the full version that the Senate passed in June and the farm-programs-only version that the House passed in July both extend the sugar-to-ethanol program.
Only seven legislative days are currently scheduled before Sept. 30, when current farm law expires. Congress has a number of other higher priorities to attend to, and it shouldn’t rush to pass bad sugar policy. Members need to take the time to craft a thoughtful free-market farm policy and finally end all of these handouts for sugar companies and the ethanol industry.
Christine Harbin Hanson is a policy analyst at Americans for Prosperity.