Sour Price Decline as World Ups Subsidies
The United States was not the only nation re-examining its farm laws right recently; although, the United States appears to be the only country making reforms and reducing overall farm policy spending.
In fact, major crop producers from Brazil to India and China have been in the news recently expanding levels of subsidization. Such actions have been particularly common when it comes to sugar, and the result has been depressed commodity prices both domestically and globally.
Since Congress first began debate of the recently passed Farm Bill, the U.S. price of sugar has taken a nosedive, dropping more than 50 percent.
Driven down in large part because of foreign subsidies and subsequent overproduction, the price U.S. sugarcane farmers receive for their crop today is actually 10 percent less than the average price received in the 1980s.
Meanwhile, the cost of doing business has steadily risen over that time. Since 1985, sugar farmers’ fuel costs have climbed 291 percent, labor is up 131 percent, and equipment costs 98 percent more.
“The bottom line is that our bottom lines are shrinking because sugar prices are stuck in the ‘80s but our costs aren’t,” explained Jack Roney, an economist with the American Sugar Alliance.
Roney says the price free-fall is the result of a flood of unneeded Mexican sugar cascading onto the U.S. market. Mexico, which sent almost no sugar to the U.S. before 2008 sent morethan 2 million tons last year—enough to fill roughly 20 percent of America’s consumption.
And he’s crying foul because the Mexican government directly owns one-fifth of the country’s sugar industry, making the government Mexico’s largest producer and exporter.
“We are among the most efficient sugar producers in the world, but no matter how efficient you are, you can’t compete with foreign treasuries,” Roney noted.
U.S. producers are battling more than just Mexican subsidies, too. The global sugar market—long known as the world’s most distorted commodity market—is being increasingly manipulated by foreign subsidies.
For example, the four biggest global producers of sugar—Brazil, Thailand, India, and China—have high subsidization rates and many have stepped-up their subsidy programs in recent months.
That’s on top of the $2.5 billion a year in sugar subsidies Brazil has used over the years to seize control of half of the global export market.
More recently, India, the world’s second biggest sugar producer, has enhanced its policies in a subsidy arms race with Brazil. On top of its mandated pricing scheme, India has just announced $1 billion worth of interest free loans, new tax breaks, and other incentives to help sugar producers boost exports. It’s now considering new export subsidy payments, too.
And not to be outdone, China is reportedly looking to supplement its government-run sugar stockpiling program with direct subsidy checks.
“With foreign subsidies growing and sugar prices falling, these are tough times to be a sugar producer in America,” Roney said. “Thankfully, Congress provided some tools in the Farm Bill that can help us cope for the short term with a grossly distorted market.”