Gerard Scimeca – Chairman, CASE
March 5, 2020
New projections by the U.S. Department of Agriculture underscore that 2020 will be a tough year for U.S. farmers, with net cash farm income declining a whopping 9% and parts of the Upper Midwest suffering an even greater drop.
Other worrisome portents indicate that farmers may be standing on shaky ground. Politico recently noted “a rise in bankruptcies last year after falling in 2018, and loan delinquency rates reached their highest level since 2012, according to the Farm Bureau’s review of FDIC numbers.”
One reason for the uncertain recovery among farmers amid an otherwise strong economy is that when it comes to global competition, many are at huge disadvantage. The standout example is the U.S. sugar industry, which battles against competitors powered into success by massive subsidization.
In fact, sugar subsidies are a global problem. A report last year by researchers at Texas Tech University found that “government intervention in the world sugar market remains extreme and widespread with a wide variety of measures to support domestic sugar producers.”
Due to subsidization, there is a continuing cycle of distorted prices and alternating supply gluts and shortages for consumers that sows uncertainty for farmers. This has led to a subsidy war where the cost of producing sugar is twice that of the average price on the world market, an unsustainable situation.
The report noted the highly protectionist and predatory tactics of the world’s top sugar exporting nations, including Brazil’s $2.5 billion and India’s $1.7 billion in annual subsidies to their domestic sugar industries to prop up production and undercut competitors. Other nations singled out in the report include Thailand, Mexico, China, Japan, Canada and the European Union, who also boost their sugar producers through import tariffs on competing nations. This is in addition to other protectionist tactics employed, including loan forgiveness, price controls and direct payments to producers for equipment and supplies.
The pinnacle of sugar subsidization is Brazil, which controls 50% of global sugar exports through its subsidies, while the Mexican government is also among the chief offenders, directly owning a portion of the country’s sugar production. The U.S. sugar industry is not subsidized, but the U.S. government’s response to the foreign subsidies is interest-bearing loans to U.S. farmers and import quotas to protect U.S. consumers and farmers from a glut of subsidized sugar.
“The sugar market is the most volatile commodity market in the world,” the group Americans for Limited Government aptly stated. “America’s sugar farmers compete, unfairly, against heavily subsidized foreign producers, justifying the current no-cost, U.S. sugar policy program to stabilize the domestic sugar market.”
To help end the madness of subsidies and retaliatory quotas, there is a better way that is much more in keeping with President Trump’s s commitment to free and fair trade and that puts America first.
The answer is a proposal from Rep. Ted Yoho, R-Florida, entitled the Zero-for-Zero policy, which would eliminate U.S. sugar quotas in exchange for the end of foreign subsidies across the board. Zero-for-Zero is a free-market solution that removes the corruption from the world sugar market and allows prices to be based on true production costs and a level playing field.
Until global sugar subsidies are eliminated, the U.S. will keep responding with quotas on imports in a vain attempt for parity. And until then, the promise of free and fair trade will elude a key global industry, with U.S. farmers and consumers paying the price.
