Question

List the policies that are in place for the sugar industry in the US. Which trade policies were used and for what purpose?

Explain the context in both historical and current times. Furthermore, try to explain who was affected by these policies.

Answer 1

The U.S. Sugar program is the federal commodity support program that maintains a minimum price for sugar, authorized by the 2002 farm bill (P.L. 107-171, Sec. 1401-1403) to cover the 2002-2007 crops of sugar beets and sugarcane.

Designed to protect the incomes of the sugar industry-growers of sugarcane and sugar beets, and firms that process each crop into sugar - the program supports domestic sugar prices by:

(1) making available nonrecourse loans to processors (not less than 18¢/lb. for raw cane sugar, or 22.9¢/lb. for refined beet sugar);

(2) restricting sugar imports using a tariff rate quota, and

(3) limiting the amount of sugar that processors can sell domestically (under marketing allotments) when imports are below 1.532 million short tons.

Import restrictions are intended to meet U.S. commitments under the North American Free Trade Agreement (NAFTA) and Uruguay Round Agreement on Agriculture. Processor and refiner marketing allotments are set by USDA according to statutory requirements. Marketing allotments and new payment-in-kind authority are designed to help the USDA meet the no-cost-requirements to the federal government by avoiding the forfeiture of sugar put under loan. Other parts of the new program can include a storage loan program for sugar processors, and reduced (by 1%) the USDA interest rate charged on sugar loans.

The Effects of Policies on the World market.

What are the effects of different types of policies on international markets?

The prevailing opinion is that market interventions lower international prices significantly while increasing price volatility.

A GATT panel ruled that the regime of the late 1970s in the European Community had depressed world prices (Harris, Swinbank, and Wilkinson 1983.).

In addition, the effects are measured against a baseline that differs from study to study. Yet once the effects are converted into a common measure (cents per pound, 1990 terms), average estimates from 1960 of the effects on prices do not differ significantly from more recent estimates.

These similarities persist despite differences in method and the significant policy and market changes that took place in the interim. The EU and the United States use international markets to manage domestic sugar surpluses and shortfalls, as do other large sugar-consuming and -producing countries.

In doing so they pass their production and demand uncertainties on to the international market, and international prices are thus more volatile than they would be under free-trade agreements

The EU uses import substitution and export subsidies to protect domestic markets. The EU has the largest export subsidy program, but the EU program is not unique; Colombia, Mexico, Poland and South Africa, among others, subsidize sugar exports as well. As part of the Uruguay Round of the GATT, several countries pledged to reduce subsidized exports of sugar.

For example, in their review, Jabara and Valdés (1993) report that protection in industrial nations reduced the foreign exchange earnings of poor exporters by $2.2 to $5.1 billion per year in 1980 dollars.

Moreover, studies that measure welfare transfers do not attempt to measure the effects of policy on factor allocation. Since many of these factors are fixed—for example, investments in milling and improvements to land— policies become imbedded in capital and other factor stock, and their effects are long lived. Prior to recent reforms, interventions put in place during the first International Sugar Agreement in the 1930s were costing the Australian sugar industry over $200 million a year by 1990 (Borrell, Quirke and Vincent 1991). Similarly before reforms commenced in Brazil, policy interventions were costing Brazil an estimated $2.5 billion a year (Borrell, Bianco, and Bale, 1994.) Estimates for India suggest that allowing existing policies to continue unchanged could cost the economy around the same amount($2 billion a year) by 2004 (World Bank 1996).