Sugar Industry - Research Paper Example

Sugar Industry Introduction: World’s supply of sugar takes place from both sugar beet and sugarcane. It is known that the consumption of global sugar shows an increase of two percent every year. Higher margins are generated by the large sugar exporters through domestic sales. Also, there are government interventions which affect the economy of the industry to a large extent. The sugar industry in the United States is the fifth largest in the world. In spite of that, the country is dependent on imports, owing to increasing domestic demands. Sugar is produced in about 110 countries and their governments protect their players by regulating factors like price and production. In the U.S., sugar is produced from both cane and beet. (The U.S. Sugar Program, 10-11). The sugar industry in the U.S. is of utmost importance as far as the world sugar economy is concerned. However, owing to government interventions, through loan program and tariff rate structure, there is significant impact on the domestic prices of sugar in the market (Buzzanell). With a view to the government policies intervening and thereby having effects on the domestic market prices of sugar in the U.S., this paper would discuss on the cost and benefits of the prevailing system, and whether any changes are required for betterment, if so, the funding of such changes, and the prospective winners and losers from such changes to be made. Current Sugar System in the U.S. - Costs and Benefits: The U.S. sugar industry saved the domestic players from the changing world prices of sugars. For importing sugar, the U.S. has to pay an import price which also includes import duties. However, it has been found that there occurs a significant gap between the import prices and the market prices. The reasons of volatility of the market prices could be the unbalanced supply which may result from high costs of production, implying that small changes in the supply may have significant price effects. (Agricultural trade policies in the new millennium) (Kennedy & Koo 156) The U.S. followed a sugar system which was meant to protect the domestic sugar producers from the volatile and high global market prices. This system led to almost double prices for sugar than the market prices. However, in the year 1989, the traditional quotas were changed and a new tariff quota was being followed which led to pay an extra duty, thereby allowing imports to respond to greater demands. From the 1990s, there was demand for change in policies, when the World Trade Organization, came into being (Vaughan, & France 25-29). The sugar program in the U.S. helps the domestic producers through a loan program which guarantees the producers a minimum market price for the sugar they produce. However, this has to operate without any cost to the government. In order to prevent losses, the USDA (U.S. Department of Agriculture) has to keep the prices up, and the import quota plays a crucial role in this. The tariff rate quota allows a lower level of imports at a low tariff level, that is, restrictions are made to the foreign supply of sugars. (The U.S. Sugar Program, 18-19). As per researches, the U.S. sugar program increases costs to the U.S. sweetener users. The government, not paying directly to the producers, lists the costs to the users of sweeteners. As a result there is a gap between the import prices and the prevailing market prices. Thus the users pay more which benefits the producers. Keeping the prices high, protection is obtained against forfeiture or loss in terms of loans or other factors, and helps the producers to recover loan rates, and other costs like transportation. (The U.S. Sugar Program, 24-25). Manufacturers who produce substitutes for sugar also benefit from the sugar program. However, the benefits from the sugar program are not always profits. Profits are dependent on production and efficiency of the producer. (The U.S. Sugar Program, 33-35). Consumers and taxpayers enjoy several benefits from the U.S. sugar program. The American economy benefits from the policies by responding to foreign trade practices and by providing stable prices for the customers. Taxpayers benefit owing to the loan program available through the policy, and that the policy operates at no net cost to the government. Consumers also benefit as high quality products are available at stable, competitive prices (American Sugar beet Growers Association). Changes in the system and the impacts: If continuous increase in the domestic production occurs, then it may become difficult for the industry to keep up prices by only limiting imports. The international trade agreements would help to ease the import quotas for the sweetener producers. However, there is a need to move to an open market. On increasing production of sugar than the level of consumption, need for marketing allocations may arise which limits the sale of domestically produced sugar under certain conditions. These restrictions are meant to keep a minimum level of assured imports in the system. The North American Free Trade Agreement should be adopted which would help in smooth flow of trade between the U.S., Canada and Mexico. The disputes between U.S. and the European community on farm subsidies should be tried to be removed, which would benefit the country by adopting the agreements of GATT, thereby helping to reduce the import barriers on sugars. (The U.S. Sugar Program, 37-41). To maintain a minimum level of imports, the system would also have to limit their selling within the U.S. so that the domestic prices can be supported. Moving to an open market would require changes in the domestic sugar industry to compete in the market with lower priced sugar. Use of marketing allocations may affect the normal flow of sugar production and may also increase the cost of sugars to the industrial users, thereby affecting the economy. (The U.S. Sugar Program, 37-41). If the sugar problem gets eliminated, that would definitely benefit the consumers or the users who have to pay the extra amount. However, the domestic producers would go into losses. By keeping the prices high, they are able to prevent losses on their loans and benefit there from. Also the American economy would not enjoy the benefits as it is enjoying now through the policy. Taxpayers would also suffer since elimination of the system would lead to elimination of the loan program as well. Conclusion: The U.S. has a planned sugar system which is currently doing very well by protecting the domestic producers, providing them with benefits, through increasing prices that prevents them from losses either from loans or other expenditures. It would not be correct to recommend the entire system to get eliminated. However, since there is a possibility that on increasing production and decreasing consumption, the current system may not be able to continue to operate, therefore certain changes may be beneficial for the U.S. sugar industry, which have already been mentioned. The international trade agreements should also be adopted as soon as possible which would ultimately help in the economy of the country. References The U. S. Sugar Program: Its Impact on Sweetener Users and Producers and How Domestic and International Conditions will Affect its future, Darby, Pennsylvania (PA): DIANE Publishing, 1994 Kennedy, P. Lynn & Koo, Won W. Agricultural trade policies in the new millennium, UK: Routledge, 2002 Vaughan, Alexis. & Frances, Karen. Sweet and sour: the impact of sugar production and consumption on people and the environment, New York: Alexis Vaughan, 2000 “THE NORTH AMERICAN SUGAR MARKET: RECENT TRENDS AND PROSPECTS BEYOND 2000”, n.d., June 17, 2011, from: http://www.fao.org/DOCREP/005/X0513E/x0513e15.htm “American Sugarbeet Growers Association”, American Sugarbeet, n.d. June 17, 2011, from: http://www.americansugarbeet.org/us-sugar-policy/benefits-of-current-policy.html Read More