Rep. Gil Gutknecht of Minnesota assured his colleagues on the House Agriculture Committee the other day that “if you’ve never tasted fresh Gummi Bears while they’re warm, you’ve never lived.”
I must ignominiously concede that I have never tasted fresh Gummi Bears (nor visited the Pyramids in Egypt), and suspect the Republican’s declaration was one of the more profound to be heard in Congress of late. It was inspired by his unavoidable immersion in one of the more curious–and coddled and self-pitying–sectors of the American economy, the sugar industry.
Notice that pretty cheap 1-pound bag you’ve got on the kitchen shelf? Oh, if you only knew the tumult, and fat lobbying fees, that surround it!
For example, they make loads of Gummi Bears at the Brach Candy Co. factory in Winona, Minn., which is in Gutknecht’s district. But the Chicago-based company is threatening to move production to Mexico and, in part, it blames artificially high sugar prices amid a ceaseless debate between producers and users in which the delineation between saint and sinner is very unclear.
Brach would not have been thrilled by the witnesses Gutknecht was helping to question in the committee’s hearing room, namely the sugar producers who sell to the likes of Brach and feel that they’re victims of prices that are too low.
“It is important to protect our domestic producers, first and foremost,” said Ray VanDriessche, a short, stocky farmer from Bay City, Mich., who is president of the American Sugarbeet Growers Association. In a wonderful Freudian slip, he at one point referred to possible legislative action that “we, as a committee, need to address.”
Ah, yes, the pronoun “we.” If the producers felt as one with the Agriculture Committee, it was understandable because this session was the equivalent of a playoff game at home, like the Lakers at the Staples Center in Los Angeles. The committee members, all from farm states, tend to personify the power of the status quo in Washington, aiding the myth-laden farm sector in any way they can, all the better if votes and contributions result.
As for the state of sugar, ah, where does one start with this increasingly bitter tale playing out as conventional wisdom heralds the joys of free markets everywhere?
Like other commodities, sugar historically has received great largess from the government.
It has not been given direct cash subsidies, like corn, cotton and rice, but a complicated scheme has kept prices at rates the producers of sugar have happily lived with, especially as dozens of other countries produce sugar much more cheaply than we do (due to much lower labor rates and fewer environmental regulations, among other factors).
Last year a solicitous Clinton administration intervened after much industry cajoling (some would say whining), including at least 11 senators marching to see then-Agriculture Secretary Dan Glickman. The result was that the government, seeking to reduce supplies and boost prices because it could not further restrict imports without violating trade deals, agreed to buy tidy sums of sugar from processors, starting with a June purchase of 132,000 tons at a cost of $54 million.
The processors then exercised their legal right to give, or forfeit, to Uncle Sam 804,000 short tons of sugar that had been pledged as collateral for government loans because market prices had not recovered to enable processors to pay off their government loans. That is why the government was now storing enough sugar to create a Mt. Everest of chocolate.
Then, as a way to reduce these mega-surpluses of inventory, the government swapped title to 277,349 short tons of refined sugar in return for beet farmers plowing up, and thus putting out of commission, sections of their sugar beet acreage. The government purchases and the payments to not grow more sugar were opposed by users and sugar refiners who thought them detrimental to their own economic interests.
The end result is that by last fall the Agriculture Department possessed 793,000 short tons of sugar, or about 9 percent of the entire U.S. sugar production in 1999-2000. All of this reflected record production but virtually no growth in actual domestic use of sugar, as well as the imports allowed under trade deals, notably NAFTA.
Well, you might wonder, why doesn’t the government start releasing its stockpile and thus surely inspire lower sugar prices? Well, it’s precisely because you would have a repeat of last year when processors started forfeiting part of their sugar crop.
Now if you are still scratching your head, be informed that, as opposed to the direct subsidies other commodities have enjoyed, sugar has operated, and handsomely so, on a slightly different system. It was all inspired by the claim that coddling is necessary because sugar cane and sugar beets have to be processed immediately after harvest with costly machinery.
If production is reduced due to low prices, a plant shuts down, prompting the rationale that the unusually close tie between production and processing makes “price stability” incumbent, according to the industry. And because wherever sugar is produced and processed, it has an important role in that rural economy, pols from those areas were sensitive.
The government thus makes loans to producers, at a rate of about 18 cents a pound for raw cane sugar, which one tends to find mostly in Florida, Louisiana, Texas and Hawaii, and about 23 cents per pound for refined beet sugar, which is mostly found in North Dakota, California, Minnesota, Montana, Colorado, Wyoming, Nebraska and Michigan.
At the same time, the government seeks to maintain the prices at which the producers sell cane and beet sugar to users at about 20 cents and 25 cents per pound, respectively, in no small measure through limits on imports, which now comprise perhaps 15 percent of the U.S. market.
What has happened of late is that as a result of imports, increased planting by producers and more efficient production, bringing higher yields, there was an oversupply, with prices going down. Even with the two government moves to prop them up, producers weren’t seeing prices rise to a level to enable them to pay back all their loans, leading some to forfeit the loans by returning to the government 10 percent of their actual sugar production.
The politics of all this has been intense, with the likes of Sen. Richard Lugar (R-Ind.), head of the Agriculture Committee, bucking the Capitol Hill consensus for years and calling the system nuts (as he does with peanuts, come to think of it).
As he’s done so, sugar producers have spent large sums on campaign contributions to both parties. When you compare their political outlays with their actual share of economic activity, they clearly spend an amount far greater than the livestock, dairy, fruit, poultry, rice and soybean interests, among others.
At the top of the clout-heavy heap is the Cuban-born Fanjul family of Florida, which owns the mammoth Florida Crystals Corp., a huge producing firm, are very wealthy and have spread their money around. As one Republican aide puts it, “One brother owned Bob Dole, the other owned Bill Clinton.”
At minimum, they get their calls returned and have survived despite huge criticism, including claims of environmental damage inflicted upon the Florida Everglades by sugar operations.
“I just don’t get the harsh, visceral response, all the folks like Nestle who claim it’s an evil program and the Fanjuls are robber barons,” said Rep. Mark Foley, a savvy Florida Republican whose district is the country’s largest cane producer.
Foley then makes a good point. With sugar prices down, is there any hint that prices of ice cream, soda, cake mixes, chocolate bars, you name it, are coming down? “They’re getting the cheapest sugar prices in years and laughing to the bank,” said Foley, who is godson of former baseball star Jimmy Piersall.
For sure, the price of sugar does not seem to be much of an issue for consumers. Meanwhile, a truly free market worldwide probably would bring the current world price of about 10 cents a pound, compared to 20 cents in the U.S., to some point between the two. Some U.S. firms would disappear but others, notably in Florida, Texas and Louisiana, which really are efficient, probably would do fine.
Until then, though, the sugar industry remains proudly unreformed, relishing the status quo as much as Minnesota’s Gutknecht adores those warm, if imperiled, Gummi Bears.
