New GAO Report Shows: Costs of U.S. Sugar Policies Exceed Benefits

On October 31, the U.S. Government Accountability Office released a report, “Sugar Program: Alternative Methods for Implementing Import Restrictions Could Increase Effectiveness.”

The report notes that the U.S. sugar program, administered by the U.S. Department of Agriculture, uses a combination of import restrictions and price supports to guarantee artificially high prices for domestic sugar. It also explains that the U.S. Trade Representative allocates World Trade Organization tariff rate quotas, with input from the Department of Agriculture, among sugar-importing countries using a method based on 40-year-old data which, in practice, “has led to fewer sugar imports than planned and delays in obtaining sugar.”

The report further notes that nearly half of U.S. sugar imports come from Mexico, which means that sugar imports from Mexico and policies governing those imports have a significant impact on the price and availability of sugar in the United States. In accordance with an agreement between the United States and Mexico, the two countries agreed to set a minimum price and quantity limits on Mexican imports, along with a suspension of countervailing duties, which has led to a decrease in Mexican imports. This has had a detrimental financial impact on both U.S. consumers and the overall U.S. economy.

Noteworthy excerpts from the GAO report:

  • The U.S. is one of the largest producers and consumers of sugar. To supplement the national sugar supply, the U.S. relies on various trade agreements and tools, including suspension agreements and tariff-rate quotas, as well as the U.S. sugar program. The program has helped sustain domestic production and provides major financial benefits to U.S. producers. However, it imposes even greater costs to sugar users and consumers, ultimately resulting in between $780 million and $1.6 billion in estimated net U.S. economic losses each year. The timing of tariff-rate quota reallocations and increases and the quota allocation method for sugar imported under U.S. WTO commitments do not reflect current market conditions and have led to import shortfalls averaging 13 percent per year since 2006. (page 40)

  • Both the U.S. sugar program and U.S. antidumping and countervailing duty suspension agreements protect the domestic sugar industry. This makes sugar an outlier in terms of trade protection; even before accounting for the suspension agreements with Mexico, sugar had by far the highest trade protection of any U.S. good, agricultural or non-agricultural, according to a 2017 [U.S. International Trade Commission] study. The USITC found that U.S. sugar program import restraints increase the import price of raw and refined sugar by 28 percent and 55 percent, respectively. (page 17)

  • If costs are substantially higher in one country than another, that provides an incentive for companies to move abroad. According to representatives of sugar-using industries, some confectionery manufacturers have chosen to move production to Mexico or Canada rather than update or expand existing manufacturing plants in the U.S. A study that modeled the impacts of the U.S. sugar program on domestic food production found that U.S. production of many sugar-using products was lower due to the U.S. sugar program. The results vary by sugar-using product; for example, the study found a 1 percent reduction in bread and bakery manufacturing and a 34 percent reduction in chocolate and confectionery manufacturing. (page 23)

  • The same study modeled the impact of the U.S. sugar program on U.S. employment in food manufacturing. The study estimated that the U.S. sugar program led to 3 percent less employment in food manufacturing, or approximately 18,500 fewer workers. The industry most affected was confectionery manufacturing; according to the study, the confectionery manufacturing workforce in 2020 was 31 percent smaller than it would be without the sugar program. (page 23)

The U.S. sugar program and policies surrounding sugar imports and prices have had an extraordinarily negative impact on both U.S. sugar consumers and the overall economy.

Current trade policies surrounding sugar have artificially elevated U.S. prices for consumers of products that contain sugar, they have diverted manufacturing of sugar confections to other countries, and they have depressed employment in industries related to confectionery manufacturing.

In short: The costs of current U.S. policies on sugar outweigh the benefits.

Therefore, TAPP urges Congress, the U.S. Department of Agriculture, and the U.S. Trade Representative to review and overhaul trade and pricing policies related to sugar and to be intentional about adjusting the policies to reduce the price of sugar and increase the domestic confectionery manufacturing.

Ainsley Shea