Categories
Economics

Government and Economy

In an online editorial opinion on Bloomberg, the authors report that the U.S. Government may have to buy 400,000 tons of sugar from the processors to save them from defaulting on government loans. These loans were taken by the processors due to lower prices last year and prices have further declined since then. This sugar is meant for ethanol producers who would pay 10 cents per pound less than the government. In other words, the government is subsidizing the sugar purchase by ethanol producers. Even though this policy costs the government, the supporters argue it helps protect jobs in the sugar industry. The authors criticize this subsidy program by the government and argue that the benefits accrue to few while costs are borne by many. The authors also criticize U.S. Government subsidies to the overall farming industry which total $25 billion. The consumers do not only pay through higher taxes but also through higher prices which would be lower without protection from the competition. Due to government’s protectionist policies such as import restrictions, sugar prices are 18.8 cents per pound higher in the U.S. than the world market price (Bloomberg).

This article touches upon the concept of subsidies and protectionism as covered in the chapter. There are two sides to government subsidies to the sugar industry in this article. First of all, the government wants to support the sugar industry which would otherwise be threatened by falling prices. In addition, the collapse of sugar producers will also lead to workers layoff and only further worsen the unemployment rate in the country. The second purpose is to support the ethanol sector in the hope that it will help the country develop a viable alternative to fossil fuels. The stakes are high because the success would not only help the country move towards energy independence but will also help protect the environment. This subsidy is, thus, beneficial because the economics of ethanol production are still at a disadvantage against oil, thus, government’s support is necessary to ensure maintained interest and continuous investment in ethanol research. While this subsidy policy indeed has benefits, it may not be the best course of action. The alternative may be to buy cheaper sugar in the world market which may also help reduce the cost of ethanol producers even though such a course of action could threaten the sugar industry.

Similarly, the government’s protectionist policies have also eliminated the incentive for sugar producers to continue to find ways to achieve greater efficiency, due to lack of competition. As the authors rightly point out, this results in higher prices. This also violates the spirit of free market competition. Thus, the government should stop protecting the agricultural sector through protectionist policies as well as keep it alive through subsidies. Even if the agricultural sector significantly declines, the place may be taken by other industries which could put the resources to more efficient use. The government will also be able to allocate billions of dollars to other important issues which it currently hands out as subsidies to the farming sector.

Thus, I agree with the editors of Bloomberg that current agricultural policy is outdated and should be revised because it is leading to waste of precious government resources. The government and even the ethanol producers may be better off buying sugar in the international market. In fact, the portion of the subsidies currently being paid could also be allocated to ethanol and other clean energy producers. Ethanol industry is still in infancy, thus, it deserves government help to improve technology and industry economies but agricultural sector is one of the oldest and doesn’t deserve government assistance. The assistance is only hurting consumers and taxpayers.

Reference

Bloomberg. That Sickening Sugar Subsidy. 13 March 2013. 1 May 2013 <http://www.bloomberg.com/news/2013-03-13/that-sickening-sugar-subsidy.html>.