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A new deal between the U.S. and Mexico on sugar exports may have averted a costly trade war. But it’s also sparked a fierce battle between the Trump administration and some of America’s largest food companies, who claim Tuesday’s agreement will harm their businesses and ratchet up food costs for consumers.
Under the preliminary agreement, Mexico will accept a new minimum price for the sugar it sells to the U.S. and restrict the amount of refined sugar it exports, measures that will maintain high sugar prices for domestic producers.
But while those concessions were immediately celebrated as a victory for the U.S. – and for U.S. sugarcane and sugar beet farmers, in particular – it’s been panned by representatives of the processed food, confectionery and soda industries, who have long fought federal protections of domestic sugar.
The dispute pits some of America’s largest food companies against one of its most powerful agricultural lobbies – and against the Trump administration itself. In doing so, it also exposes a central paradox in President Trump’s aggressive, “America first” trade approach: Any policy that benefits some U.S. firms will also, inevitably, hurt others.
“Today’s announcement is a bad deal for hardworking Americans and exemplifies the worst form of crony capitalism,” said the Coalition for Sugar Reform – which represents Coca-Cola, Nestle, Kraft Heinz and hundreds of other food companies – in an incendiary statement. “U.S. sugar policy should empower America’s food and beverage companies to create more jobs, not put hundreds of thousands of good-paying U.S. jobs at risk just to benefit one small interest group.”
From the food industry’s perspective, this agreement – and the controversial U.S. sugar-support policy that it represents – artificially inflates U.S. sugar prices to points far above the world market. According to the Department of Agriculture’s Economic Research Service, which measures price according to futures contracts, the world price for both raw and refined sugar is lower than the respective U.S. raw and refined sugar prices.
That is no accident, economists say: Since 1981, the U.S. government has guaranteed a minimum price for U.S. sugar through a system of quotas, buy-backs and price-support loans. Restrictions on imports are key to the program, as any increase in cheap foreign sugar could cause prices to drop below the guaranteed minimum for U.S. producers.
Facing such a situation in 2013 and 2014, the U.S. and Mexico agreed to a deal that set minimum prices for Mexican sugar and limited the amounts of both raw and refined sugar it could sell into the U.S.
Tuesday’s agreement is an extension of that deal, and will increase both the import limits and the minimum prices. That will have the practical effect of maintaining sugar prices for U.S. farmers and refiners said Phillip Hayes, a spokesman for the American Sugar Alliance. He characterizes the agreement as a “law enforcement issue” that was needed to protect U.S. producers from Mexican dumping.
“Hawaii’s sugar industry shut down last December because of the uncertain market,” Hayes said. “That was largely driven by Mexico’s predatory trade practices.”
But higher sugar prices also come with costs – not to farmers, but to companies that use sugar in their products. Higher ingredient costs cut into manufacturers’ margins, which has prompted several to relocate outside of the U.S.
The makers of Life Savers, Dums Dums and Jelly Belly beans have all opened factories overseas, citing the high cost of American sugar. It was implicated in the closure of a Chicago Nabisco plant last summer, which resulted in the layoff of 600 people.
“From a jobs perspective, there are 600,000 people working in the sugar-using industry,” said Rick Tasco, the president of the Sweetener Users Association, which represents manufacturers. “The sugar-processing sector only employs 18,000 people.”
Consumers also appear to purchase fewer sugar-sweetened goods when sugar prices are up. A 2011 report by the U.S. International Trade Commission found that liberalizing America’s sugar trade policies would give the economy a $49 million boost, largely in the form of increased food sales.
That same year, the American Enterprise Institute, a conservative think tank, calculated the consumer cost of higher sugar prices at almost $3 billion a year.
“That’s a cost of between $10 and $11 for every man, woman and child in the U.S.,” said Robert Kudrle, a professor of international trade policy at the University of Minnesota. “It’s why U.S. sugar policy is used in textbooks to illustrate the political economy of protectionism. A very small group of people have managed to get public policy to favor them – basically by taxing the rest of the population.”
The sugar industry vehemently disputes these claims, and disagrees that trade restrictions like those announced Tuesday have any impact on consumer prices. It points out that food companies rarely pass on savings to consumers: Candy bars did not suddenly get cheaper in 2013, for instance, when U.S. sugar prices plummeted.
But the Sugar Reform Coalition has promised to press its case on the issue — even if the preliminary deal with Mexico is approved. The organization has the support of a number of prominent food industry trade associations, as well as a bipartisan group of lawmakers who in May asked Commerce Secretary Wilbur Ross to liberalize U.S. policy on Mexican sugar.
A number of food companies, including Coca-Cola, Cargill, and corn syrup maker Archer Daniels Midland, also met with the White House’s agricultural advisor, Ray Starling, to lobby against the sugar industry in May, according to Reuters.
But while those campaigns appear to have failed, the food industry will have another chance to address sugar trade soon. The issue has historically drawn extra attention around the Farm Bill, which is due for a 2018 renewal.
The Sugar Reform Coalition is already asking lawmakers to push for reforms in those negotiations.
Tuesday’s agreement “[solidifies] that it’s time for Congress to shoulder the responsibility of fixing this broken program,” the group said in a statement.
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