Protection costs

An educational story about the costs of protection:

In 1990, Brach’s Confections Inc. threatened to close a West Side factory that employed 1,100 people. The candy maker said it would move abroad unless the federal government acted to reduce the artificially inflated cost of sugar. Washington ignored the threat, and Brach’s found ways to keep the plant going. But in 2003, it closed the factory and sent much of the work to Mexico.

The reason for the move was a federal undertaking whose entire purpose is to prop up the price of sugar for the benefit of a small number of growers. It does so by restricting imports, limiting how much farmers can plant and guaranteeing them a certain price. These methods work: The price of sugar in this country is usually double or triple the price in the rest of the world.

That enduring accomplishment comes at a cost to companies that buy sugar, like Brach’s. It also burdens a larger group of people: those who eat. In a typical year, the average American consumes nearly 100 pounds of sugar and other high-calorie sweeteners. The total cost to consumers amounts to as much as $3.5 billion a year.

That doesn’t count the jobs shipped to Mexico or Canada. Defenders claim the program saves American jobs in sugar production. But a 2006 study by the U.S. Department of Commerce found that for each job it saves in those sectors, it destroys three jobs in candy making.

It’s not just that protection costs consumers and taxpayers, it costs jobs as well.

But there is an alternative:

For decades, Life Savers were made at a facility in Holland, Mich. But in 2003, Kraft Foods shut it and moved the production to a plant near Montreal.

What does Quebec have to offer that Michigan doesn’t? The Canadian Sugar Institute is happy to explain: “The Canadian sugar industry is internationally unique in that it does not depend on government subsidies. Basing its prices on world raw sugar markets, it sells sugar at prices that are among the lowest in the world.”

Some companies can afford to eat the extra cost of operating in the U.S. But when the composition of your product is 99 percent sugar, it’s not so easy. . .

Given that sugar is now regarded as a harmful substance this might not cause much concern, but it’s not just sugar producers who are protected in the USA and elsewhere.

Growers have been protected by import barriers since 1789, and the current complicated system dates back to the Great Depression.

The country was a very different place then. In 1930, one of every four Americans lived on a farm. Today, it’s one in 50. But the farm bill passed by Congress and signed by the president this month was a missed opportunity to enact changes that would reflect the vast changes over the past 80 years.

The politicians could have started with this system, which bleeds the many to enrich the few. “No industry is as coddled as farming, and no industry as centrally planned from Washington,” writes Cato Institute policy analyst Chris Edwards. “The federal sugar program is perhaps the most Soviet of all.”  . .

New Zealand farming used to be very heavily protected and subsidised.

Producers responded to the dictates of politicians and bureaucrats rather than the market and as a result we produced food no-one wanted to buy.

Farming became very difficult when we were forced into the real world in the mid-1980s but we got through that and now the industry and the country are far better for it.

If the Trans Pacific Partnership succeeds, farmers in the USA and other countries which sign up to it will go through some short-term pain as we did but they and their countries will benefit in the medium to longer term as we did.

Apropos of the TPP – Pattrick Smellie explains 10 things its opponents don’t want you to grasp.

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One Response to Protection costs

  1. Andrei says:

    Ele, you can see the failings of Government intervention in the economic sphere quite plainly and grasp the costs accrued when for reasons ranging from political pragmatism, through granting favours to their political benefactors or just plain hubris.

    And yet you still haven’t fully grasped that same laws of unintended consequences arise when Government intervenes in social spheres – eg eliminating tobacco usage or taking it upon themselves to redefine the venerable institution of marriage changing its raison d’etre from one of the rights of children to be supported by their parents to one of adults “rights” of sexual fulfillment (this surely being one of the most utterly appalling things that any New Zealand Government has ever legislated).

    Government is not the solution, it is generally the problem – the failure of the Soviet Union should stand as a sharp object lesson

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