الاقتصادي السوداني :: SUDANESEECONOMIST.COM

There are number of market related issues that are of concern to the U.S government which prompt them to interfere with the market systems in the sugar industry and any other market sector. Among these issues is the lack of balance between producers and consumers needs. This issue simply state that, if consumers were solely allowed to set prices, they would act in a self-centered way. If that was the case, then producers would not make enough profit and could potentially result in them stopping production. On the other hand, if producers were allowed to solely decide on how much sugar would cost, they would act in their on self-interest. If that was the case, then consumers will be overcharged and exploited. So, the United State government acts as the mediator of trade activities to set a fair playing field for both consumers and the producers in industries such as the sugar.

The primary reason why the government subsidizes domestic producers, taxes imports, or puts quotas on incoming products from other countries is to be able to influence supply and demand of a particular product. Having influenced supply and demand, there will either be an inward or outward shift in the supply or the demand curves of a particular product. There are universal economic laws that deal with supply and demand; these are referred to as the law of supply or the law of demand. The law of supply is the positive relationship between price and quantity supplied, when all other factors that influence supply are held constant. The law of demand states that, there is an inverse relationship between the price of a good and the quantity demanded, when all other factors that influence demand are held constant.

Since there is an inverse relationship between price and quantity demanded, it will be a good policy for a government if it intends to help domestic producers, to make goods coming into the country more expensive than the domestic goods. This will make buyers prefer domestic goods over the imported goods. Subsidizing producers to lower their burden in costs of production is one way domestic governments work to bring domestic producers’ costs down and encourage them to even increase production levels which in returns will lower domestic prices due to higher supplies; it is a vicious cycle that never ends.

Likewise, since there is a positive relationship between price and quantity supplied, producers will not produce more of a product if the prices are below expectation. To keep prices up and thus make producers continue with production, the government must support a price floor. This price floor comes in many forms, which subsidies and quotas are among them.

Having seen that analysis, it is much easier to see whom the subsidies help and whom they hurt in an economy. Subsidies and quotas in the sugar industry were designed to help producers in general. These quotas and subsidies or support programs as they are often referred to in the sugar industry, increase producer’s surplus. Those who are left out of the loop are the domestic consumers; quotas and the implementation of the sugar programs reduce their surplus, these programs only leave consumers with the limited choice of buying from domestic producers. Consumers suffer in terms of paying higher prices when there is no competition in the market. When government wants to help consumers over the producers, it will institute a price ceiling instead of a price floor.

There is another group that suffers because of subsidies and quotas; this group is made up of the producers in other countries who are not subsidized by their governments. Most often, it is the third world countries that do not have preferential treatment from developed nations such as the United States, European Union, Japan and many others. Underdeveloped nations such as Sudan, Mauritania and many other sub-Sahara countries of Africa, and poor countries of Asia suffer the consequences of subsidization and other form of trade barriers instituted by the wealthy nations the most. The next question that ought to be asked is why does a government want to influence supply and demand for a particular product? Or in other words, why does a particular government support trade barriers, in this case the U.S government even though it is aware of the consequences of such action? Below are some of the reasons as to why governments take such actions.
• For U.S Public interest/ national defense
• Protect U.S producers
• Heavy political lobbying by Sugar producers
• Protect jobs in the U.S
• To avoid dumping from other countries

The reasons provided above are serious issues, which need to be addressed with carefulness by the U.S government or else risk getting into many other problems related to market economy. To reiterate the seriousness of failing to do something about regulating the inflow and outflow of goods within United States, consider this example, “cuts in U.S. sugar import quotas, as predicted, were about to force the closing of a local sugar mill, which in turn would cause newly unemployed workers to grow marijuana,” claimed Alas in his article. Although this is an extreme prediction, there is no doubt that those who have lost jobs because of lower profitability of sugar after reduction in quotas must do something. The scenario highlighted above threatens United States’ security by encouraging and opening up drugs market, which could potentially lead to increase in crime rates.

As seen above, there are positive results to be reaped by domestic producers and citizens in general in terms of public interest/ national defense. However, let us not lose sight over the damages caused by such actions. Imposing quotas or restricting imports from allies in order to protect domestic producers can leads to loosing those allies to an enemy such as the former Soviet Union during cold war or currently it will lead to retaliations.

The conventional argument has been that, protecting domestic producers in the sugar industry was to protect American jobs. However, careful research have found otherwise; in the article by Dorning, it is reported that an “artificially high sugar price caused by limits on imports was "a major factor" in the loss of 10,000 jobs as U.S. candy makers shift production overseas to take advantage of lower sugar prices”. The Commerce Department concluded as Dorning claimed, “For every job protected in sugar cultivation, three jobs were lost in food production.”

Since the market for sugar and in most cases all agricultural products is very competitive, domestic governments must act accordingly to save their own producers from this competition by regulating trade. In the article by Swerling, the market structure of the sugar industry is explained to be a competitive one between the developed and the less-developed nations. H wever, there is one area where the less-developed nations cannot compete: and this is subsidizing sugar or any other agricultural product growers or other domestic producers.

The wealthy nations can afford to subsidize their farmers and even their suppliers from abroad through preferential trade arrangements. United States uses many aspects of trade barriers such as quotas, direct subsidies, and tariffs to support its domestic sugar producers. Heavy lobbying from sugar growers and cane sugar factories has help to shape legislation favoring sugar subsidies (Swerling pg. 351). The lobbying has survived because of the power it has gather by putting their strengths together and fund the lobbying efforts to influence law makers in order to implement policies that help sugar farmers and prevent potential harm that could come their way if prices were artificially lower than anticipated.

It is without doubt that United States acts to stabilize prices here at home by giving subsidies and imposing tariff-rate quotas on incoming sugar from other countries such as Brazil. In doing so, the United States’ sugar farmers avoid competition from the outside world. Many under-developed nations have complained that this avoidance of competition by wealthy or developed nations hurts their economies. Underdeveloped countries’ comparative advantage is in the cheap labor that goes into the production of goods such as sugar. If a nation like United States subsidizes and impose tariff-rate quotas on their sugar, then the under-developed countries’ abundant and cheap labor will not mean much in the world market.

Although Economic analysis has shown over and over again that there is a gain to be made when countries trade, many governments decide to protect some of their industry such as the sugar industry in United States despite the fundamental believe that free trade is good. Sugar domestic farmers in the United States or producers in general would want to make the public and the lawmakers believe that trade globalization is a threat to local economy. In this regard, domestic farmers are acting in a self-interest manner.

Governments claim to correct market failures when they act in these protective ways, when in economic reality they are not. A market failure occurs when inefficiency is perceived to be particularly dramatic, or when it is suggested that non-market institutions such as the government would be more efficient and wealth producing than their private alternatives. In the section that will follow, I will discuss the structure of United State sugar policy and give some of the implications

Part II. Theory development