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Brooks Wilson's Economics Blog: Corn and Sugar Subsidies

Tuesday, February 1, 2011

Corn and Sugar Subsidies

As mentioned in previous posts, corn growers are subsidized by laws that require consumers to buy ethanol which is more expensive than gasoline.  If it were not more expensive, you would not have to force people to buy it.  The subsidies come in three forms: forced consumption of ethanol paid by consumers, blending fees paid by taxpayers, and tariffs on the importation of sugar based ethanol which is again paid indirectly by consumers.  Included below are quotes by two Nobel Laureates in economics and a former head of the Council of Economic Advisors to President Bush, the president who greatly increased the subsidies to corn growers.

Paul Krugman is a Nobel Prize winner who sometimes criticizes President Obama from the left.  He writes from his column, The Conscience of a Liberal in a post titled “Demon Ethanol,”
I’m almost never censored at the Times. However, I was told that I couldn’t use the lede I originally wrote for my column following the 2007 State of the Union address, in which Bush made ethanol the centerpiece of his energy strategy: “Before the State of the Union address, there had been hints and hopes that President Bush would offer a serious plan to reduce our dependence on imported oil. Instead, however, he took refuge in alcohol.”
Well, anyway — the news on ethanol just keeps getting worse. Bad for the economy, bad for consumers, bad for the planet — what’s not to love?
Gary Becker is a Nobel Prize winner often associated with the political right.  He writes in “Let's Make Gasoline Prices Even Higher
Other ways to reduce dependence on oil take much longer to implement, but a long view is necessary since the terrorism threat will last into the foreseeable future. The federal government has been trying to develop a cleaner substitute for gasoline by subsidizing production of ethanol, made primarily from corn. This program has essentially been a flop: Ethanol is still too expensive, and ethanol factories create pollution consisting of nitrogen dioxides and other gases. The ethanol subsidy of about 50 cents a gallon is just another way to subsidize corn growers, not a serious attempt to find efficient ways to reduce dependence on gasoline.
Greg Mankiw was a head of the Council of Economic Advisors to President Bush.  What follows is a post from his blog that quotes Thomas Friedman and Mankiw’s short reply to the comment (“Sugar Ethanol”).
In today's NY Times, columnist Tom Friedman arrives at the intersection of energy, farm, and trade policy and doesn't like what he finds:
Thanks to pressure from Midwest farmers and agribusinesses, who want to protect the U.S. corn ethanol industry from competition from Brazilian sugar ethanol, we have imposed a stiff tariff to keep it out. We do this even though Brazilian sugar ethanol provides eight times the energy of the fossil fuel used to make it, while American corn ethanol provides only 1.3 times the energy of the fossil fuel used to make it. We do this even though sugar ethanol reduces greenhouses gases more than corn ethanol. And we do this even though sugar cane ethanol can easily be grown in poor tropical countries in Africa or the Caribbean, and could actually help alleviate their poverty.
Friedman calls this state of affairs "stupid." This is a word I usually avoid (for it is hard to use politely), but it does seem particularly apt here.
Sugar growers are also subsidized by consumers.  Their subsidies come through quotas on foreign imports at the expense of domestic consumers and foreign producers.  Mark J. Perry, a professor of economics and finance in the school of management at the Flint campus of the University of Michigan describes the program’s cost to American consumers (“Sugar Policy: Sweet Deal for Producers, Sour for Consumers”).
Due to protectionist trade policies that limit the amount of sugar imports entering the United States at the much lower world price, the American sugar producers are protected from more efficient foreign sugar growers in Central America, Africa, and the Caribbean who can produce sugar at half the cost of beet sugar farmers in Minnesota, North Dakota, and Michigan…

Last year, Americans paid an average of 53.3 cents per pound for domestic sugar, almost double the average world price of 27.7 cents per pound. Exactly how much did Americans pay last year for our “no cost” sugar policy? An astounding $4.5 billion…
That is approximately $150 per American.  If all the money went to the 4,700 farmers that grow sugar beets, that’s about $950,000 per farmer.  Now that’s a sweet deal for farmers! 


  1. I feel strongly that America should reduce the amount of dependence we have on other countries. With that being said, just because we can produce a good, does it mean that we have to? If it would reduce our out of pocket cost to get sugar from another country, wouldn't that be a benefit for us? We already know that we can supply our own if it ever came down to needing to. But if we have the opportunity to limit our cost and potentially help a poor county, such as Africa, by buying sugar that is grown there, wouldn't that be a winning situation? As with all economic situations, there is always a down side. The U.S. farmers that currently supply our sugar would be put out of business. However, when weighing the 4700 farmers against an entire country that could potentially bring themselves out of poverty by being able to grow and supply sugar to the U.S., the answer seems to be obvious to me.
    I must also agree that is is "stupid" for America to continue to use our corn ethanol over the sugar ethanol from another country, even though the benefits of switching would be enormous.
    Kim Huffman

  2. Belinda Gonzales (macroeconomics student)23/2/11 10:20 PM

    The want for lower prices on gas are much wanted now a days. We sit here and pay so much money for a gallon of gas and due to the tradeoffs, we pay for just for them to send the product. Supply and demand comes to my mind when i read the blog. Its because of what we want lower comes at a more expensive price. Instead of paying those farmers to grow, we end up waisting billions of dollars that we actually need. They give us a certain amount but we want more.