Sweet Subsidy

By Unmesh Kher

The high cost of protectionism can be seen not only among users of steel but also among consumers of sugar. Influenced by generous campaign contributions from U.S. sugar producers, the Federal Government supports domestic prices and slaps tariffs as high as 242% on most sugar imports. Mexico and other signatories of NAFTA will eventually be spared such tariffs, but the system in place today keeps domestic sugar prices at 22[cents] per lb.--about three times the global-market price.

This system encourages sugar-beet and cane farmers to grow more than anyone wants--at least at these inflated prices. The farmers are diverted from growing crops that would add more value to the economy. And high sugar prices discourage consumers from buying sugar.

The ultimate burden of sugar tariffs and subsidies is borne by sweet-toothed folks--and the manufacturers that make their candy. In all, the U.S. General Accounting Office says the program cost consumers and users $1.9 billion in 1998. The tab is pushing manufacturers to close up shop or move out of the country. Chicago-based Brach's announced last year that it would close its large manufacturing plant in the city and shed more than 1,000 jobs; it will outsource candymaking to Argentina's Grupo Arcor. Kraft Foods, meanwhile, intends to close its Holland, Mich., manufacturing facility for Life Savers next year, and plans to make the iconic candy in Quebec, where sugar sells at market rates. You might think the loss of jobs would prompt Congress to reconsider its protectionist policies. But you would be wrong.

--By Unmesh Kher