The Ripple Effect of the US Sugar Quota

After taking a look at the development of a “soda” tax around the US, it seems relevant to place the magnifying glass over a different side of the market. According to Amy Brittain, investigative reporter for The Washington Post, there are some bitter feelings between sugar producers and candy companies. The US government has imposed a tariff-rate quota on imported sugar since the 1930s. The quota was first implemented to mitigate the effects of the Great Depression on the domestic sugar agriculture. But since then the quota has been in place and has had further effect on the sugar and sugar-based products markets. In a similar way that the soda tax has driven prices up for consumers, the US quota has artificially inflated prices of sugar and candy products.

The sugar quota restricts the amount of sugar that domestic food manufacturers can buy from foreign sugar producers. Candy companies are faced with a “prohibitive tariff of 15.36 cents per pound” for raw sugar after they pass this restriction amount. According to Bryan Riley at The Heritage Foundation, “Americans have paid an average of 79 percent more for raw sugar and 87 percent more for refined sugar compared to the average world price.” The domestic and world sugar prices have become closer in recent years, but U.S. consumers still pay a significant premium. In 2012, the price of “raw sugar in the United States was 43 percent higher than the average world price.”

The difference between the two prices are visible and the effect of this quota spreads to the consumers of the candy and raw/refined sugar market. The quota artificially limits the supply of raw and refined sugar, because it restricts the amount consumers are willing to buy through the tariff. The quota gives sugar producers more market power and increases their producer surplus. It creates dead weight loss through the discrepancy between consumers’ amount willingness to pay and the new US sugar prices. This quota also creates a ripple effect that raises prices of candy products made with sugar from this market. These candy producers are forced to rise prices and consumers of these product are then negatively affected by the quota as well. Large manufacturers have begun to lobby to gain the support of the Trump administration to ease the restrictions. But domestic sugar producers are still being protected through the quota. We will see if candy companies can change the dynamics of this markets.

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