For many industries, it's red alert time in Washington. The Democrats now in control of Capitol Hill are making threatening noises about what they call overly cozy relationships between business and government. Companies in defense, oil, and pharmaceuticals are girding for legislative battle.
Then there's the sugar industry, historically second to none in winning protection from Washington. What is Big Sugar doing in this season of corporate anxiety in the nation's Capital? It's trying to reject a new federal subsidy. That's right: The sugar lobby has said "no thanks" to a proposal that would send hundreds of millions of dollars its way. And astoundingly, there's still pressure on Congress to give sugar producers the money they don't want. "It's a crazy system," says Sallie James, a trade analyst with the Cato Institute, a libertarian think tank in Washington. "It's what happens when politics interferes with the market."
The odd tale of the corporate subsidy in search of a taker begins with the elaborate structure of other protections the $10 billion-a-year sugar industry already enjoys. Since shortly after the Civil War, lawmakers from sugar-producing states have pushed the government to prop up the price of domestic sugar. The Agriculture Dept. limits the amount of domestically produced sugar that may be sold in the U.S. The government also discourages the importation of foreign sugar with quotas and tariffs. In addition, Washington operates a federal loan program that effectively sets a minimum price for sugar.
These arrangements benefit major producers such as U.S. Sugar Corp. and Florida Crystals Co., as well as the marketer Domino Foods Inc. But American candy makers, soft drink manufacturers, and other large consumers of sugar have grown unhappy with the current system--and they're the ones pushing the subsidy Big Sugar doesn't want. The candy manufacturers and their allies complain that the restrictions and tariffs make U.S. sugar prices about twice as high as the world market price.
Seeking to lower the price of sugar that goes into chocolate bars, soft drinks, breakfast cereal, and other treats, manufacturers represented by the Sweetener Users Assn. are pushing Congress to make direct subsidy payments to growers. They're lobbying members of the Agriculture Committees in both the House and the Senate, and they say they're open to other ideas.
"We're looking for a program that doesn't have the government controlling the supply, but at the same time would help the government maintain farm incomes," says Susan Smith, spokeswoman for the National Confectioners Assn., a trade group of major candy companies. For the big consumers, that's a compromise: For years they argued that sugar supports should be abolished entirely, but they were consistently defeated by the sugar lobby. Under this proposal, they would get lower prices and the growers would keep their existing government support.
But a sugar subsidy program would cost money and worsen sugar producers' reputation for dependence on corporate welfare. The sugar producers argue that a subsidy would shift the burden from consumers to taxpayers, at a cost of $1.3 billion. That won't be politically popular. Worse, the subsidy could come back to haunt sugar growers at the World Trade Organization if foreign producers object to it as an unfair advantage. "We like the status quo," says Phillip Hayes, spokesman for the American Sugar Alliance, which represents growers. Or as Representative Jeff Flake (R-Ariz.), who generally opposes subsidies, puts it: "They've got a good thing going right now, so why chance it? They can have their sweet cake and eat it, too."
The sugar industry may have the money and the political muscle to keep things as they are. During the 2006 election cycle, they contributed $2.7 million to congressional candidates; 60% of that went to the newly empowered Democrats, according to the Center for Responsive Politics, a nonprofit research group in Washington. The sugar-buying companies contributed just over $800,000 to congressional candidates during the same cycle, but roughly 75% of their contributions went to now out-of-power Republicans.
Sugar producers also have a key ally in Representative Collin C. Peterson (D-Minn.), who assumed control of the House Agriculture Committee this month. His Red River Valley district is packed with sugar beet farmers, making it the single largest sugar-producing district in the country. Peterson says he'll fight the proposed sugar subsidy and might even try to raise sugar prices, which, he says, "candy manufacturers really won't like."
By Eamon Javers