Sunday, March 14, 2010

How sweet it is...well, if you live in a country other than the US that is...

From WSJ:  Price Gap Puts Spice in Sugar-Quota Fight
The world market price for sugar is much lower than the US (Domestic) price of sugar (see chart to the left).  How can this be? The US maintains a numerical quota on how much sugar can be imported into the US.  The current domestic supply PLUS the amount of allowed imports is not enough to supply the domestic demands of sugar refiners, producers that use sugar as an input, and consumers. 
About 85% of the sugar consumed by Americans grows domestically, with the rest imported from about 40 countries under a quota-allocating system and Mexico, which isn't bound by the program under a free-trade treaty. Within the quota, exporters get higher prices paid by U.S. buyers but are subject to stiff tariffs once that limit is exceeded.
The presumed market price, quantity demanded and quantity supplied would be at point "A" in the US Market for Sugar (below on the left). 
Because of the import quota, the ACTUAL market price, quantity demanded and quantity supplied is at point "B" in the US Market for Sugar.   The world price for sugar is represented by the graph on the right at point "A".  The world (international) price for sugar is considerably lower ($19.67 per pound world vs $35.02 per pound in US)
The gap between what Americans and the rest of the world pay for sugar has reached its widest level in at least a decade, breathing new life into the battle over import quotas that prop up the price of the sweet stuff in the U.S. For years, U.S. prices have been artificially inflated by import restrictions designed to protect American farmers. That has kept the price well above the global market.
Quotas are one way to restrict imports.  The other way is through tariffs.  Both serve to limit imports, but tariffs bring revenue to the government and quotas allow domestic producers of sugar to reap a higer price market price, hence, presumably higher profits.  Regardless of the method it seems we pay, directly or indirectly, more for sugar and products we consume made with sugar.  The government does this to protect the US sugar industry and to ensure that we can continue to have a virbrant domestic source of sugar.  Is this policy correct?  Should we allow more imports even if it puts domestic producers out of business?  Tough choice...You make the call!!!

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