Sugar Beets and Lockouts

Yesterday’s New York Times describes how lockouts have become a more common tool in labor management negotiations. Management is more likely than ever to lockout union workers, hire replacement workers and pressure unions to accept wage and benefit concessions when contract re-negotiations become deadlocked.

The Times article focuses on American Crystal Sugar, the nation’s largest sugar beet processor, which is currently involved in a lockout with 1300 union workers employed at five plants. The article never mentions that profits and union compensation in the sugar beet industry rely on import tariffs, quotas on imported sugar, and protection from foreign competition.

It is simply cheaper and more efficient to import sugar than it is to process sugar from sugar beets in the US. As Mark Perry noted in his Carpe Diem blog two years ago, government intervention in the market for imported sugar has protected the sugar beet industry and raised the price of sugar for the American consumer. The sugar beet industry has received $242 million in subsidies over the past 15 years.  More importantly, as Perry explains, our policies have caused U.S. sugar prices to be about twice the world price for decades. In 2009 alone this cost consumers $2.5 billion dollars.

Remarkably, the topic of sugar subsidies was raised yesterday at the Republican debate. Newt Gingrich admitted that in all of his years in the House he was unable to eliminate sugar subsidies. His simple explanation for the durability of this anti-competitive policy was there are “just too many beet sugar districts in the United States.” This debate topic released a torrent of cynical (but funny) tweets . The consensus was: this is silly, aren’t there more important issues?

The story of sugar beets is a lesson in why inefficient government programs are difficult to eliminate. Every policy has winners and losers. The winners are the sugar beet processors and organized labor who are currently deadlocked over how to split the profits from operating in a market protected from foreign competition. The losers are American consumers. Unfortunately the stakes are so low per consumer, $8 per year, that we think it’s silly to question candidates about how they expect to change Washington if they can’t stop subsidizing and protecting sugar beets.

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