UF Expert: Industrial Sugar Users Benefit Most If Sugar Policy Ends

By:
Ed Hunter (352) 392-1773 x 278

Source(s):
Andrew Schmitz schmitz@fred.ifas.ufl.edu, (352) 392-1845, ext. 415

GAINESVILLE — A University of Florida international trade expert says industrial users of sugar such as candy and ice cream manufacturers — not consumers — will receive the largest share of cost savings if the federal sugar policy is discontinued.

Andrew Schmitz, an eminent scholar and professor with UF’s Institute of Food and Agricultural Sciences, said the General Accounting Office relied on two economic models to reach its conclusions in its new report, “Sugar Program: Supporting Sugar Prices Has Increased User’s Costs While Benefitting Producers,” which was released June 9.

But Schmitz said that one of the models contained in the report — one that has consumers receiving all the cost savings — is unrealistic.

“The GAO essentially implies in its conclusion that all the cost savings from removing the sugar program are going to be passed on to the consumers, and the industrial users are not going to gain anything, which isn’t true,” said Schmitz. “In terms of relative magnitude, the industrial users of sugar will by far benefit the most if the sugar program is ended.”

He said the unrealistic model used in the GAO report assumes that the full drop in the price of raw sugar following the program’s end will be passed on to consumers. But he said that historically, it doesn’t work that way.

“Since the 1996 farm bill passed, wholesale refined sugar prices have dropped 26 percent in the United States,” Schmitz said. “In the same period, retail refined sugar prices have not dropped at all and the prices of finished products like cereal, ice cream and candy have increased by about 7 to 9 percent.”

Schmitz said that based on the more realistic model estimated by the GAO, some of the cost savings will make it to the consumer, but with industrial sugar users reaping the greatest benefits. If the sugar policy had been ended in 1998, the GAO estimates that producers would have lost $1.05 billion while consumers saved $769 million. The net savings to manufacturers and sugar refiners would have been $1.06 billion.

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