A Geek With Guns

Chronicling the depravities of the State.

The Manipulation of the Sugar Market

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If you go to grocery stores that cater to international tastes you’ll usually run across what is most often referred to say “Mexican Coke.” Truthfully it should be called international Coke because the drink people are often seeking out isn’t just available in Mexico, it’s available in many other countries. Why? Because “Mexican Coke” is made with real sugar so it tastes far different that the crape we can buy in bulk here in the United States. The sugar market, like so many other markets, has been manipulated by the state to such an extent that high fructose corn syrup is more economical than pure natural sugar:

When a government guarantees profits to those large corporations with powerful lobbies, the market loses its natural regulating mechanism. Instead of weeding out the most inefficient companies, the state subverts the consumer and keeps these companies propped up with corporate welfare. This is particularly true with respect to the agricultural industry.

In the absence of tariffs, importation quotas, and subsidies, the natural tendency of the market would be to produce cheap foreign sugar, which soda manufacturers would then import to sweeten their product. Domestic farmers are naturally opposed to this system because they cannot compete with more-efficient foreign firms. So, instead of competing for the dollar votes of the millions of individuals who form the free market, these large corporations have the power to lobby a select group of politicians to confer them special privilege. When a businessman tries to secure his profits not through free competition but through state privilege, he is not acting as a market entrepreneur but rather as a political, rent-seeking one.

In this case, the political entrepreneur was Archer Daniels Midland, a company that lobbied Congress to pass draconian quotas on sugar importation. But why would ADM, a corn producer, want to artificially raise the price of foreign sugar? A basic lesson of economics is this: when the price of a good is raised, all other things being equal, people cut back on their consumption, and (depending on the elasticity of demand) they look for substitutes.

High-fructose corn syrup, which is made from cornstarch, which ADM grows, is such a substitute.

Sugar doesn’t grow well in the United States so producing it cheaply is impractical. Because of this consumers of sugar usually import it from foreign produces. This isn’t a problem in a free market because farmers in the United States are able to grow crops that don’t do well in areas favorable to sugar cane so trade can go both ways. Unfortunately when given the option to hinder competition through the political process most economic actors will jump on the opportunity.

In this case an individual who produced a corn-based sweetener wanted to push out competing foreign sugar producers. Doing this is easy when there is a state that can impose import restrictions (and also subsidize corn producers to encourage more of the crop to be grown, thus reducing the cost). Tariffs, import quotas, and subsidies are nothing more than mechanisms available to the state to grant its cronies monopolies. If a domestic producer is having difficulties selling their produce because of a superior foreign competitor the state will happily intervene and push out the foreign competitor so long as the domestic producer has something of value to offer the politicians. In fact this demonstrates the fact that we never moved away from mercantilism. The state still controls foreign trade, they are just less overt about it. Instead of a king openly granting a monopoly to a favored merchant the state now hides those grants of monopolies behind tariffs, import restrictions, regulations, subsidies, government contracts, etc. Even though the rules of the game have changed the game itself hasn’t.

Some people are probably curious about why this matters. It matters because market interventions come at a costs to your and me, the consumers. Our choices are artificially restricted and the lack of competition ensures prices will remain higher than they would otherwise. We end up having to pay a higher price for an inferior product. While producers of high fructose corn syrup will claim it tastes the same as sugar anybody who has had a “Mexican Coke” and a domestic Coke will let you know such claims are bullshit.

Written by Christopher Burg

May 24th, 2012 at 10:30 am