The economy-wide impact of the U.S. sugar program
Abstract
This paper uses a general equilibrium approach to show how the gains and losses from a change in the U.S. sugar program are distributed in the short run. The purpose for undertaking this study was to provide a systematic, economy-wide analysis of the Sugar Program with enough detail to make it useful as a basis for policy discussion. Relaxing the sugar quota does not have uniform effects among economic actors in the sugar sector. Cane and beet production both suffer a decline in price and a corresponding drop in output. Land used in cane and beet production sees an even more dramatic price drop. Cane milling and beet processing production likewise decline. Sugar refining increases its output and its profits. It is estimated that without a quota refining will reach its shortrun productive capacity and begin earning economic rents. The wet corn milling industry would be a loser from the removal of the quota. Going to free trade in sugar causes output to fall about 2%. These results may be more or less severe depending on whether it is assumed that the elasticity of substitution between sweeteners is smaller or larger. Cutting off sugar imports, on the other hand, is predicted to increase shortrun wet milling output and HFCS prices. Using 1982 data, output increases 9% and sweetener price 31%; byproduct prices fall 31%. Incorporating 1988 assumptions causes output at autarky to rise 5% and HFCS price 15%; byproduct price falls 20%. Thus it seems that the HFCS industry can gain a great deal by a tighter quota, but would not be greatly hurt by its removal. The quota's impact on grain producers does not match that of the wet corn milling industry. No amount of sugar quota intervention is expected to significantly change the price of feed grains (including corn) in the short run. Domestic consumers would be better off without the quota. In addition to not having to pay $464 million in quota premiums to the rest of the world, there is a resource and consumption reallocation gain from free trade that could bring the total gain to the domestic economy to as high as \$3.55 billion, depending on the severity of the terms of trade effects. Without terms of trade effects the domestic economy is expected to gain about $1.59 billion in total.
Degree
Ph.D.
Advisors
Hertel, Purdue University.
Subject Area
Agricultural economics
Off-Campus Purdue Users:
To access this dissertation, please log in to our
proxy server.