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Sugar subsidies behind Hostess problems
AWORLD with no Twinkies is a sad world indeed. But that was the sorry future forecast when Hostess Brands Inc. announced recently that it would have to go out of business.
The immediate cause of Hostess' demise is the company's contentious labor dispute with the Bakery, Confectionary, Tobacco Workers, and Grain Millers Union. The union accused the struggling company, which had proposed an 8 percent cut in salaries and a reduction in benefits, of taking workers' compensation right back to the 1950s. More than 18,000 workers face unemployment a month before Christmas.
The deeper issue behind the company's struggles is one we've visited many times here: sugar subsidies. These profit-propping, competition-killing laws primarily benefit a handful of politically powerful Florida families (and some sugar-beet growers in other states)--and make life sour for the rest of us, especially companies like Hostess that use sugar in their own products.
The sugar subsidies are a classic example of government playing favorites in the economy instead of allowing market forces to prevail. Enshrined in the five-year farm bill, the subsidies guarantee the profits of sugar producers and processors while artificially raising the domestic price of sugar and fencing out competition from abroad through tariffs. Such a sweet deal.
According to the General Accounting Office, sugar subsidies cost American consumers $1.9 billion annually in higher costs for sugar products, and an additional $90 million each year to fund government feeding programs that use sugar. That's on top of the cost of the subsidies themselves: $1.4 billion over 10 years.
Because of the subsidies, sugar costs about twice as much in the United States as it does in the rest of the world. Not only does this hit the consumer hard, it has caused sugar-product manufacturers to opt out of this country and move to places where they can get sugar at global market prices: Hershey has left Hershey, Pa., for Canada; Fannie May chocolates and Brach's are now in Mexico; and Kraft moved a Life Saver plant from Michigan to Canada. In a Grinch-worthy development, there's only one company left in the United States that still makes candy canes.
It's true that the subsidies support jobs in the sugar-producing and -processing industries, but the Commerce Department says that for every one of those jobs saved, three confectionery manufacturing jobs are lost.
Why do the sugar subsidies continue to exist? The sugar lobby spends more than the tobacco industry on lobbying, sweetening the pot of key congressional leaders, especially Sen. Debbie Stabenow, D-Mich. ($48,986 in 2011, according to Open Secrets) and Rep. Frank Lucas, R-Okla. ($39,000), the chairmen of their respective agriculture committees. In all, sugar producers spent over $2.1 million influencing Washington last year. Apparently, they're doing a great job of it.
But there's a move afoot, initiated by outgoing Indiana Republican Sen. Dick Lugar, to end Capital Hill's sugar high and stop these subsidies by amending the farm bill. Predictably, there's an outcry from the industry, but like a kid with his hand in the candy jar, what else would you expect?
Let market prices prevail. Let the battle be joined. Remember the Twinkies!