Describe the economic effects of the U.S. price supports and import quotas for sugar

Question

What will be an ideal response?

Answer 1

Price supports and import quotas have doubled U.S. sugar prices relative to world markets prices. The estimated cost to consumers is between 1.5 billion and $1.9 billion per year. The effect is regressive because poor households spend a larger percentage of their income on food (including sugar) than do high-income households. Sugar growers receive benefits that are estimated to be twice the nation’s average family income. In fact, many farms receive more than a million dollars in subsidies.
Import quotas have been imposed to keep low priced foreign sugar out of the U.S. market so that price supports can be maintained. In 1975, 30% of U.S. sugar was imported, but today only about 20% is imported. This import policy has had significant effects on less developed nations and the world market for sugar. The decline in potential sugar revenue has hurt the Philippines, Brazil, and a number of Central American countries. Decline in export revenues hurts their ability to repay foreign debt. The sugar that could have been sold in the U.S. is dumped on world markets, where the world price is then further depressed. The U.S. could become an exporting country with the supply growth that resulted from the price supports.
Overall, both domestically and worldwide, the sugar price support program has distorted resources allocation and world trade. There has been an over allocation of resources to sugar production in the less efficient U.S. and an under allocation in low cost areas of production. Sugar is kept artificially low in price on the world market, which hurts the economies of less developed nations that are low-cost producers of sugar.