When I was fourteen years old, my family took a trip to Germany which was my first excursion outside of the United States. At that age, Dr. Pepper was all I drank, and my parents accommodated this by buying me a large case of Dr. Pepper to help me survive. German Dr. Pepper, though, tasted slightly different than what we bought in the United States. At age fourteen, this was a mystery to me — just one of many oddities in another country, I assumed.
By: Chris Calton
This article first appeared at Mises.org
The reality, of course, is that what I was tasting for the first time was Dr. Pepper as it was originally made. The formula I was accustomed to was an adaptation started in the 1970s that substituted high fructose corn syrup for actual sugar and became an increasingly common substitute over the next couple of decades.
This change in formula only took place in the United States factories, though. The reason behind this? Government interference in the sugar industry.
Sugar Tariffs date back as far as the late eighteenth century, originally as a means of raising federal revenue under the newly ratified Constitution. Later legislation specifically targeted certain types of sugar to promote domestic production.1 Prior to the New Deal, though, tariffs were the only manner in which the government interfered with the importation of sugar.
In 1934, the federal government passed the Jones-Costigan Amendment to the Agricultural Adjustment Act (in 1937, this evolved into the stand-alone Sugar Act) as one of the many policies intended to protect the American farmer at the expense of the consumer. This legislation included the imposition of a quota on the importation of both sugarcane and beet sugar, thus lowering the supply of sugar in the United States.
As any first-year economics student can tell you, lowering the supply of a commodity will raise its price. Following this policy, the United States has been paying roughly double the world price of sugar (with the exception of some short-lived spikes in global sugar prices that raised both the global and domestic prices of sugar).
During World War II, sugar was the first rationed consumer commodity. Little thought is given to the rationing of commodities, though. Rationing is a necessary sacrifice during war, the general sentiment goes, and the actual legal limitations placed on sugar imports hardly crosses the American mind.2 Certain politically favored companies, such as Coca-Cola, were given exclusions to rationing, giving them an advantage over unfavored competitors.
In 1976, shortly after the introduction of high fructose corn syrup as a viable substitute, sugar prices should have eased with the expiration of the Sugar Act. Instead, Gerald Ford simply tripled the tariffs on sugar to curry favor with sugar farms before his reelection bid. When Jimmy Carter came into office, he followed in the footsteps of Franklin Roosevelt and opted to simply set up a payment program for the government to buy out excess sugar production, which has the predictable effect of raising the domestic price to whatever level the government is paying for excess quantities.
Under Reagan, import quotas were reinstated.3 With Clinton, Carter’s payment program set buyout rates at 18 cents per pound of sugar cane and 23 cents per pound of beet sugar.4 These prices keep the United States sugar prices at roughly double the global price today.
Sugar quotas one among the many ways in which the government interferes with the American economy. These policies, of course, are never publicized. They are not the subjects of campaigns or media events. But each policy of this nature has a deleterious effect on the United States economy.
In this case, the combination of import quotas and government payment plans have made sugar a scarcer and costlier commodity than it would be in a natural (i.e., free) market. This has fueled the use of high fructose corn syrup as a substitute sweetener for domestically produced products, particularly sodas. Worse, it has been the key reason why many businesses — such as Hershey and LifeSavers — have moved to Canada or Mexico where they can obtain cheaper sugar and can then sell their products in the United States under the North American Free Trade Agreement (NAFTA). As Gary Galles has observed, the supposed “free” sugar quotas are not really free at all.
This is not an unknown phenomenon to the US federal government, either. A study conducted by the US Department of Commerce finds that “Many U.S. SCP manufacturers have closed or relocated to Canada where sugar prices are less than half of U.S. prices and to Mexico where sugar prices are about two-thirds of U.S. prices.”5
Now in the United States, if certain products contain actual sugar, it becomes a selling point, instead of a given. It is a justification to charge more for products that contain the label “Made With Real Sugar” because it is, on this merit, a delicacy. It is labels like these that serve as little clues as to the undue interference of the government, and in any case such as this, if you dig further, you will find that it is accompanied by a slew of extra consequences.
Chris Calton is a Mises University alumnus and an economic historian. See his YouTube channel here.
This article first appeared at Mises.org