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What to Cut: Striking subsidies could save billions

 

Joe Dutra has defied the trend of American confectioners and candy makers who've moved abroad to escape the U.S. government's regime of sugar subsidies. 

After moving his Kimmie Candy Company back to the United States from South Korea, he's now operating a $4 million-$5 million business in Reno, Nev. 

But, he said, "when coming back to the United States, I found out that I was paying up to 90 percent more for sugar in the last few years." 

Sugar is just one commodity whose price is hugely inflated in the United States because of what critics call an outdated system of subsidies and price supports. The subsidies take the form of direct payments to farmers that cost taxpayers billions -- as well as restrictions on imports and how much can be grown, and other regulations that raise prices. 

"It's ridiculous," said Sen. Tom Coburn, R-Okla., a frequent critic of subsidies. "We're losing candy manufacturers in America because the price of sugar is four to six times higher here than it is anywhere else in the world." 

Tom Schatz, president of Citizens Against Government Waste, called it "an old Soviet-style command and control process." 

He adds that many domestic manufacturers use different sweeteners in their products to remain competitive in light of sugar's artificially high price. "They contain high-fructose corn syrup or in some cases they contain organic sugar which will raise the price of the product because the sugar program is simply too costly," he said. 

Subsidies have their roots in the Great Depression, when drought devastated farming. But eight decades later, critics say they are grossly outdated. Government-imposed subsidies raise the price of many commodities. 

Dairy price supports cost taxpayers $1.1 billion a year. They include a quaint, but expensive, provision dating back to the 1930's called "milk marketing orders," which originally restricted how far milk could be transported from farm to market to prevent spoilage. Today, refrigerated trucking invalidates that concern. "There are fewer milk marketing orders, but they still exist," Schatz said. 

Another subsidy, on peanuts, costs taxpayers $55 million every year. Peanuts can be grown in a wide range of climates, but the government restricts their planting to a few, mostly southern, states. 

"There is no reason why peanuts can't be grown everywhere. It would certainly lower the price to consumers and taxpayers, and yet it's another example of a very small group of farmers having an oversized influence on Congress," Schatz said. 

Defenders of the subsidies make a strong case for their preservation. "Other governments are subsidizing their farmers at a much greater percentage than our government is, so we feel like, in order for our farmers to be able to compete worldwide, we need to have some government support," said Mary Kay Thatcher, of the American Farm Bureau Federation. 

Still, the cost-cutting pressures that pervade Washington nowadays may force changes to the system. 

"I think when we write that farm bill this year you will see some real changes in the way those subsidies are administered," Thatcher said. 

But if such changes occur, they'll have to surmount a formidable obstacle on Capitol Hill. Representatives from any farming region that benefits from one subsidy often vote with members from another region that profits from a different subsidy. Alone, the regional interests carry little power. Together, they wield the kind of influence that has distorted market prices for more than 80 years.

Doug McKelway joined Fox News Channel (FNC) in November 2010 and serves as a Washington-based correspondent. Click here for more information on Doug McKelway