26 March 2013
BAILOUT: The government’s reasoning behind the bailout of the sugar industry is rather nonsensical when viewed from an economic standpoint.
By Isabel De La Garza, Senior Writer
Recently, the price of sugar in the U.S. has been steadily declining. As the sugar prices decline, products made with sugar become much cheaper. This floods the market with cheap sweets, which can lead to an increase in the obesity rate in America. If the sugary cereal is cheaper than the wholegrain, families strapped for cash will probably choose the former even though it is unhealthy. It is a simple fact of economics. People buy inferior goods when their incomes fall or are below the equilibrium wage rate. They demand them over normal goods because they are cheaper. For example, Kellogg’s Cereal is a normal good and Kirkland Stater Bros. or Albertson’s brand Cereals is an inferior good. Although they are nearly identical, Kellogg’s is desired over the others because it is a “brand name” good and is supposedly more “tasty.”
As unhealthy foods are generally easier and cheaper to produce than all-natural healthy products such as organic meats, vegetables and fruit, it is not surprising that consumers, especially in a recession, choose cheap breads and junk food over healthier choices. In order to prevent an increase in obesity as a result of prolonged low sugar prices, the government is looking to purchase 400,000 tons of sugar to prop up the sugar industry and increase its prices. An increase in prices will help discourage buyers from choosing unhealthy, sugary foods. This will in turn lead to less consumption of sugar, which can help prevent the amount of obesity from increasing and thus lower healthcare costs which have greatly increased due to procedures and treatments associated with obesity.
Unfortunately, paying the sugar industry for sugar does not solve all our problems forever. The price of sugar will probably fall again and the government will once again have to bail out the sugar industry. The solution only works for the short term. The sugar prices are so low because there is an excess supply of sugar. As the sugar prices go down, sugar will become more and more accessible. In the short term, people will more than likely buy the cheap sugar due to a surplus. In the long term however, the low profits will cause certain inefficient sugar producers to go out of business and eventually the market will reach equilibrium again with sugar at a higher price. Eventually there will be fewer suppliers of sugar and therefore less sugar to buy, creating more demand and thus increasing the price. The price increase will once again discourage people from buying so much sugar, and, eventually, cause the obesity rate to slow again. The money spent on that 400,000 tons of sugar could instead be used to subsidize healthier food producers, or fund healthcare.
At the moment, healthcare costs are high and continuing to rise. As many of these services are provided by the government and already lack funding, deferring funds from helping people in order to try to fix a problem that would resolve itself is just pointless.