While the rest of the country has enjoyed an economic resurgence in recent years, the farm economy has slipped into a recession as global commodity prices precipitously fall. 

And these price collapses don’t always follow logic because, unlike most other industries, widespread foreign subsidization and protectionism deforms markets and turns basic supply-and-demand principles upside down.

A perfect example is what’s happening on the world sugar market – a market that many consider to be the world’s most distorted and volatile. 

Late last year, the U.S. Department of Agriculture (USDA) published a report about the global sugar market. The report noted that Brazil, the world’s biggest sugar supplier, would decrease production by an enormous 8 million metric tons in 2019.  

A decrease of that magnitude should move the market, much like if China made a big change in cotton or Russia cut wheat sales drastically.

But sugar prices didn’t bounce back. In fact, sugar prices sank even lower and are now trading at about half the world average cost of production. Let me state that again. Current world sugar prices barely cover half of the cost of producing sugar.

The reason: Subsidies fueled production increases elsewhere.

India, a long-time sugar importer, is now making an unprecedented move to supplant Brazil as the world’s dominant supplier. Through export subsidies that appear to be WTO-illegal, soft loans, tariffs, and other new policies, India increased production and more than made up for Brazil’s decline.

And because of that, the USDA noted in its report, “Global stocks are forecast to rise to a new high of 53 million metric tons.”

India isn’t alone. More than 100 countries produce sugar and every single one of them subsidizes production in some way. With so many subsidized producers and so many different forms of subsidization, it can be hard to keep it all straight.

That’s why Texas Tech University compiled a new foreign sugar subsidy handbook to give trade negotiators and policymakers a tool that can serve as a quick reference. In it is a single table of global policies plus profiles of the 21 foreign countries that produce and export more than 80 percent of the world’s sugar.

Countries examined include the world’s biggest players – Brazil, India and Thailand – as well as those currently involved in U.S. trade talks – China, Japan, Europe, Mexico and Canada.

During our research, we found that import tariffs designed to keep subsidized world market sugar at bay were present in each country. Many also had price control systems in place to boost returns for domestic producers. 

Indirect subsidies, which provide debt forgiveness and payments for input purchases, were likewise common. And, there’s been a noticeable uptick in ethanol-related programs to push more sugar into fuel production instead of food.

These subsidies all affect the world market, and as prices continue to fall, I predict that more government policies will be passed to help producers weather the storm. Ironically, each new policy passed by a sugar exporter further distorts the market and necessitates additional subsidies, creating a downward spiral.

The United States does not export sugar, so we did not include U.S. sugar policy in the report.

But each of the profiles affect America’s sugar policy. That’s because U.S. sugar policy – consisting of import quotas and loans to producers that are repaid with interest – exists as a direct response to subsidies elsewhere.

U.S. sugar producers, including those in my home state of Texas, are highly efficient and are lower-cost producers than most of the countries we examined. But no producer in the world is efficient enough to survive prices that are chronically depressed and prone to extreme volatility.

In short, the global sugar market is broken and is in need of change. Targeting the government programs and trade barriers highlighted in our report would be a great place to start. 

Reforming the trade-distorting policies of the world’s sugar exporters would bring basic business principles back into play, and market forces would naturally balance the supply-and-demand equation. The United States, in turn, would have no need for a sugar policy.

And when free and fair trade reigns, producers and consumers alike benefit.

Dr. Darren Hudson is the Combest Endowed Chair for Agricultural Competitiveness and Director of the International Center for Agricultural Competitiveness at Texas Tech University. His study is available here.