US Sugar Quotas

In order to benefit US sugar beet and sugar cane producers, the US limits imports of foreign sugar (sucrose) under a quota program.  (Even though there aren’t that many US sugar producers, they are wealthy enough to fund a very powerful lobby in Congress.)   Suppose the import quota is restricted to 1 million tons per year, US production is 7 million tons per year, and US consumption is 8 million tons per year.  The world price about 6.5 cents/pound or $130/ton, while the US price is 22 cents/pound or $440/ton.

On the graph below, where S(us) is the US producers’ supply schedule, S(world) is the world supply (assumed to be perfectly elastic) and D(us) is US demand for sugar, identify and calculate (in $) the following:
  1. The loss of consumer surplus due to the quota (area of trapezoid a-c-d-g)
  2. The excess profits accruing to foreign producers lucky enough to get a share of the US quota (area of rectangle b-c-e-f)
  3. The extra producer surplus accruing to US sugar producers (area of triangle a-b-h)
  4. The deadweight loss from the US sugar quota (area of trapezoid b-f-g-h plus triangle c-d-e)
sugar_mkt_graph

What effects do you think the US’s sugar import quotas have on…
  1. US candy manufacturers
  2. R&D in the artificial sweeteners industry
  3. the market for US corn (fructose)
  4. European Union sugar policies
  5. small sugar-producing LDC’s such as Belize and the Dominican Republic.
  6. other producers such as Brazil, Colombia and Peru.
What are some other indirect effects of the US’s sugar import quota program?