Krugman on the Plan to Use Ethanol to Replace Gasoline: Sugar Rather Than Corn

Mark Thoma says Paul Krugman called President Bush’s proposal a really bad idea. Krugman would have preferred more emphasis on conservation. He also notes:

There is a place for ethanol in the world’s energy future – but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane. In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material.

But doesn’t the United States owe a topical state known as Hawaii? Why wouldn’t U.S. policy makers want to produce sugar based ethanol there? Michael Mussa reviews the history of American quotas on sugar:

The second example concerns U.S. public policy toward international trade in sugar which, in a bizarre way, is partly the consequence of policies pursued by Napoleon Bonaparte and Admiral Lord Nelson. For many years, the United States has maintained tight import quotas on sugar to keep the domestic price typically at roughly three times the world market level. The domestic political interests that support this policy include some sugar refiners, some producers of cane sugar in the deep south and Hawaii, and a few thousand sugar beet farmers primarily in the upper midwest. Production of sugar from beets is a “new” technology, dating back to the Napoleonic period. Before that time, sugar was produced from cane grown primarily in the West Indies. Admiral Lord Nelson’s establishment of naval supremacy over the French enabled Britain to cut off Napoleon’s empire from imports of West Indian sugar. In response, Napoleon established a prize for finding a substitute for cane-based sugar which could be produced within his empire. The sugar beet was discovered, and has been with us ever since. This story becomes even more complicated when we consider reactions to the U.S. governments’ sugar policy. Responding to the high domestic price of sugar, users have searched for alternatives. High fructose corn syrup is a cheaper and attractive alternative, especially for producers of soft drinks who are major users of sweeteners. A key by-product of high fructose corn syrup is corn gluten meal which can be used as animal feed and which the U.S. both uses domestically and exports, notably to the European Union. Thus, through this round-about channel of public policies and product innovations, what was started by Napoleon and Nelson has come back to European shores.

Now you know why Coca Cola uses high fructose corn syrup rather than sugar. Greg Mankiw also noted this departure from free trade. Wikipedia provides a history of Hawaii’s sugar plantations including their gaining the right to export sugar to the United States without duties. The discussion documents the increase in production from 1850 to 1930, the push from workers for higher wages, and political decisions by the U.S. to rely on other sources such as Cuba before the Castro revolution and other Caribbean locations that would provide cheap labor. Sugar production in Hawaii has also declined as land has been used by its tourist sector. We import sugar from places other than the Caribbean such as Mexico. While we supposed to be under a North American Free Trade Agreement, we still impose quota on Mexican sugar imports.

I have a radical suggestion. If American sugar producers are so concerned about low prices from foreign competition, why don’t we increase global demand for sugar by using it in the ethanol program instead of sugar? We could also drop the sugar quota. Now it is quite likely that we would still rely on sugar production in Latin America as opposed to America’s heartland. But would a higher demand for sugar leave Coca Cola the incentive to rely upon high fructose corn syrup? Or is the lobbyists for the corn sector really that powerful?