Abstract
The effect of the United States (US) sugar program on sugar-using firm profitability from 2000 to 2017 is examined using firm financial data and the relative US-to-world sugar price ratio. Return on assets and market-to-book ratio proxy for firm financial performance. The regression results provide statistical evidence that as the US sugar price increases relative to the world sugar price, sugar-using firm financial performance improves. This is likely a result of sugar-using firms passing higher sugar costs on to consumers. An ex post analysis indicates that the statistical tests have adequate power. Findings provide guidelines for future analyses investigating the relationship between the US sugar program and sugar-using firm financial performance.
Highlights
The United States (US) sugar program protects domestic sugar producers from world sugar prices because the world sugar market consists of heavily subsidized sugar from countries such as India and Brazil (Elobeid and Beghin 2006; Hodari 2018; Hudson 2019; USDA FAS 2019)
Due to the mechanics of the US sugar program, and the fact that the world sugar market consists of mostly subsidized sugar, US raw and refined wholesale prices for sugar are typically higher than world raw and wholesale sugar prices
The effect size ranges we report could support policymakers and others concerned about the effects of the US sugar program on sugar-using firm performance in analyses designed to detect the distortionary effects of policies on firm financial performance
Summary
The US sugar program protects domestic sugar producers from world sugar prices because the world sugar market consists of heavily subsidized sugar from countries such as India and Brazil (Elobeid and Beghin 2006; Hodari 2018; Hudson 2019; USDA FAS 2019). This paper regresses indicators of firm performance on the US-to-world sugar price ratio to examine the effect of the US sugar program on the financial performance of publicly traded food manufacturers who use sugar as a primary input. 10K is the annual report filed by publicly traded companies to fulfill the requirement of financial and business information disclosure by the US Securities and Exchange Commission Firms that disclosed they used sugar did so in the “Raw Materials,” “Risk Factors”, or “Products and Brands” sections of the 10Ks. Firms that disclosed they used sugar did so in the “Raw Materials,” “Risk Factors”, or “Products and Brands” sections of the 10Ks Those firms operating in the US who reported in their 10Ks that they purchased sugar at US prices were selected. Source for sugar prices: USDA ERS (2018)
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