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Sugar Policy Issues

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Abstract:

The sugar program, authorized by the 2002 farm bill (P.L. 107-171), is designed to protect the price received by growers of sugarcane and sugar beets, and by firms that process these crops into sugar. To accomplish this, the U.S. Department of Agriculture (USDA) makes loans available at mandated price levels to processors, limits the amount of sugar that processors can sell domestically, and restricts imports. In support of the program, sugar crop growers and processors stress the industry's importance in providing jobs and income in rural areas. Food and beverage firms that use sugar argue that U.S. sugar policy imposes costs on consumers, and has led some food manufacturers to decide to move jobs overseas where sugar is cheaper.

In a major policy change, the 2002 farm bill reactivated sugar "marketing allotments" that limit the amount of domestic-produced sugar that processors can sell. The level at which USDA sets the national sugar allotment quantity has implications for sugar prices. Accordingly, sugar crop producers and processors on one side, and sugar users on the other, seek to influence the decisions that USDA makes on allotment and import quota levels. The relationship between allotments and imports drew much attention during congressional debate on the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA). The U.S. sugar producing sector argued that DR-CAFTA would let more sugar into the U.S. market than the program is designed to accommodate, and would require USDA to suspend marketing allotments. This, in turn, opponents argued, would depress prices enough to undermine USDA's ability to operate a "no-cost" program. USDA countered that this would not occur, but to secure sufficient votes, pledged to take specific steps to protect the program through FY2008 if imports do exceed this "trigger."

Attention on sugar trade issues now turns to the potential impact of free trade in sugar and high-fructose corn syrup (HFCS) -- a substitute and cheaper sweetener -- between the United States and Mexico, which takes effect in January 2008. To govern trade until then, a July 2006 agreement resolved two long-standing sweetener trade disputes. It provides for Mexican sugar access to the U.S. market equal to the amount of access that U.S. HFCS exports gain to the Mexican market.

With Congress taking up a new farm bill in 2007, key interest groups have begun to lay out their views on the future of the sugar program. Sugar producers/processors want to extend the current program, arguing that this course would maintain a viable industry. Sugar users want changes to respond to such external pressures as unrestricted imports from Mexico, and seek to develop new policies that would work for both the producing and using sectors. Although various alternatives have been discussed, drawing some attention is the concept of changing the sugar program into an income and price support program similar to that in place for other major field crops. USDA in its farm bill package proposes that the current objectives of operating a no-cost program by managing supplies be continued with two changes. It seeks the removal of the 1.532 million ton import trigger that automatically suspends allotments and discretionary authority to administer these allotments to reduce the program's future cost exposure (estimated at $1.4 billion over 10 years). This report will be updated regularly.