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Sugar Policy Issues

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Publication Date: February 2006

Publisher(s): Library of Congress. Congressional Research Service

Series: IB95117

Topic: Agriculture, forestry and fishing (Processed food industries)

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 of firms that process each crop into sugar. To accomplish this, the U.S. Department of Agriculture (USDA) makes loans available at minimum price levels to processors, limits the amount of sugar that processors can sell domestically, and restricts imports.

Sugar crop growers and processors stress the industry's importance in providing jobs and income in rural areas. Food and beverage manufacturers that use sugar and their allies argue that U.S. sugar policy imposes costs on consumers and results in lost jobs at food firms in urban areas. Since 2002, producers and users have advanced their interests by seeking to influence how USDA administers the sugar program and the import quota.

The 2002 farm bill reactivated sugar "marketing allotments" to limit the amount of domestic-produced sugar that processors can sell. Because the level at which USDA sets the national sugar allotment quantity has implications for sugar prices, sugar producers and processors, and sugar users, weigh in to influence this decision.

Congressional debate on the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) focused attention on the relationship between marketing allotments and U.S. sugar imports. Opponents argued DRCAFTA will let more sugar into the U.S. market than the program is designed to accommodate, and require USDA to suspend marketing allotments. This in turn, they argued, would depress prices enough to undermine USDA's ability to operate a "no-cost" program. USDA argued 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." To meet demand that the U.S. sugar sector cannot supply due to reduced weather-related output, USDA increased imports in FY2005 and FY2006 to above the trigger level without suspending allotments. This is allowed under a statutory exception.

The U.S. sugar production sector argues that liberalizing trade in sugar should be addressed in multilateral World Trade Organization (WTO) negotiations, but not in hemispheric and bilateral free trade agreements (FTAs). Its concern is that additional market access provided to prospective FTA partners, many of which are major sugar exporters with weak labor and environmental rules, would undermine the U.S. sugar program and threaten the sector's viability. Sugar users advocate including sugar in all trade negotiations, eyeing the prospect over time of lowerpriced sugar they have not been able to secure through floor amendments.

The sugar provisions in DR-CAFTA drew much attention during congressional debate. Strongly opposed by the U.S. sugar producing sector but favored by most other U.S. commodity groups, the debate drew attention again to the sugar provisions in the North American Free Trade Agreement (NAFTA). Free trade in sugar between Mexico and the United States will take effect in 2008 despite longstanding trade disputes. The prospect of unrestricted sugar imports from Mexico starting in 2008, added to sugar imports under DR-CAFTA, will be one significant issue in the debate on the future of the sugar program as Congress begins deliberating the 2007 farm bill.