The Sugar Beat
U.S. Sugar Policy: An Overview
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American sugar producers require a higher price environment to survive and a firmer hope that their government will not further negotiate away their access to the U.S. sugar market. U.S. Sugar Policy. Most U.S. farm commodities have income-support programs, whereby the government makes a variety of payments to farmers, some related to production or price and some not. In contrast, sugar is a price-support program. The government manages supply to maintain a balance with demand, and attempts to maintain a market price steady enough that producers can pay back their operating loans to the government, with interest. There are no government payments to sugar producers. Until recently, USDA had two tools to balance U.S. sugar supplies with consumer demand. 1. It limits foreign supplies through a tariff rate quota system on imports that complies with World Trade Organization (WTO) rules. 2. It limits domestic sugar sales through marketing allotments. Each year, USDA forecasts domestic sugar consumption, subtracts required imports, and allows U.S. producers to supply the balance. Trade Threats. This market-balancing system worked dependably until 2008. That’s when Mexico gained unlimited access to the U.S. market under the NAFTA, and USDA effectively lost control of the U.S. market. Furthermore, the U.S. is in the process of negotiating free trade agreements with a number of major sugar-exporting countries eager for additional access to the U.S. market. The U.S. is also negotiating a Doha Round of the WTO that could result in additional market access concessions. These trade concessions threaten to reduce U.S. sugar producers’ access to their own market, and reduce prices as well, making it impossible for struggling American sugar farmers to survive. 2008 Farm Bill Solutions. Sugar policy in the 2008 Farm Bill will address the problems of industry throughput and price, at little or no cost to taxpayers, and to the benefit of U.S. energy independence, food security, and environmental quality. The Farm Bill minimizes the erosion of Americans sugar farmers’ share of their own market to not less than 85% of consumption. In years when production is down, imports can amount to much more than 15% of the U.S. market. If imports exceed the difference between domestic market allotments and consumption, USDA will divert surplus sugar into fuel ethanol production and restore balance to the sugar market for food. The added ethanol production would be consistent with national goals to reduce American dependence on foreign oil and improve air quality. In addition to the use of ethanol as a market balancing mechanism, two other Farm Bill measures should help to improve U.S. sugar prices: 1. The first increase in the sugar support price since 1985: The raw cane sugar loan rate will rise by ¼ of a cent per pound in fiscal years 2009, 2010, and 2011, and the refined beet sugar rates by a commensurate amount. In fiscal year 2011 the raw cane loan rate will be 18.75 cents per pound. 2. USDA may not announce a TRQ above the minimum required by trade agreements until halfway through the crop year (April 1), unless there is a supply emergency. By April, much more will be known about actual U.S. sugar production and consumption and the volume of imports from Mexico. This will prevent a recurrence of situations such as that in the summer 2006, when USDA announced an excessive TRQ for the coming year, the market was badly oversupplied, and producer prices languished for almost two years. With the help of a positive 2008 Farm Bill, a higher price environment is definitely achievable. About the author: Jack Roney is the director of economics and policy analysis for the American Sugar Alliance. |
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