Most of us at the American Sugar Alliance have been working on sugar policy for decades. We know every little nook and cranny of the policy and the debate surrounding it. Institutional knowledge like that is good, but sometimes, it makes it tough to quickly explain the policy to someone who’s never worked on it before.
So, we asked a former journalist who was brand new to sugar policy to research it and write a brief explanation for new Hill staff or Administration officials.
Enjoy. And remember, if you still want all those minute details, you can always visit us at sugaralliance.org.
U.S. Sugar Policy: The Equalizer
First and foremost, it’s important to note that sugar farmers don’t get subsidy checks from the government, as some critics might claim. Instead, producers get access to loans to keep their businesses running – loans they pay back with interest. This set-up enables sugar policy to operate without taxpayer cost.
And contrary to popular belief, the cost of sugar to consumers in America isn’t expensive. In fact, under the policy, American grocery shoppers pay less for sugar than world averages and sweetened-food manufacturers are setting record profits.
A tough market
Sugar is one of the most volatile commodity markets worldwide because every sugar-producing nation subsidizes its farmers. Sugar behemoth Brazil, for example, spends more than $2.5 billion a year on government programs.
This foreign-subsidy environment puts American farmers at a disadvantage, but U.S. sugar policy helps level the playing field. It equalizes supply and demand in the market by giving the U.S. Department of Agriculture (USDA) four tools:
- Loans to producers that are repaid with interest.
- Marketing allotments to U.S. producers that give them the opportunity to compete to fill the portion of the U.S market not guaranteed to foreign producers.
- Import restrictions beyond existing trade concessions to ensure America fulfills existing trade deal commitments without overwhelming the U.S. market.
- Conversion-to-fuel option if the U.S. market becomes oversupplied because of subsidized imports (note: this option has only been used once, after Mexico dumped subsidized sugar into the U.S.).
The loan program is central to the sugar policy’s success and financial accountability. Producers may borrow money to run their companies using sugar as collateral – much like a mortgage borrower uses a home as collateral.
If the sugar price per pound drops below the minimum set by Congress in the law, loans may be satisfied with collateral instead of cash – similar to losing your home if a mortgage cannot be repaid. In that case, USDA must record a budgetary expense and sell the sugar.
The system of crops-as-collateral has been very stable and has helped sugar policy remain virtually no cost to taxpayers.
Significant forfeitures have occurred just once in more than a decade, and USDA predicts that it will not occur for, at least, the next 10 years. The last forfeiture occurred in 2013 and was a direct result of Mexico violating U.S. trade law by dumping low-priced, and highly subsidized, sugar on the U.S. market.
To help stabilize prices and avoid forfeitures, USDA gives domestic producers the opportunity to compete for up to 85 percent of America’s expected consumption needs.
The rest of the market is filled with foreign sugar, making America one of the world’s largest importers. But, imports are restricted beyond the amounts set through trade deals with 40 nations – again helping keep U.S. prices predictable.
However, if imports exceed our needs, as was the case with Mexico’s dumping, USDA may convert sugar to ethanol fuel, or non-food uses, to prevent an oversupply.
A secure supply
With roots that trace back to food security concerns in the American colonial period, the current structure of U.S. sugar policy began to take shape following the rationing of sugar during World War II.
American policymakers realized that relying on foreign nations to provide food staples was a security risk so they reworked America’s sugar policy to encourage domestic production and shield U.S. farmers from the worst effects of foreign subsidies and trade-distorting practices.
It worked. Today, sugar is produced in 22 states. The industry supports 142,000 American farm jobs with an annual economic impact of $20 billion.
Foreign consumers pay, on average, 20% more for sugar than American grocery shoppers.
The cost candy manufacturers pay for refined sugar has remained remarkably flat since the 1980s – helping them make record profits.
American sugar farmers and processors are just like other hard-working taxpayers. They would rather have no government price policy.
They’ve built one of the most efficient systems in the world and they believe they could compete with any other nation if prices were fair.
That is why American sugar farmers and producers have backed a multilateral “zero-for-zero” subsidy reform plan. Under the plan, America would give up its policy and eliminate its tariffs if foreign countries would eliminate their subsidies and market-manipulating policies.
But, until all the sugar-producing nations come to the table, and put all the subsidies on the table, a policy is needed to protect American farms, jobs and supply. And luckily for America, this policy continues to cost taxpayers $0.