U.S. sugar policy is based on the common-sense notion that supply and demand should be in balance. Congress has agreed and overwhelmingly voted to continue sugar policy in the 2008, 2014, and 2018 Farm Bills.
Sugar policy is designed to assist the American sugar farmer at zero cost to taxpayers. To ensure zero cost and adequate supplies, USDA and the U.S. Trade Representative (USTR) have several tools at their disposal:
OFFER SUGAR PRODUCERS ACCESS TO NON-RECOURSE LOANS, WHICH ARE PAID BACK IN NINE MONTHS WITH INTEREST.
Similar to other crops and commodities, government loans are also available to U.S. sugar producers. These loans must be repaid with interest nine months after being issued. The sugar loan rate, which has only been increased twice in the past 14 years, is part of sugar policy in the Farm Bill. If market prices crash, the sugar which is the collateral on the loan can be taken off the market by USDA to help the market rebound. That sugar may be used under the feedstock flexibility provisions of the Farm Bill, which allows sugar to be used for ethanol production.
It is a rare occurrence for a producer to default on a loan. The last time this occurred was in 2013 when Mexico violated trade law by dumping subsidized sugar on the U.S. market. As a result, the domestic sugar industry lost $4 billion.
LIMIT FOREIGN IMPORTS TO THOSE OBLIGATED UNDER EXISTING TRADE AGREEMENTS.
Prior to the start of the fiscal year, USTR sets the foreign raw sugar import quotas for 40 countries at the amounts agreed to under the WTO trade agreement. Nearly all sugar enters at, or close to, duty free. Additionally, other trade agreements, such as CAFTA, provide for additional yearly, duty-free imports.
INCREASE FOREIGN IMPORTS TO MEET MARKET DEMAND ABSENT ADEQUATE SUPPLY
If the U.S. market is under-supplied, USDA and USTR can increase import volumes to allow more foreign sugar to enter the U.S. market at, or close to, duty free.
SET THE AMOUNT OF SUGAR DOMESTIC PRODUCERS CAN SELL INTO THE MARKET
As part of the policy’s tools to meet U.S. market needs, USDA forecasts U.S. sugar consumption and allocates 85% of that amount to U.S. sugar producers. Companies that produce more sugar than needed store that surplus at their own expense, not the government’s.
By avoiding oversupplies and shortages, sugar prices stay stable. And fair prices eliminate the need for government payments to farmers.