U.S. sugar policy, which operates under the Farm Bills overwhelmingly passed in 2008, 2014, and 2018, is based on the common-sense notion that supply and demand should be in balance.
Sugar policy is designed to run at zero cost to taxpayers. To ensure this, the U.S. Department of Agriculture (USDA) has three tools at its disposal. The agency can 1) slow the flood of foreign imports to those required by our trade agreement obligations, 2) limit the amount of sugar American farmers can sell, and 3) divert surpluses caused by excessive imports into non-food use.
Each year, the USDA forecasts U.S. sugar consumption and allocates 85% of that amount to U.S. producers. At the same time, the USDA allocates market share to 41 foreign countries based on U.S. import commitments in trade agreements, such as the WTO and CAFTA.
If imports appear to be inadequate to fulfill U.S. needs, USDA raises the allowable import volume.
If imports create an oversupply situation, then unneeded sugar can be made available to ethanol producers or for other non-food uses.
By avoiding oversupplies and shortages, sugar prices stay stable. And fair prices eliminate the need for government payments to farmers.
As with virtually all farm programs, government loans are available to U.S. sugar producers. Producers usually repay the loans with interest. But if the USDA lets too much sugar on the market and prices fall below the loan repayment rate, the debt can be satisfied with the crop that was put up as collateral. Even though loan rates remained unchanged from 1985 to 2008, the use of collateral instead of cash for repayment has been very rare. For the first time in 23 years, Congress passed a slight loan rate increase in the 2008 Farm Bill to help sugar producers deal with skyrocketing input costs. Congress approved a one-cent increase to the raw loan rate in the 2018 Farm Bill.
Tariff Rate Quota (TRQ)
Foreign sugar import quotas set at the beginning of the year at the amounts agreed to under international trade agreements. Nearly all enters duty free. If the U.S. market is under-supplied, the USDA can increase the TRQ. America is the world’s largest third sugar importer, existing trade deals provide preferential access to 41 countries.
Overall Allotment Quantity (OAQ)
This is the portion of America’s sugar market allocated each year to U.S. sugar producers. The OAQ, which cannot be set by the USDA at less than 85% of the U.S. market, helps ensure stable prices by avoiding oversupplies. Companies that produce more sugar than they may sell store the surpluses at their own expense, not the government’s.