Remy Jurenas surveys U.S. sugar policy(Sugar Policy Issues, Congressional Research Service, July 16, 2007).
This is a good overview of the broad outlines of U.S. sugar policy, with attention to issues raised in recent trade negotiations and to current debates over the farm bill.
Here's the abstract - reorganized somewhat:
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 by firms that process these crops into sugar. To accomplish this, the U.S. Department of Agriculture (USDA)
- makes loans available at mandated price levels to processors,
- limits the amount of sugar that processors can sell domestically,
- and restricts imports.
In support of the program, sugar crop growers and processors stress the industry's importance in providing jobs and income in rural areas. Food and beverage firms that use sugar argue that U.S. sugar policy imposes costs on consumers, and has led some food manufacturers to move jobs overseas where sugar is cheaper.
In a major policy change, the 2002 farm bill reactivated sugar marketing allotments that limit the amount of domestically produced sugar that processors can sell. The level at which USDA sets the national sugar allotment quantity, in turn, has implications for sugar prices.
Accordingly, sugar crop producers and processors on one side, and sugar users on the other, have sought to advance their interests by influencing the decisions that USDA makes on allotment and import quota levels.
The relationship between allotments and imports drew much attention during congressional debate on the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).
- The U.S. sugar producing sector argued that DR-CAFTA would let more sugar into the U.S. market than the program is designed to accommodate, and would require USDA to suspend marketing allotments.
- This, in turn, opponents argued, would depress prices enough to undermine USDA's ability to operate a "no-cost" program.
- USDA countered that 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."
Attention on sugar trade issues now turns to the potential impact of free trade in sugar and high-fructose corn syrup (HFCS) -- a substitute and cheaper sweetener -- between the United States and Mexico, which takes effect on January 1, 2008. Because unrestricted sugar imports from Mexico are projected to result in budget outlays (estimated at $1.4 billion over 10 years) as U.S. processors default on price support loans -- an outlook that conflicts with the current objective that the program operate at no cost, this issue is expected to be a significant factor in farm bill debate.
Gearing up for this, key interest groups have laid out their views for the sugar program's future.
- Sugar producers/processors want to extend the structure of the current program but with some changes, arguing this would maintain a viable industry. Their proposal, reflected in part in the draft bill to be considered by the House Agriculture Committee, calls for an almost 3% increase in support levels, guarantees the domestic producing sector a minimum 85% share of the U.S. market, and requires that surplus sugar be processed into ethanol in order to achieve the nocost objective.
- Sugar users acknowledge that radical reform is not feasible at this time because of limited funding for farm programs. Instead, they advocate ending marketing allotments, imposing a forfeiture penalty when processors hand over sugar to USDA instead of repaying loans (i.e., likely to result in lower prices at the time), and changing how import quotas are administered. This report will be updated.
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