U.S.D.A. proposal revising sugar program faces challenge

by Jay Sjerven
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WASHINGTON — Secretary of Agriculture Mike Johanns has proposed revising the sugar program to enable the government to continue providing support to U.S. sugar growers at no cost to taxpayers while meeting its trade obligations under the World Trade Organization and the North American Free Trade Agreement. Sugar growers and their supporters in Congress supported the continuation of a no-cost sugar program, but they raised concerns over Secretary Johanns’ proposed revision that could reduce domestic sugar production in order to accommodate increased imports.

Under provisions of the 2002 farm bill, which expires in September, the Commodity Credit Corp. is obligated to provide non-recourse loans to processors of domestically grown sugarcane and sugar beets, with the average loan rate on raw cane sugar set at 18c per lb, and the loan rate on refined beet sugar set at 22.9c per lb. The loan rates in effect establish a floor below which prices do not fall because processors taking out loans from the C.C.C. against eligible sugar stocks would have the option of forfeiting those stocks instead of redeeming them should market prices hold below the loan rates.

The 2002 farm act requires the U.S.D.A. operate the sugar program at as close to no cost as possible. This requires the government to avoid accumulating stocks. This is accomplished through government management of supply through a tariff rate quota and marketing allotments.

Under W.T.O., NAFTA and other multilateral and bilateral trade accords, the U.S. is obliged to provide duty-free access to its domestic sugar market for designated quantities of sugar.

Marketing allotments limit the amount of domestically produced sugar that may be marketed during a crop year. The C.C.C. determines its overall marketing allotment quantities for a crop year by first estimating domestic sugar consumption and reasonable stocks to be carried over into the following crop year. It then subtracts from those quantities stocks on hand at the beginning of the crop year and 1,532,000 tons, raw value, as an upper limit for imported sugar.

Domestically produced sugar in excess of the overall allotment quantities must be stored at the expense of processors until the market requires the supply.

Under the 2002 act, if sugar imports were to exceed 1,532,000 tons and thereby threaten to reduce the overall allotment quantity, the marketing allotments would be suspended until such time imports have been restricted, eliminated or reduced to 1,532,000 tons or less. And there’s the rub.

Because of increased sugar imports expected from Mexico, which, under NAFTA, is not subject to the tariff rate quota (free trade in sugar and sweetener was scheduled to take effect between the U.S. and Mexico on Jan. 1, 2008), the U.S.D.A.’s long-term projections indicate annual imports in excess of 1.532 million tons, triggering a suspension of domestic marketing allotments during fiscal years 2008-17. As a result, U.S. sugar supplies were projected to exceed domestic use, and domestic sugar placed under non-recourse loans would be forfeited to the C.C.C. Because of projected forfeitures, the U.S.D.A.’s projected outlays under the current sugar price support program at $1.4 billion during fiscal years 2008-17, or $140 million a year.

Secretary Johanns recommended continuing the sugar price support program but eliminating the provision that requires the secretary of agriculture to suspend marketing allotments when sugar imports are projected to exceed 1.532 million tons. Domestic marketing allotments for sugarcane and sugar beets could be reduced, as needed, to balance sugar supply and demand and prevent price support forfeitures.

The American Sugar Alliance in response to Secretary Johanns’ proposal issued a statement reading, in part, "We view the U.S.D.A.’s proposal to continue the program as a positive development. However, we do have concerns over the U.S.D.A.’s request that it be given sole discretion to arbitrarily reduce domestic sugar production without parameters or guidelines. Efficient U.S. sugar farmers should not be asked to take a backseat to subsidized foreign sugar producers, who could flood the U.S. market with unneeded sugar."

Senator Amy Klobuchar of Minnesota, member of the Senate Committee on Agriculture, Nutrition and Forestry, said, "While I am pleased that the proposal includes a continuation of the sugar program, I am concerned that it makes room for foreign imports by reducing domestic sugar production. I will work with my colleagues on the agriculture committee to address this issue."

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