U.S. Sugar Program at a Crossroads
Stephen
Haley
Unlike most USDA crop support programs,
the sugar program is meant to operate at no cost
to the Federal budget. The support is embedded in
the price that purchasers pay for sugar. By controlling
the market supply of sugar through domestic marketing
allotments and tariff-rate import quotas, the program
supports domestic sugar prices above world levels.
Another source of support is the sugar loan program,
under which USDA makes loans available to sugar
processors at a legislated loan rate for sugar pledged
as collateral (18 cents per pound for raw cane sugar
and 22.9 cents per pound for refined beet sugar).
The loan must be repaid by the end of the marketing
year in which it is made. If the processor cannot
sell sugar at a price sufficient to repay the loan,
the processor can repay by forfeiting the pledged
sugar. USDA takes ownership of the sugar, and the
loan amount is charged as a government expenditure.
With the approach of new farm
legislation in 2007, there is concern that the sugar
program cannot survive without loan forfeitures
and costs to the USDA budget. Under current law,
sugar marketing allotments are suspended when imports
go above a threshold of 1.532 million tons. In such
a case, processors would be allowed to market as
much as they want, and the price would likely fall
below the loan rate, causing forfeitures and higher
government expenditures. Producers and processors
emphasize that international trade agreements, such
as the North American Free Trade Agreement, will
cause imports to go above the threshold, causing
sugar to be forfeited to the USDA.
On the demand side, manufacturers
using sugar argue that high sugar prices have made
them increasingly uncompetitive in domestic and
export markets. The result has been rapid growth
in imports of sugar-containing products, as many
of the firms making such products have relocated
their production facilities to Canada and Mexico,
where less expensive sugar is available. High sugar
prices have also led to the development and adoption
of high-intensity sweeteners as substitutes for
sugar in an increasing array of products. Without
growth in demand, the chances of domestic sugar
oversupply become more likely.
Alternatives for the redesign
of U.S. sugar policy present hard choices. Keeping
the current program structure would likely mean
increased Federal spending. A loan deficiency payment
(LDP) system could lower the cost of sugar to users
and eliminate USDA sugar stockholding, but also
would involve Federal spending. The LDP allows producers
to receive loan benefits without taking out and
subsequently repaying a commodity loan. Another
option is to retain marketing allotments and remove
the 1.532-million-ton threshold for allotment suspension.
This would require processors rather than taxpayers
to pay the expense of keeping sugar off the market.
This
finding is drawn from . . . |
| Sugar
Backgrounder, by Stephen
Haley and Mir Ali, SSS-249-01,USDA, Economic
Research Service, July 2007. |
|
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