The U.S. sugar program uses price supports, domestic marketing allotments, and tariff-rate quotas (TRQs) to influence the amount of sugar available to the U.S. market. The program supports U.S. sugar prices above comparable levels in the world market. The origin of the program can be traced to legislation in the Agriculture and Food Act of 1981 (1981 Farm Bill). The program has been reauthorized with some modifications in succeeding Farm Acts. An important aspect of the program is that it operates, to the maximum extent possible, at no cost to the Federal Government by avoiding loan forfeitures to USDA's Commodity Credit Corporation (CCC).
A new measure introduced in the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) and continued in the Agricultural Act of 2014 (2014 Farm Bill) to help avoid loan forfeitures is the Feedstock Flexibility Program (FFP). The FFP will divert sugar in excess of domestic food consumption requirements to ethanol production. The main challenge to the program comes from sugar imports from Mexico that now enter duty-free under the terms of the North American Free Trade Agreement (NAFTA). As of 2015, however, sugar imports from Mexico are constrained from entering the United States due to the result of an anti-dumping (AD) and countervailing duty (CVD) case initiated by members of the U.S. sugar industry in 2014. The terms of the agreement limit the price at which Mexican sugar can be shipped into the United States, as well as restrict quantities based on a calculation of the supplies needed to fulfill
Domestic Price Support
The 2014 Farm Bill provides for USDA to make loans available to processors of domestically grown sugarcane and to domestic processors of sugar beets at set loan-rate levels for fiscal years (FY) 2014-18. Loans are taken for a maximum term of 9 months and must be liquidated along with interest charges by the end of the fiscal year in which the loan was made. Unlike most other commodity programs, the sugar program makes loans to processors and not directly to producers. The reason is that sugarcane and sugar beets, being bulky and very perishable, must be processed into sugar before they can be traded and stored. To qualify for loans, processors must agree to provide payments to producers that are proportional to the value of the loan received by the processor for sugar beets and sugarcane delivered by producers. USDA has the authority to establish minimum producer payment amounts.
The loans are nonrecourse. When a loan matures, USDA must accept sugar pledged as collateral as payment in full, in lieu of cash repayment of the loan, at the discretion of the processor. "In-process" sugar and syrups must be converted into raw cane or refined beet sugar at no cost to the CCC before being eligible for forfeiture. The processor is not required to notify USDA of the intention to forfeit the sugar under loan. The loan rates for raw cane and beet sugar are set in the 2014 Farm Bill:
- The loan rates for FY 2011-18 are 18.75 cents per pound for raw sugar, and
- 24.09 cents per pound for refined beet sugar.
The 2014 Farm Bill allows processors to obtain loans for in-process sugar and syrups at 80 percent of the loan rate.
Flexible Marketing Allotments
Sugar sold in the United States for domestic human consumption by domestic sugar beet and sugarcane processors is subject to marketing allotments as a way to guarantee the sugar loan program operates at no cost to the Federal Government. The overall allotment quantity (OAQ) is determined subject to two conditions: 1) domestic sugar prices remain above forfeiture levels and 2) the OAQ is at least 85 percent of estimated deliveries for domestic human consumption for the marketing year (October to September). Allotments are in effect the entire year; there are no criteria for suspension. During the course of the marketing year, USDA is required to adjust allotment quantities to avoid the forfeiture of sugar to CCC.
OAQ allocations are divided between refined beet sugar at 54.35 percent of the overall quantity and raw cane sugar at 45.65 percent of the overall quantity. For cane sugar, Hawaii is allotted 325,000 short tons, raw value (STRV). The allocations for the mainland cane-sugar-producing States (Florida, Louisiana, and Texas) are assigned based on the States' and processors' production histories. Beet sugar processors are assigned allotments based on their sugar production histories. The 2014 Farm Bill sets out allocation conditions for new entrants and for the effect of the sale of factories between processors.
The 2014 Farm Bill provides for a number of contingencies that could require reassignment of allotments during the crop year. If a cane processor that has been allocated an OAQ share cannot market the share, it is reassigned to the other processors within the same State, taking into account their ability to make up the deficit and also the interests of producers served by the processors. If the deficit cannot be eliminated by this step, then the remainder is allocated to the other cane-producing States, and then to the processors in those States. If the deficit still is not eliminated, it is assigned to the CCC for sale from CCC inventories. If CCC inventories are insufficient to cover the deficit, then the deficit is assigned to imports. The procedure for a beet-sugar-processor deficit is similar, except there is no reassignment based on States where processing takes place. There is no provision for cane sugar OAQ deficits to be reassigned to beet sugar processors, or for beet sugar OAQ deficits to be reassigned to cane sugar processors.
The 2014 Farm Bill explicitly states that sugar forfeited to the CCC counts against marketing allotments made in the year in which the loan to the processor was made. This clarification reinforces that sugar in excess of a processor's allotment at the end of the marketing year cannot be forfeited. Other marketings counting against allotments include a sale of sugar under the FFP; export of sugar from the U.S. Customs Territory eligible to receive credits under reexport programs for refined sugar or sugar-containing products administered by USDA's Foreign Agricultural Service (FAS); sale of sugar eligible to receive credit for the production of polyhydric alcohol under the FAS-administered Polyhydric Alcohol Program; and for any integrated processor and refiner, the movement of raw cane sugar into the refining process.
Feedstock Flexibility Program
The Feedstock Flexibility Program operates to avoid sugar loan forfeitures to the CCC by requiring the diversion of sugar from food use to ethanol production. On September 1 (1 month before the end of the marketing year), the Secretary of Agriculture announces the amount of sugar (if any) for the CCC to purchase and to be made available for sale to ethanol producers. Raw, refined, and in-process sugars are eligible for purchase. Such sugar can be purchased from any marketer located in the United States. Sugar purchased from a sugarcane or sugar beet processor is counted against that processor's marketing allotment.
Disposition of Sugar Owned by the CCC
The 2014 Farm Bill provides for specific ways to dispose of sugar owned by the CCC without increasing future forfeiture risk. Like the Farm Security Act of 2002 (2002 Farm Bill), and the 2008 Farm Bill, the 2014 Farm Bill includes the payment-in-kind (PIK) authority to transfer ownership of CCC sugar to processors in exchange for reductions in production through reduced sugar crop planting. For area already planted, the processor cannot commercially market the crop other than as a bioenergy feedstock.
The 2014 Farm Bill explicitly authorizes the sale of CCC sugar for the production of ethanol and for the buyback of certificates of quota entry (also referred to as certificates for quota eligibility, or CQEs) to reduce tariff-rate quota imports. To comply with the goal of preventing sugar forfeitures, the 2014 Farm Bill prohibits the sale of CCC sugar for domestic human consumption. (Such sales would seem to be permissible if they resulted from a reassignment of OAQ from a sugar processor to the CCC, as provided for under the 2002, 2008, and 2014 Farm Bills. In this instance, the likelihood of sugar forfeiture would seem to be minimal.)
Sugar Tariff-Rate Quotas and Other Trade Measures
The United States establishes separate tariff-rate quotas (TRQs) for imports of raw cane sugar and refined sugar (also called "certain other sugars, syrups, and molasses"). Prior to the start of the fiscal year (October 1-September 30), the Secretary of Agriculture announces the quantity of sugar that may be imported at the preferential in-quota tariff rate during that fiscal year. There is no limit to the quantity that may be imported at the higher over-quota tariff rate.
Under the Uruguay Round Agreement on Agriculture (AoA), the United States agreed to make available for import a minimum quantity of raw and refined sugar each marketing year. This amount is equal to 1.139 million metric tons, raw value (MTRV), or 1.256 million STRV. Included in this amount is a commitment to import at least 22,000 MTRV, or 24,251 STRV, of refined sugar. The United States administers additional TRQs on imports of various sugar-containing products that originally had been subject to absolute quotas under Section 22 of the Agricultural Adjustment Act of 1933. There are four of these additional TRQs, none of which apply to Mexico under NAFTA.
According to the Harmonized Tariff Schedule of the United States (Ch.17, Additional U.S. Note 5 (a) (ii)), whenever the Secretary of Agriculture believes that domestic supplies of sugars may be inadequate to meet domestic demand at reasonable prices, the Secretary may modify any quantitative limitations that have previously been established, but not below the minimum quantities under the AoA.
The raw cane sugar TRQ is currently allocated by the Office of the U.S. Trade Representative (USTR) to 40 countries based on a representative period (1975-81) when trade was relatively unrestricted. The refined sugar tariff-rate quota is currently allocated to Canada and Mexico, and there is a quantity of refined sugar that is available to all countries on a first-come, first-served basis. Likewise, there is an allocation for specialty sugars, which is also on a first-come, first-served basis.
The in-quota tariff for sugar is equal to 0.625 cents per pound. Most countries have the low-tier tariff waived under either the Generalized System of Preferences (see Agricultural Trade Preferences and the Developing Countries, page 3, for more information), the Caribbean Basin Initiative, or under U.S. free trade agreements. The over-quota tariff is 15.36 cents per pound for raw sugar and 16.21 cents per pound for refined sugar. In addition to the over-quota tariffs, there are safeguard duties based on the value or quantity of the imported sugar. Currently, these duties are based on value.
The United States also operates two reexport programs, as well as a sugar-for-polyhydric alcohol import program, to help U.S. sugar refiners and manufacturers of sugar-containing products compete in world markets. The Refined Sugar Re-Export Program establishes a license against which a company can import sugar at world prices for refining and sale to replace sugar in the market that has been exported as refined sugar or as sugar in sugar-containing products. The Sugar-Containing Products Re-Export Program allows U.S. participants to buy sugar at world prices for use in products that will be exported onto the world market. Raw cane-sugar imports under these programs are not subject to the sugar TRQs. All refined sugars derived from either sugar beets or sugarcane are substitutable under these programs.
Dominican Republic-Central American Free Trade Agreement
Under the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), there are specific provisions for trade in sugar. The United States establishes country-specific TRQs for the DR-CAFTA countries, starting at a total of 107,000 metric tons in 2006 (year 1) and growing to 151,140 metric tons in year 15, thereafter growing by 2,640 metric tons per year into perpetuity. A 2,000-metric-ton TRQ, with no growth, is established for Costa Rica for specialty sugar. Each country's duty-free access will be the lesser of its trade surplus or its TRQ for that year. Provisions have been agreed to allow alternative forms of compensation to be established to facilitate sugar stock management by the United States.
Suspension Agreements for Sugar Imported from Mexico
Beginning in January 2015, sugar imports from Mexico are subject to the terms of two agreements suspending a 2014-initiated AD and CVD investigation conducted concurrently by the U.S. International Trade Commission and the Department of Commerce. Preliminary investigations found that sugar imported from Mexico had injured the domestic industry and that duties should be assessed against sugar imports from Mexico. The suspension agreements were signed between the Department of Commerce and the Government of Mexico in December 2014. The terms of the agreements included an Export Limit, primarily determined by a calculation of U.S. Needs that used a formula with USDA’s World Agricultural Supply and Demand Estimates (WASDE) as the parameters. The terms also specified that sugar imported from Mexico was subject to Reference Prices, which were minimums for sugar shipped from Mexico to the United States.
The Reference Prices in the agreement were set at:
- 26 cents per pound by dry weight commercial value for refined sugar (polarity greater than or equal to 99.5), and
- 22.25 cents per pound by dry weight commercial value for raw sugar (polarity less than 99.5).