The U.S. sugar program uses domestic marketing allotments, tariff-rate quotas (TRQs), and high out-of-quota tariffs to restrict the amount of sugar available to the U.S. market. In conjunction with market price support, the program also supports U.S. sugar prices, which are usually well above comparable prices in the world market. The current structure of the program originated with 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).

The Feedstock Flexibility Program (FFP) is designed to divert sugar in excess of domestic food consumption requirements to ethanol production.

Although not part of the U.S. sugar program nor any legislation, a key constraint currently limiting the supply of imported sugar is the operation of suspension agreements between the United States and Mexico. These agreements were originally signed in 2014 and amended in 2017. Under these agreements, the United States has suspended the imposition of prohibitive anti-dumping (AD) and countervailing duties (CVD), which, if imposed, would make Mexican sugar uncompetitive in the U.S. market. In turn, Mexican sugar producers must comply with minimum prices and maximum quantities for sugar shipped into the United States.

Domestic Price Support

USDA makes loans available to processors of domestically grown sugarcane and to domestic processors of sugar beets at statutory loan-rate levels. 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. 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 current loan rates for raw cane and beet sugar are set in the 2018 Farm Bill.

The loan rates for FY 2020-24 are:

  • 19.75 cents per pound for raw sugar, and
  • 25.38 cents per pound for refined beet sugar.

The 2018 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 that are designed to limit domestic supplies. An overall allotment quantity (OAQ) is established at not less than 85 percent of estimated deliveries for domestic human consumption for the marketing year (October through September).

The OAQ is divided between refined beet sugar (54.35 percent) and raw cane sugar (45.65 percent). For cane sugar, Hawaii is allotted 325,000 short tons, raw value (STRV), and the allocations for the mainland cane-sugar-producing States (Florida, Louisiana, and Texas) are assigned based on the States' and processors' production histories. USDA has authority to reallocate these allocations during the year and does so for Hawaii, which stopped producing sugar in 2016. Beet sugar processors are assigned allotments based on their sugar production histories. The program sets out allocation conditions for new entrants and for the effect of the sale of factories between processors.

The program provides for several contingencies that could require reassignment of allotments during the crop year. If a cane processor cannot market its allocation, 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, 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 one less step since there are no State-level allocations. 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 program provides 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 that count against allotments include a sale of sugar under the Feedstock Flexibility Program (FFP); export of sugar from the U.S. Customs Territory that receives credit under the refined sugar re-export program; and for any integrated cane 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. Prior to each September 1, the Secretary of Agriculture (Secretary) must announce the amount of sugar (if any) for the CCC to purchase and make available for sale to ethanol producers. Raw cane sugar, refined beet sugar, and in-process beet 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 program provides for specific ways to dispose of sugar owned by the CCC without increasing future forfeiture risk. The program 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. Under PIK, if sugar beet or sugarcane processors accept CCC inventory in return for a reduction in production of sugar beets or sugarcane already planted, the resulting crop cannot be used for commercial use other bioenergy feedstock.

The program 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 imports under tariff-rate quotas. To comply with the goal of preventing sugar forfeitures, the program prohibits the sale of CCC sugar for domestic human consumption.

Sugar Tariff-Rate Quotas and Other Trade Measures

Tariff-rate quotas (TRQs) limit imports of sugar by permitting a given quantity to enter duty-free or at a low duty. Any quantity in excess of the TRQ amount can still be imported, but at a higher rate of duty. There are TRQs established under both multilateral and bilateral trade agreements.

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.

Multilateral Agreements

The United States negotiated sugar TRQs as part of the Uruguay Round Agreement on Agriculture (AoA). These are also called World Trade Organization (WTO) TRQs. In the AoA, the United States agreed to provide access for not less than 1,117,195 metric tons raw value (MTRV) for raw sugar, and 22,000 MTRV for refined sugar. As provided for in the Harmonized Tariff Schedule of the United States (Ch.17, Additional U.S. Note 5 (a) (ii)), whenever the Secretary believes that domestic supplies of sugars may be inadequate to meet domestic demand at reasonable prices, the Secretary may increase the raw or refined WTO TRQs.

The authority to allocate TRQs rests with the Office of the U.S. Trade Representative (USTR), which currently allocates the WTO raw sugar TRQ to 40 countries based on a representative period (1975-81) when trade was relatively unrestricted. USTR currently allocates the refined sugar tariff-rate quota between Canada, Mexico, and an additional quantity open to any country on a first-come, first-served basis.

The Secretary also may reserve a quantity for specialty sugar, which is currently a component of the refined sugar TRQ. The base quantity for specialty sugar is 1,656 MTRV. The Secretary has expanded the specialty sugar TRQ in recent years to accommodate a rapidly growing U.S. market for organic sugar, as domestic production of organic sugar is limited to a single company.

The basic in-quota tariff is 1.4606 cents per kilogram (0.663 cents per pound) for raw sugar and 3.6606 cents per kilogram (1.660 cents per pound) for refined sugar. Most countries qualify for an exemption from these tariffs under either the Generalized System of Preferences (GSP) program, which requires periodic renewal by Congress, or under a free trade agreement, which provides a permanent waiver. The out-of-quota tariff is 33.87 cents per kilogram (15.36 cents per pound) for raw sugar, and 35.74 cents per kilogram (16.21 cents per pound) for refined sugar. In addition to the out-of-quota tariffs, there are safeguard duties based on the value or quantity of the imported sugar. The quantity safeguard duties are not applicable unless specifically announced by the Secretary and expire at the end of the year in which they were implemented. For each item, the price safeguard duty is in effect whenever the quantity safeguard duty is not in effect.

There are also WTO TRQs for various sugar-containing products that originally had been subject to absolute quotas under Section 22 of the Agricultural Adjustment Act of 1933.

Bilateral Free Trade Agreements

The United States has negotiated various free trade agreements (FTAs) that include sugar TRQs. Under the USMCA (United States-Mexico-Canada Agreement, previously NAFTA), sugar from Mexico (but not Canada) is duty-free and quota-free, although there will be constraints to Mexican access so long as the U.S.-Mexico sugar suspension agreements, or the AD/CVD duties, remain in place. The USMCA affords Canada a TRQ of 9,600 MT for refined beet sugar and a TRQ of 9,600 MT for sugar-containing products. The USMCA also provides that should USDA announce an increase in the U.S. WTO refined sugar TRQ, Canada will be granted an additional allocation equal to 20 percent of such increase, which may be made from raw sugar not of Canadian origin.

All other FTAs that the United States has negotiated condition sugar access on the country demonstrating a trade surplus as defined in each agreement. A country’s access in any year is the lesser of its trade surplus or the negotiated quantity for that year. Each of these FTAs provides that the maximum duty-free negotiated quantity increases each year by a small fixed amount. The FTAs that include significant potential access for sugar are (with access as of 2020 listed):

  • The Dominican Republic-Central America (CAFTA-DR, a set of bilateral agreements with six countries)—144,860 MT
  • Colombia –56,000 MT
  • Panama –7,585 MT
  • Peru –2,000 MT

The annual growth in the potential, cumulative maximum duty-free access limit for this group of FTAs is 3,635 MT per year.

Re-Export Programs

The United States also operates two re-export programs to help U.S. sugar refiners and manufacturers of sugar-containing products compete in world markets. The Refined Sugar Re-Export Program permits a licensed refiner to import raw sugar at world prices for refining, so long as an equivalent quantity of refined sugar is either exported or transferred to a company holding a license under the Sugar-Containing Products (SCP) Re-Export Program. In turn, the SCP program licensee is required to export a like amount of sugar as has been received in transfers from a licensed refiner. All refined sugars derived from either sugar beets or sugarcane are substitutable under these programs. By providing access to sugar priced in the world market, rather than higher-priced U.S. sugar, these programs allow more volume and import flexibility for U.S. cane refiners and allow licensed U.S. manufacturers to be more competitive in export markets for products containing sugar.

Agreements Suspending AD/CVD Duties on Mexican Sugar

In 2014, the United States imposed AD and CVD duties on Mexican sugar adding up to a prohibitive level of about 80 percent. However, these duties were immediately suspended under the terms of the CVD and AD agreements. The CVD agreement includes an Export Limit for Mexican sugar, determined using a formula based upon USDA’s World Agricultural Supply and Demand Estimates (WASDE) report. Refined sugar (defined as any sugar of 99.2-degree polarity or higher) may not exceed 30 percent of the total amount shipped as part of the Export Limit each year. The AD agreement specifies minimum Reference Prices for Mexican sugar, fob mill in Mexico, as follows:

  • 28 cents per pound by dry weight commercial value for refined sugar (polarity greater than or equal to 99.2), and
  • 23 cents per pound by dry weight commercial value for raw sugar (polarity less than 99.2) loaded in a bulk vessel and freely flowing (not in a container, tote, bag, or otherwise packaged).

When adding freight and other logistics costs, estimates for the minimum delivered prices to the United States are about 3 cents higher for raw sugar and about 6 cents higher for refined sugar.

So long as the suspension agreements are in place, any sugar from Mexico exported to the United States must be accompanied by an export license. Either party may withdraw from the suspension agreements with 60 days’ notice, as for example might be triggered by a finding of a serious violation of the suspension agreements. Should either party withdraw, the prohibitive AD and CVD duties would then be applied to Mexican sugar.