The Hagstrom Report

Agriculture News As It Happens


USDA buys sugar to manage sugar program

In the development that could have implications for the House farm bill debate, the Agriculture Department announced Monday its intention to purchase sugar from domestic sugar cane or beet producers to avoid producer forfeitures.

Both the Obama administration and the American Sugar Alliance, which represents beet and cane growers, noted that it was the first time in years that the government had purchased sugar.

Under current law, the sugar program is supposed to be managed at no cost to the taxpayer, but the law also allows producers to forfeit sugar to the government if prices fall below certain levels and for the government to buy sugar.

But since the North American Free Trade Agreement gave Mexico the right to export unlimited amounts of sugar to the United States, the program has become more difficult to manage.

USDA announced it would spend $38 million, subject to sequester, to remove sugar from the U.S. market, but said that cost is one-third of the cost of forfeitures. USDA’s Farm Service Agency said it would buy from domestic sugarcane or sugar beet processors and subsequently conduct voluntary exchanges for credits under the Refined Sugar Re-export Program, which would reduce imports.

“Since not less than 2.5 tons of import credits will be exchanged per 1 ton of sugar, there will be a minimum net reduction of 1.5 tons of sugar in the U.S. market per ton of sugar exchanged, making this a less costly option than forfeitures,” the FSA said in a news release. “USDA anticipates this action could remove around 300,000 tons of sugar from the U.S. market and cost approximately $38 million, subject to sequester, which is one-third the expected cost of forfeitures.”

USDA also announced that licensed refiners now have 270 days — rather than 90 days — to make required exports or sugar transfers under the Refined Sugar Re-export Program. This action increases the pool of available re-export credits, facilitating the exchange, FSA said.

A USDA spokesperson noted that the action was required by law.

“For nearly a decade, the safety net for domestic sugar producers has operated at no cost to the federal government. However, atypical market conditions this crop year, including record yields and increased imports, require action by the department. By law, USDA is required to operate the sugar program at the least cost to the government. Today’s notice is estimated to cost approximately two-thirds less than not taking action to prevent forfeitures.”

The American Sugar Alliance noted that USDA’s purchases would save the estimated $282 million that the government would spend if growers forfeited sugar, and that it would be the first cost to U.S. sugar policy in more than a decade.

“Sugar oversupplies are at record highs and sugar prices are at the same lows seen in the 1980s because of subsidized Mexican sugar flooding the U.S. market through a NAFTA loophole,” ASA said. “Even with today’s announcement, sugar policy remains the cheapest of any major commodity because sugar growers don’t receive subsidy checks, which is why it has run without any taxpayer cost since 2002.”

“If anything, today’s announcement underscores the need to address foreign subsidization that is manipulating the world market to America’s detriment,”ASA added. “Congress and U.S. trade negotiators should make eradication of foreign subsidization a priority so a true free market can take hold.”

USDA’s action could become a discussion point in the farm bill on the House floor this week. The Coalition for Sugar Reform, a sugar users’ group, has been urging Congress to change the program, and an amendment is expected to be offered to make changes.

ASA notes that sugar prices are already low and supports continuation of the current program.