Specialist in Agricultural Policy
The sugar program, as reauthorized by the 2008 farm bill (P.L. 110-246), is designed to guarantee that growers and processors of sugar beets and sugarcane receive a minimum price. To do this, the U.S. Department of Agriculture (USDA) limits the amount of domestically produced sugar that processors can sell under "marketing allotments" and restricts imports. These decisions to control supply are aimed at keeping market prices above support levels, so that USDA can operate the sugar program at "no cost" to the U.S. Treasury. Separately, trade law authorizes the Secretary of Agriculture to allow additional imports if the domestic sugar supply is not adequate to meet domestic demand at reasonable prices.
The United States is the fifth-largest consumer of sugar in the world. Consumption in food has increased in recent years, reflecting population growth and a shift back to sugar from corn syrup, an alternative and cheaper sweetener. Adverse weather significantly reduced beet sugar output in FY2009 and contributed to tight sugar supplies as FY2010 began. USDA projects a continued tight outlook at the end of FY2010 and also for FY2011, with ending stocks relative to demand at the low end of the range compared to earlier this decade. Reflecting this, the raw sugar futures price and the refined beet sugar spot price in April 2010 were 43% higher than year-ago levels. These prices were considerably above their support levels and 10-year market averages.
Since early 2009, food manufacturers that use sugar have called on USDA to allow for additional sugar imports to head off sugar "shortages" and to restore supplies to more normal levels. Sugar crop growers and their processors maintain that the domestic market is adequately supplied, with the processing of the 2009 crops now complete. Though these contrasting views spotlight the issue of sugar availability, the debate has more to do with the future level of the price of sugar. Sugar processors seek to maintain their advantage in negotiating higher sales prices with users. Sugar users want lower refined sugar prices that are closer to the historical average.
The debate over additional sugar imports centers around a provision in the 2008 farm bill that prescribes USDA's authority in administering the import quotas established to meet U.S. commitments under the World Trade Organization. It requires USDA at the beginning of each fiscal year to set the quotas for raw sugar and refined sugar at the minimum levels laid out in this obligation. The Secretary of Agriculture, however, is directed to increase imports before April 1 of any year if there is an "emergency shortage of sugar" due to war or a natural disaster. Sugar users have argued since summer 2009 that circumstances warranted additional imports before April 1. Processors urged USDA to wait until the supply picture became clearer. On April 23, 2010, USDA announced an increase in the raw sugar import quota. Over the last year, Members of Congress have weighed in to USDA in support of each side's position.
Differing estimates of U.S. sugar use for food have implications for USDA's management of the sugar program—in particular for import quota decisions. Some analysts view USDA's projection of FY2010 sugar use as too low. They argue that available data suggest consumption of sugar for food is actually higher, and that additional imports are needed.
Free trade in sweeteners with Mexico now introduces considerable uncertainty as to how much sugar Mexico might export in any year to the U.S. market. This, in turn, complicates USDA's effort to administer the sugar program. Sugar processors advocate increased coordination between the U.S. and Mexican governments on sugar policies. Sugar users oppose their "managed-trade proposal," arguing that it would result in inadequate domestic supplies and hurt U.S. jobs.
Date of Report: May 11, 2010
Number of Pages: 32
Order Number: R40995
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Sunday, May 23, 2010