PDF _ RL34103 - Sugar Policy and the 2007 Farm Bill
12-Sep-2008; Remy Jurenas; 18 p.

Update: Previous releases:
May 15, 2008

Abstract: Congress will decide on the future of the U.S. sugar program in an omnibus farm bill in 2008. Growers of sugar beets and sugarcane, and processors of these crops, favor continuing the structure of the current sugar price support program but seek changes to enhance their position in the U.S. marketplace. Food and beverage manufacturers that use sugar want Congress to address their concerns about the impact of sugar prices and program features that restrict supplies.

The sugar program is designed to guarantee the price received by sugar crop growers and processors and to operate at “no cost” to the U.S. Treasury. To accomplish this, the U.S. Department of Agriculture (USDA) limits the amount of sugar that processors can sell domestically under “marketing allotments” and restricts imports. At the same time, USDA seeks to ensure that supplies of sugar are adequate to meet domestic demand. “No cost” is achieved if USDA applies these tools in a way that maintains market prices above minimum price support levels. Should prices fall, processors who take out loans have the right to hand over as payment sugar that had earlier been pledged as collateral. Such a step results in program costs.

Effective January 1, 2008, sugar imports from Mexico no longer are restricted under the rules of the North American Free Trade Agreement. Also, additional imports are allowed entry under other free trade agreements. Both the Congressional Budget Office (CBO) and USDA project that, if the sugar program continues without change, additional imports will bring prices down below support levels and make it attractive for processors to default on price support loans. With loan defaults representing a cost, USDA would not be able to operate a no-cost program.

To address any U.S. sugar surplus caused by imports, the farm bill conference agreement on H.R. 2419 would mandate a sugar-for-ethanol program. USDA would be required to purchase as much U.S.-produced sugar as necessary to maintain market prices above support levels, to be sold to bioenergy producers for processing into ethanol. USDA funding would be open-ended for this program. Other provisions would increase the minimum guaranteed prices for raw sugar and refined beet sugar by 4%-5%, mandate an 85% market share for the U.S. sugar production sector, and remove certain discretionary authority that USDA exercises to administer import quotas. Though CBO scores some savings with the ethanol program, sugar program provisions would cost about $650 million over five years and just over $1.2 billion over 10 years. Should Congress not approve a farm bill this year, all sugar program authorities would expire.

The conference agreement’s sugar provisions reflect the proposals presented to the House and Senate Agriculture Committees by sugar crop producers and processors. Food and beverage manufacturers that use sugar oppose them, arguing that costs to consumers would increase and that new requirements would restrict the flow of sugar for food use in the domestic market. The Bush Administration opposes these provisions, with the President identifying them as one reason why he will not sign the farm bill. This report will be updated to reflect key developments.

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Topics: Economics & Trade, Agriculture

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