Order Code IB95117
CRS Issue Brief for Congress
Received through the CRS Web
Sugar Policy Issues
Updated December 15, 1999
Remy Jurenas
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

---

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Brief History of the Sugar Program
1996 Farm Act: Sugar Program
General Overview
Price Support
Import Quota
Marketing Assessments
Administrative Costs
Provisions of the 1996-2002 Sugar Program
Analysis of 1996-Enacted Sugar Program Provisions
Recourse/Non-Recourse Loan Policy
Penalty on Sugar Loan Forfeitures
Status of “No-Cost” Requirement
Legislative Proposals Considered Since 1996 Farm Act
Bills Introduced in 106th Congress
House and Senate Floor Amendments
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING

---

IB95117
12-15-99
Sugar Policy Issues
SUMMARY
Authorized through FY2003 by the 1996
processors would face the prospect of selling
omnibus farm act (P.L. 104-127), the modified
at the market price.
sugar program continues to protect the in-
comes of sugarcane growers, sugar beet grow-
Second, a processor who “forfeits,” or
ers, and those firms that process each crop into
hands over, any sugar to USDA in lieu of
sugar. To accomplish this, the U.S. Depart-
paying off a price support loan is now required
ment of Agriculture (USDA) supports domes-
to pay a penalty. A processor would face this
tic prices by making available loans to sugar
prospect if the market price fell below an
processors and restricting sugar imports.
“effective” support level at which he could
“profitably” sell his sugar. His alternatives
Two changes made by the farm law could
then would be to sell at a lower price than
inject some uncertainty under certain
planned on, or hold the sugar in inventory until
circumstances about the degree the program
prices rise.
operates to support the domestic sugar market
price. First, the level of sugar imports now
Other major program provisions froze the
dictates the type of price support that USDA
loan rates for raw cane and refined beet sugar
provides processors. Imports equal to or
at 1995 levels (18 cents/lb. for raw cane sugar,
above 1.5 million short tons (MST) require
and 22.9 cents/lb. for refined beet sugar);
USDA to make available non-recourse loans.
increased by 25% the marketing assessments
These give a processor the right — if unable to
paid by U.S. sugar processors (suspended in
sell in the marketplace at a price above the
FY2000-2001, however); repealed the
“effective” support level (e.g., the loan rate
no-cost requirement, and repealed domestic
plus certain marketing costs) — to hand over
sugar marketing restrictions.
to USDA sugar pledged as loan collateral to
satisfy the loan repayment obligation. Under
Final action on the 1996 farm bill did not
non-recourse policy, USDA will continue to
end the ongoing debate over sugar policy.
limit imports to the extent necessary to sup-
The 9-vote margin in the House that preserved
port market prices. For FY2000, USDA set
the type of program favored by growers and
the import quota at 1.501 MST, meaning that
processors has encouraged program critics
non-recourse policy is currently in effect.
(sugar users and cane refiners) to continue in
their efforts to reshape the program. In the
However, in any year that USDA an-
most recent effort on August 4, 1999, the
nounces an import quota less than 1.5 million
Senate tabled 66-33 an amendment to its
ST, only recourse loans (which require
FY2000 agriculture spending bill that would
repayment in cash, irrespective of the market
have effectively not allowed USDA to admin-
price) would be available to processors.
ister the sugar program. Separately, a provi-
Recourse loan policy effectively would transfer
sion in the farm aid package passed by Con-
all price risk to growers and processors, be-
gress prohibits USDA from collecting market-
cause a government-protected price would not
ing assessments imposed on domestically-
be available. During such periods, prices
produced sugar. This action will save sugar
could fall below support levels, and sugar
producing companies more than $40 million in
each of the next 2 years.
Congressional Research Service ˜ The Library of Congress

---

IB95117
12-15-99
MOST RECENT DEVELOPMENTS
On November 2, 1999, the U.S. Department of Agriculture (USDA) announced that the
FY2000 raw sugar tariff-rate quota (TRQ) will be 1.501 million short tons (MST). To meet
the U.S. market access commitment made under the terms of the World Trade Organization’s
(WTO) 1994 Agreement on Agriculture, USDA further announced that 1.251 MST would be
allocated immediately to those countries eligible to sell sugar into the U.S. market. Because
USDA initially announced the TRQ would be slightly more than 1.5 MST (the trigger level
for determining which type of price support loan policy will be in effect), USDA will make
non-recourse loans available to eligible sugar processors during the 1999/2000 marketing
season. This TRQ decision was made 1-1/2 months later than usual due to differences within
the Administration on the import level to set for FY2000. The internal debate reflected
concern over the differing consequences that this decision (whether to set the TRQ above or
below 1.5 MST) would have on market price levels and the program’s budget exposure.
The FY2000 agriculture appropriations measure (P.L. 106-78, H.R. 1906) includes, as
part of an $8.7 billion farm aid package, a provision that effectively prohibits USDA from
collecting budget deficit marketing assessments from sugar producing companies through
FY2001. As a result, these firms will save (i.e., increase their revenues by) an estimated $83
million over the next 2 years.
BACKGROUND AND ANALYSIS
Brief History of the Sugar Program
Governments of every sugar producing nation intervene to protect their domestic
industry from fluctuating world market prices. Such intervention is necessary, it is argued,
because both sugar cane and sugar beets must be processed soon after harvest using costly
processing machinery. When farmers significantly reduce production because of low prices,
a cane or beet processing plant typically shuts down, usually never to reopen. This close link
between production and capital intensive processing makes price stability important to
industry survival.
The United States has a long history of protection and support for its sugar industry.
The Sugar Acts of 1934, 1937, and 1948 required the U.S. Department of Agriculture
(USDA) to estimate domestic consumption and to divide this market for sugar by assigning
quotas to U.S. growers and foreign countries, authorized payments to growers when needed
as an incentive to limit production, and levied excise taxes on sugar processed and refined in
the United States. This type of sugar program expired in 1974. Following a 7-year period
of markets relatively open to foreign sugar imports, mandatory price support only in 1977 and
1978, and discretionary support in 1979, Congress included mandatory price support for
sugar in the Agriculture and Food Act of 1981 and the Food Security Act of 1985.
Subsequently, 1990 farm program, 1993 budget reconciliation, and 1996 farm program laws
extended sugar program authority through the 2002 crop year. Even with price protection
available to producers, the United States historically has not produced enough sugar to satisfy
domestic demand and thus continues to be a net sugar importer.
CRS-1

---

IB95117
12-15-99
Historically, domestic sugar growers and foreign suppliers shared the U.S. sugar market
in a roughly 55/45% split. This, though, has not been the case in recent years. In FY1998,
domestic production filled 82% of U.S. sugar demand for food and beverage use; imports
covered 18%. As high fructose corn syrup (HFCS) displaced sugar in the United States
during the early 1980s, and as domestic sugar production increased in the late 1980s, foreign
suppliers absorbed the entire adjustment and saw their share of the U.S. market decline.
1996 Farm Act: Sugar Program
To support U.S. sugar market prices, the USDA will (for the 1996-2002 crops) continue
to extend short-term loans to processors and limit imports of foreign sugar. New provisions,
though, change the nature of the “loan” made available. The nature of price support extended
will be determined largely by the domestic demand/supply situation and USDA’s subsequent
decision on what the fiscal year level of sugar imports will be. The new parameters could at
times inject more-than-usual price uncertainty into the U.S. sugar marketplace. The details
of the modified program are laid out in the Provisions of the 1996-2002 Sugar Program
section below.
General Overview
The 1996-enacted sugar program continues to differ from the grains, rice, and cotton
programs in that USDA makes no income transfers or payments to beet and cane growers.
In contrast, the program is structured to indirectly support the incomes of domestic growers
and sugar processors by limiting the amount of foreign sugar allowed to enter into the
domestic market using an import quota - a policy mechanism that lies outside the scope of the
program’s statutory authority. Accordingly, USDA decisions on the size of the import quota
affect market prices, and are made carefully to ensure that growers and processors do realize
the benefits of price support they expect to receive as laid out in program authority.
Price Support. USDA historically has extended price support loans to processors of
sugarcane and sugar beets rather than directly to the farmers who harvest these crops.
Growers receive USDA-set minimum payment levels for deliveries made to processors who
actually take out such loans during the marketing year — a legal requirement. Other growers
negotiate contracts that detail delivery prices and other terms with those processors that do
not take out loans.

Two levels of price support are available. The loan rate for raw cane sugar is statutorily
set. The loan rate for refined beet sugar historically was set in relation to raw sugar under a
prescribed formula; however, under the new program, this rate is fixed for 7 years at the 1996
level. Loan support for beet sugar is set higher, largely reflecting its availability as a product
ready for immediate industrial food and beverage use or for human consumption (unlike raw
cane sugar) and a difference in how it is marketed. By contrast, raw cane sugar must go
through a second stage of processing at a cane refinery to be converted into white refined
sugar that is equivalent to refined beet sugar in end use.
Loan Rates and Forfeiture Levels. The FY2000 loan rates are set at 18 cents/lb. for raw
cane sugar, and 22.9 cents/lb. for refined beet sugar. These loan rates, though, do not serve
as the price floor for sugar. To illustrate, USDA in FY1998 sought to support the raw cane
CRS-2

---

IB95117
12-15-99
sugar price (depending upon the region) at not less than 19.2 to 20.9 cents/lb. (i.e., the price
support level in a region plus an amount that covers a processor’s cost of shipping raw cane
sugar to a cane refinery plus the interest paid on any price support loan taken out less a
forfeiture penalty applicable under certain circumstances (see pages 6-7)). These “loan
forfeiture,” or higher “effective” price support, levels are met by limiting the amount of
foreign raw sugar imports allowed into the United States for refining and sale for domestic
food and beverage consumption.
Import Quota. To meet the program’s no-cost requirement in effect during
FY1987-FY1996, USDA restricted the amount of foreign sugar allowed to enter the United
States to ensure that market prices do not fall below the “effective” price support levels. By
maintaining prices at or above these levels, USDA for the most part succeeded in ensuring
that it would not acquire sugar due to a loan forfeiture. A loan forfeiture (turning over sugar
pledged as loan collateral) occurs if a processor concludes that domestic market prices at the
time of a desired sale are lower than the “effective” sugar price support level implied by the
loan rate.
The U.S. market access commitment made under World Trade Organization (WTO)
rules means that a minimum of 1.256 million short tons (ST) of foreign sugar must be allowed
to enter the domestic market each year. While the commitment sets a minimum import level,
no other provision limits the ability of U.S. policymakers to allow additional amounts of sugar
to enter if needed to meet domestic demand (e.g., no cap exists on imports). Under WTO
rules, foreign sugar (including imports from Mexico under NAFTA-negotiated provisions)
enters under two tariff-rate quotas (TRQ), with the amount entering within each year’s
announced quotas subject to a zero or low duty. Sugar entering in amounts above these
quotas is subject to a tariff that declines 15% during the 1995-2000 period (for raw cane
sugar, from 16 cents to 14.5 cents/lb., raw value). One exception is that the tariff on above-
quota imports from Mexico is lower than that applicable to sugar from other countries. This
fact has become a significant issue for USDA in deciding on the FY2000 TRQ level (see
below). Since the world sugar price is currently low (about 6 cents per pound, down from
about 10 cents in mid-1998), above-quota imports from Mexico (subject to the lower tariff
under NAFTA) are currently competitive in price with domestically-produced sugar.
For FY1999, USDA on September 16, 1998, set the TRQs for raw, refined and specialty
sugar at 1.808 million ST. Under an administrative plan followed for the third year in a row,
the Office of the U.S. Trade Representative (USTR) initially allocated only 1.312 million ST
of this total quota amount among 41 eligible countries. According to this plan, USTR
planned to allocate additional amounts in 165,347 ST increments if USDA projected at three
specified times during the year that FY1999 ending stocks will be equal to or below 15.5%
of projected use. Any additional quota allocations, if triggered, were to occur in January
1999, March 1999, and May 1999. A quota increase would be triggered if domestic
production turns out to be higher, and/or consumption is lower, than USDA’s September
1998 supply/demand projections used to announce the TRQ amounts.
In implementing the FY1999 plan, USDA in mid-January 1999 did not announce any
increase to the initially allocated quota for raw cane sugar, because ending stocks then were
projected at 18.8%. Subsequently, USDA projected ending stocks at 15.9% in mid-March,
and at 16.0% in mid-May. As a result, there were no increases made to the FY1999 raw
sugar TRQ initially set in September 1998.
CRS-3

---

IB95117
12-15-99
For FY2000, USDA on November 2, 1999, set the TRQ for raw cane sugar at 1.501
million ST, but announced that only 1.251 million ST will be available immediately for
allocation by the USTR to quota-holding countries. USDA’s press release added that the
unallocated quantity “will be made available to USTR, if needed, as the administration
reviews market conditions and the operation of the sugar program” - an unlikely prospect at
this time considering projected high U.S. sugar output this year. Earlier, USDA on October
1 announced the TRQ for a small amount of refined sugar (66,139 ST) allowed to enter this
year.
The delay in announcing this year’s raw sugar TRQ reflected an internal debate within
the Administration over the price, budgetary, and trade impacts of the import level to be set.
Because USDA in early October 1999 forecasted domestic sugar production to be 586,000
ST (7%) higher than last year’s, USDA faced a dilemma in setting this TRQ level. If USDA,
in order to bring supply in line with projected demand, decided to set the TRQ at the
minimum level that the United States accepted as its WTO commitment (1.256 million ST),
a 1996 farm bill provision would have required USDA then to offer price support loans on
a recourse basis (e.g., price protection is not available to processors). On the other hand, if
USDA set the TRQ at or above 1.5 million ST in order to offer non-recourse loans (e.g.,
provide processors with a price floor), processors faced the possibility of forfeiting on loans
taken out if market prices fell below “effective” support levels. If this were to occur, the
sugar program would record budget outlays. Complicating this decision for USDA were
uncertainties associated with the amounts of two categories of non-TRQ imports that might
enter during FY2000, which would increase the supply above that needed to meet domestic
demand: above-quota sugar imports from Mexico, and sugar syrup imports from Canada.
For perspective, see the Recourse/Non-Recourse Loan Policy section below.
The General Accounting Office (GAO) in late July 1999 issued a report on USDA's
administration of the tariff-rate quota (TRQ) for raw cane sugar. It stated that USDA, in
administering the quota to protect the domestic sugar price, increased the cost of sugar to
sugar users by about $400 million annually. The American Sugar Alliance, representing a
large portion of the domestic sugar production sector, countered that USDA's response to
the GAO report lists "numerous errors, misinterpretations, and omissions and explains why
USDA's '[TRQ] management plan has been successful.' "
Marketing Assessments. Though it will not be collected in FY2000 and FY2001 (see
below), the budget deficit marketing assessment applies to marketings of sugar produced from
domestic cane and beet crops. Imports are not subject to this levy. Assessments collected
have represented the sugar production sector’s contribution to budget deficit reduction. (The
peanut sector still pays a similar assessment; authority to collect an assessment from the dairy
and tobacco sectors expired in 1996 and 1998, respectively.) The assessment rate on raw
cane sugar is 1.375% of the 18 cent loan rate (0.2475 cents per pound, or 24.75 cents per 100
pounds (cwt.)). The rate on marketings of refined beet sugar is 1.47425% of the raw cane
sugar’s 18 cent loan rate (equal to 0.2654 cents/lb, or 26.54 cents per cwt.). In FY1999, this
assessment generated to USDA’s Commodity Credit Corporation (CCC) an estimated $40
million in receipts from cane and beet processors. In a just-enacted policy change, a
provision in the FY2000 agriculture appropriations measure (section 803(b) of P.L. 106-78)
effectively prohibits USDA from collecting this assessment in FY2000 and FY2001. This will
save the domestic producing sector an estimated $83 million over the 2-year period.
CRS-4

---

IB95117
12-15-99
Administrative Costs. While sugar program loan-making operations do not result in
any recorded budget outlay, there are some incidental program costs. USDA estimates that
administrative costs (salaries and expenses, which are accounted for separate from commodity
program costs) associated with sugar loan making activity totaled $36,000 in FY1999. Loan
operations are carried out by the county offices of USDA’s Farm Services Agency.
Additional costs incurred by USDA’s Foreign Agricultural Service in administering the sugar
TRQs totaled $107,000 in FY1999.
Provisions of the 1996-2002 Sugar Program
The enacted sugar program incorporates the provisions agreed upon in the 1995 budget
reconciliation’s conference with one addition. The modified program keeps intact the broad
outlines of previous U.S. sugar policy, but adopts for the first time since 1981 new features
that could inject some price uncertainty into the domestic sugar market under certain supply
and demand conditions. The degree to which the sugar sector actually becomes more subject
to market forces and to the prospect of a higher degree of price uncertainty, though, will
depend in large part on the amount of sugar allowed to be imported under quota.
Program provisions:
(1) reauthorize the sugar program for 7 years (through 2002 — the same as for all
other commodity programs).
(2) freeze the support price at 1995 crop levels — 18 cents per pound for raw cane
sugar and 22.9 cents/lb. for refined beet sugar — for the entire period.
(3) repeal the program’s “no-cost” requirement.
(4) repeal marketing restrictions (“allotments”) on the amount of domestically
produced sugar that raw sugar processors and beet refiners can sell into the U.S.
market when USDA projects imports fell below a statutory minimum level.
Allotments were triggered three times during the FY1992-FY1996 period.
(5) increase by 25% the budget deficit assessment paid by raw cane processors and
beet refiners on domestically-produced sugar (to 1.375% on raw cane sugar and
to 1.47425% on refined beet sugar, set relative to the 18 cent loan rate in effect for
raw sugar). However, a provision in the FY2000 agriculture appropriations
measure (section 803(b) of P.L. 106-78) means that processors and beet refiners
will not pay this assessment in FY2000 and FY2001 (see FY2000 section of House
and Senate Floor Amendments below for additional explanation).
(6) retain the 9-month term for price support loans taken out by processors and beet
refiners.
(7) require that recourse loans be made available whenever USDA announces a fiscal
year import quota of less than 1.5 million short tons (ST). If USDA announces an
import quota of 1.5 million ST or more, non-recourse loans (the type of loan
available under pre-FY1996 policy) automatically would become available to
processors. “Recourse” means processors are obligated to repay the loan with
CRS-5

---

IB95117
12-15-99
interest in cash, rather than exercise the legal right (under “non-recourse” policy)
to hand over sugar offered as collateral in full payment of the loan.
(8) require USDA to impose about a 1 cent/lb. penalty on any processor who forfeits
sugar (applicable when pledged as collateral for a “non-recourse” loan) to the
CCC.
(9) require a reduction in domestic sugar price support if USDA determines that
negotiated reductions in sugar export and domestic subsidies made by the
European Union and other major sugar growing, producing, and exporting
countries in the aggregate exceed WTO commitments.
Analysis of 1996-Enacted Sugar Program Provisions
The final sugar program compromise struck by House and Senate farm bill conferees in
November 1995 did not fully satisfy the three most affected and competing interest groups
— growers and sugar processors, cane refiners, and sugar users. The sugar production
sector contended that considerable price uncertainty will exist when “recourse” loan policy
is in effect and will result in a reduced level of price support if “loan forfeitures” occur. It did
indicate, though, that it could accept most other provisions. Sugar users contended that the
proposed program offered little change from previous policy and did not lower price support
levels. Cane sugar refiners feared that retaining current price support levels will close more
refineries, further shrinking U.S. cane refining capacity.
Recourse/Non-Recourse Loan Policy
Under the enacted program, the level of projected imports determines the nature of price
support to be made available to sugar processors. The 1.5 million ST trigger level must be
compared to expected import levels to attempt to answer the questions that naturally arise:
will the sugar program operate on a “recourse” or “non-recourse” loan basis during the
FY1997-FY2003 period, and what might the nature of price support provided mean for
market prices?
Tying “recourse” loan policy to the level of sugar imports was intended to inject some
degree of market orientation into the U.S. sugar market. Each interest group’s stance on this
provision sought to protect and/or to enhance its position in the marketplace. The sugar
production sector, in initially raising the recourse/non-recourse issue for Agriculture
Committee consideration, proposed that the trigger level be set just one ton higher than the
U.S. minimum sugar import commitment made under WTO rules (1.256 million ST). In other
words, the sugar production sector sought to set the import level as low as possible so that
all price support loans would be available on a “non-recourse” basis, and thus guarantee that
a price floor exists. By contrast, sugar users and cane refiners sought to have the import level
set as high as possible in order to increase the likelihood that recourse loan policy does come
into effect at some point in time. This position reflected the users’ and refiners’ desire to gain
from lower sugar prices likely to occur under “recourse” policy.
USDA’s announcement in November 1999 of an import quota above the 1.5 million ST
trigger level means that non-recourse loan policy will be in effect during FY2000. Though
CRS-6

---

IB95117
12-15-99
USDA’s long-term projections (laid out in its February 1999 baseline) show TRQ imports will
be above the trigger, rising from 1.6 million ST in FY2001 to 1.7 million ST in FY2003, there
could be a repeat of the internal debate over the TRQ level in future years if domestic
production is higher than last projected. With this uncertainty and likely continued pressure
from the domestic sugar production sector to have USDA administer a non-recourse
program, the 1999 TRQ decision-making process suggests that non-recourse policy most
likely will apply during the life of the currently authorized sugar program.
Nevertheless, since projections cannot predict the inevitable fluctuations that occur from
year to year, the possibility exists that import needs might fall below USDA’s import
projections, and even below the “non-recourse/ recourse” trigger level. This could occur in
a year when domestic sugar output turns out to be higher-than-average due to good weather
and optimal processing conditions. To accommodate for higher domestic sugar output under
such a scenario, USDA may need to set a quota import level below the 1.5 million ST trigger
level. If this happens, then USDA could implement “recourse” loan policy.
However, if U.S. sugar imports closely match USDA’s import projections, any annual
import quota (set equal to or higher than the statutory 1.5 million ST trigger) would require
USDA to implement “non-recourse” loan policy. In years that this occurs, USDA would be
pressured by the domestic sugar producing sector to carefully manage the amount of sugar
allowed to enter under the quota in order to maintain prices within some “acceptable” range
above loan forfeiture levels. At the same time, USDA likely would face pressure from cane
refiners and sugar users to not restrict imports so much so that market prices are considerably
higher than forfeiture levels.
As farm bill debate concluded in 1996, sugar producers and processors viewed the
enacted 1.5 million ST trigger level as too high and based much of their concern on their view
that USDA (in light of the then domestic sugar output forecast) would keep quota imports
below this level. This led to their conclusion that if “recourse” loan policy came into effect,
they would be subject to market price uncertainty, a prospect they had not faced since 1981.
They were concerned for the following reasons. Under “recourse” policy, no price floor
would exist, because all loans taken out would have to be repaid in cash. With no need for
USDA to maintain minimum prices, domestic sugar prices would be free to fluctuate more
than usual (i.e., prices could even fall below forfeiture levels with no price floor available).
Second, a “recourse” policy would transfer the responsibility for responding to price signals
from USDA to growers and processors, which would have to become more cautious in
making crop production, processing, and investment decisions. Since most processors would
prefer not to conduct business in such an uncertain production and marketing environment,
the production sector’s proposal sought to preclude the prospect that “recourse” policy
would ever be in effect (i.e., accomplished by proposing initially to set the import trigger as
low as legally possible).
Sugar users expected that imports would be higher than the 1.5 million ST trigger level.
This would mean that USDA would have to implement “non-recourse” policy, which
supports prices at specified levels and restricts imports to ensure that market prices are at
least above forfeiture levels. Users expected that in having to meet the “no-cost” mandate
then in effect, USDA would continue as before to provide the price floor guarantee that
growers and processors want. They contended that the enacted provisions offered little
change from previous policy: the federal government continues to micromanage program
operations and the price of sugar is not allowed to decline.
CRS-7

---

IB95117
12-15-99
Cane refiners feared that as refined beet sugar output is allowed to expand under the
proposed program (with marketing restrictions repealed), USDA would have little choice but
to restrict raw sugar imports. Cane refiners argued that both developments, plus the lack of
any price support reduction, place them at a competitive disadvantage and undermine their
long-term viability to cover U.S. sugar needs whenever a beet production shortfall occurs.
Penalty on Sugar Loan Forfeitures
Some growers and processors argued in 1996 that the new monetary penalty imposed
on a processor that forfeits collateral rather than repaying a “non-recourse” loan would
constitute a reduction in the sugar price support level (from 18 to 17 cents/lb. for raw cane
sugar, from 22.9 to 21.83 cents/lb for refined beet sugar). This provision would give USDA,
according to some observers, more latitude in allowing market prices at times to fall lower
than would be the case under previous sugar program authority. Others, though, pointed out
that some processors might contemplate loan forfeiture if faced with the prospect of prices
falling below forfeiture levels. Some mentioned that processors would likely be prompted
more to threaten forfeiture for strategic and political reasons to pressure USDA to administer
the program conservatively (i.e., limiting imports to keep prices above forfeiture levels). For
this reason, program opponents argued that in practical terms, this penalty will mean little
change in price levels relative to continuing past policy.
Louisiana grower and raw sugar processors have had concerns about USDA’s use of this
penalty to calculate the loan forfeiture level, a critical factor used to set the level of sugar
imports. Consequently, they worked to secure a policy change in the latest appropriations
round. They argued that USDA operated the program in a way that assumed that all
domestically produced sugar could be put under loan and forfeited. In their view, the USDA,
by deducting the penalty from the sum of the other components used to derive the loan
forfeiture level, was providing for a lower level of price support than they believed Congress
in the 1996 farm bill intended. Reflecting their concerns, the joint explanatory statement of
the conferees on the agriculture appropriations portion of the FY1999 Omnibus Consolidated
and Emergency Supplemental Appropriations Acts (P.L. 105-277) directed USDA to
administer the loan forfeiture penalty provision differently. The statement called for the
penalty to apply only when a sugar processor, instead of repaying a price support loan,
actually hands over to USDA sugar pledged as collateral for that loan. Report language
further directed that USDA is not to consider this penalty in calculating the loan forfeiture
level.
Should USDA decide to follow this directive, it would appear in the import quota level
announced for FY2000. Implementation of such a decision (as compared to FY1997-FY1999
policy) likely would mean the adoption of a more restrictive sugar import policy (i.e., setting
a lower TRQ level), and the likelihood of slightly higher market prices.
Status of “No-Cost” Requirement
Though most observers expected the “no-cost” requirement to continue as part of the
newly authorized sugar program, the “no-cost” provision (codified as a note to 7 U.S.C.
1446g) was repealed by section 171 (b)(2)(H) of the 1996 farm act. Though there was initial
uncertainty as to how to interpret this deletion, USDA upon further investigation determined
that the “no-cost” provision no longer applies. Questions that then arise are: will USDA still
seek to maintain prices above forfeiture levels to preclude the possibility of loan forfeitures?
CRS-8

---

IB95117
12-15-99
if so, by how much? will other federal departments take advantage of this change to push for
increased imports in interagency discussions? These questions regarding program
implementation mean that all affected parties will press hard to have their views considered
during USDA’s bureaucratic decision making process on sugar import levels.
Legislative Proposals Considered Since 1996 Farm Act
Since enactment of the 1996 farm bill, sugar users and cane refiners have sought to make
changes (during congressional consideration of the last four agriculture spending bills) to the
enacted sugar program in order to attain their lower market price objective. A 1996 provision
that effectively would have capped the raw cane sugar price at 21.15 cents per pound
(accepted by the House in passing the FY1997 agriculture appropriations bill - H.R. 3603)
was dropped in the subsequent conference agreement with the Senate. Separately, an
amendment offered in the Senate in July 1996 to H.R. 3603 that effectively would have
eliminated for most sugar processors the price support guarantee provided by non-recourse
loans was tabled on a 63-35 vote. In July 1997, the House rejected on a 175-253 vote a floor
amendment to the FY1998 agriculture spending bill (H.R. 2061) that would have required
USDA to implement the sugar program on a recourse loan basis in FY1998. The House on
June 24, 1998, rejected on a 167-258 vote a floor amendment to the FY1999 agriculture
appropriations measure (H.R. 4101) that effectively would have reduced sugar price support
levels by one cent/lb. Most recently, the Senate on August 4, 1999, tabled 66-33 an
amendment to S. 1233 (FY2000 agriculture appropriations) that would have effectively not
allowed USDA to administer the program next year.
Bills Introduced in 106th Congress
On May 18, and on May 25, 1999, Representative Dan Miller and Senator Schumer,
respectively, introduced identical bills (H.R. 1850 and S. 1118) to change the current
program. Their proposal is similar to H.R. 1387 that both members introduced in the 105th
Congress. Their bills would: (1) lower sugar price support levels (starting with the 1999
sugar beet and sugar cane crops); (2) require USDA to make only recourse loans to sugar
processors; (3) terminate processor access to recourse loans after the 2002 crops; and (4)
require the President to use all available authorities to enable USDA (starting in FY2000) to
supply the domestic market with raw cane sugar at prices not greater than the higher of: the
world sugar price (adjusted for delivery to the U.S. market), or the raw cane sugar loan rate
in effect, plus interest. Starting in 1999, the recourse loan rate for raw cane sugar would
decline 1 cent per pound in each crop year (i.e., to equal 17 cents/lb. in 1999, 16 cents/lb. in
2000, 15 cents/lb. in 2001, and 14 cents/lb. in 2002). Loan rates for refined beet sugar would
decline in tandem with the reduction in the raw cane sugar loan rate. No CCC-financed loans
would be available after the 2002 crops.
Under this proposal, starting with the 2003 crops, decisions made by the Executive
Branch in exercising its authority to administer the sugar import quota would effectively
determine U.S. sugar policy. This year's proposal (and H.R. 1387 introduced in April 1997)
are similar to the amendment offered by Representative Miller during debate on the 1996 farm
bill in February 1996, which the House defeated on a 208-217 vote.
CRS-9

---

IB95117
12-15-99
Those advocating changes contend that the sugar provisions in the 1996 farm bill do not
provide for a transition to a free market similar to that established for other farm
commodities. They argue that this proposal would reduce the price that consumers pay for
sugar products and limit environmental damage where sugar is harvested (e.g., the Florida
Everglades). Current program supporters counter that this type of proposal would devastate
an efficient U.S. sugar industry by driving producers out of business, wreak havoc on
consumers and industrial users who rely on critically timed shipments of sugar at prices below
those found elsewhere in the developed world, and ignore the reforms in sugar policy already
adopted by the 1996 farm bill.
House and Senate Floor Amendments
During House floor debate on the FY1998 agriculture appropriations measure (H.R.
2160), Representative Miller on July 24, 1997, offered an amendment that in effect would
require USDA to administer a recourse loan sugar program (i.e., no price guarantee available)
in FY1998. This amendment drew from a provision in his bill (H.R. 1387 — see above).
The House rejected this amendment on a vote of 175-253.
During House floor debate, supporters of the amendment argued that the 1996 farm bill
did not “reform” the sugar program as it did for the other commodity programs. Further,
they argued that the program benefits a few wealthy growers, keeps the cost of sugar high,
and supports sugar cane production in Florida with adverse environmental consequences for
the Everglades. Opponents countered that the proposed change would undercut the seven-
year contract made with agriculture that Congress adopted with passage of the 1996 farm bill.
Moreover, it would expose producers and processors to unreasonable risk, because they made
planting and investment decisions on the expectation that sugar policy would remain
unchanged through 2002. Opponents further argued that the amendment would harm farmer-
owned cooperatives that process sugar beets and cane, while “padding” the profits of
multinational food companies.
During House floor debate on the FY1999 agriculture appropriations measure (H.R.
4101), Representative Miller on June 24, 1998, offered an amendment that stipulated that no
funds may be used during FY1999 to offer price support loans to a sugar processor in excess
of 17 cents/lb. for raw cane sugar and 21.9 cents/lb. for refined beet sugar. This proposal
would have the effect of reducing the 1996-enacted support levels by one cent per pound (an
objective laid out for FY1999 in H.R. 1387 introduced last year -- see above). The House
rejected this amendment on a vote of 167-258.
This congressional debate on sugar policy covered many of the same points made last
year, focusing primarily on who gains and loses under such a proposed change. Amendment
supporters argued that consumers would pay less for sugar and sugar products, benefitting
from an estimated annual savings of about $200 million. Opponents countered that the
reduction in sugar support levels would hurt farmers, arguing that food companies would not
pass on any savings to consumers.
During Senate floor debate on the FY2000 agriculture appropriations measure (H.R.
1906/S. 1233), Senators McCain and Gregg on August 4, 1999, offered an amendment to
prohibit USDA from spending appropriated funds to cover the salaries and expenses of
employees who administer the current sugar program. If enacted, this would have had the
effect of not allowing USDA to administer the program in FY2000. After debate, the Senate
CRS-10

---

IB95117
12-15-99
tabled this amendment 66-33. The arguments offered by proponents and opponents were
similar to those made in earlier debates.
Separately, the Senate, in adding a farm aid package to H.R. 1906, included a provision
that effectively prohibits USDA from collecting the marketing assessment from sugar
producing companies through FY2001, if the Office of Management and Budget determines
that the federal budget is in surplus in FY2000. House and Senate negotiators retained this
language, but dropped the condition that there be a budget surplus for the prohibition to be
effective, in amending the farm aid package in conference (section 803(b) of H.Rept. 106-
354). The House and Senate agreed to the conference agreement that contains this provision
on October 1, and October 13, respectively. Signed into law on October 22, 1999, this
provision means that the raw cane sugar mills and beet sugar processors that have paid this
assessment will save (i.e., increase their revenues by) an estimated $83 million over the next
2 years.
LEGISLATION
P.L. 106-78 (H.R. 1906)
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Appropriations Act, 2000. During floor debate on August 4, 1999, Senators McCain and
Gregg offered an amendment to prohibit the use of appropriated funds for the sugar program,
other than the marketing assessment. The Senate tabled this amendment on a 66-33 vote.
Separately, in adopting a farm aid package (S.Amdt. 1499, as modified) on a vote of 89-8,
the Senate approved a provision (Section 748(b)(3)) that prohibits USDA from collecting the
marketing assessment from raw cane sugar processors and beet sugar refiners through
FY2001, if OMB determines that the federal budget is in surplus in FY2000. On August 4,
the Senate passed S. 1233, amended, then vitiated its action on its passage, and subsequently
passed its version in lieu of H.R. 1906, as passed by the House on June 8. The conference
agreement (H.Rept. 106-354), filed September 30, included the Senate language (as section
803(b)), but dropped the proviso that OMB make a budget surplus determination for this
provision to be in effect. The House agreed to the conference report (240-175) on October
1; the Senate adopted it (74-26) on October 13. Signed into law by the President on October
22.
H.R. 1850 / S. 1118 (Miller, Dan / Schumer)
Sugar Program Reform Act. A bill to amend the Agricultural Market Transition Act to
convert the price support program for sugarcane and sugar beets into a system of solely
recourse loans and to provide for the gradual elimination of the program. H.R. 1850
introduced May 18, 1999; referred to the Committee on Agriculture. S. 1118 introduced
May 25, 1999; referred to the Committee on Agriculture, Nutrition, and Forestry.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee on Agriculture. Review the 1999 World Trade
Organization Multilateral Negotiations on Agricultural Trade. 105th Congress, 2nd
CRS-11

---

IB95117
12-15-99
Session. Testimony of Rick Roth, representing Sugar Cane Growers Cooperative of
Florida and American Sugar Alliance. Washington, D.C. March 18, 1998. Serial no.
105-57. pp. 50-52, 83-95 (oral remarks available on the Web at
[http://commdocs.house.gov/committees/ag/hagmulti.000/hagmulti_0.HTM#79]; written
statement also available at
[http://www.sugaralliance.org/testimony/roth3_98.html]).
——. The Administration's Preparations for the 1999 World Trade Organization
Ministerial Testimony. 106th Congress, 1st Session. Testimony of Jack Roney, for the
American Sugar Alliance. Washington, D.C. June 23, 1999. (available on the Web at
[http://www.sugaralliance.org/testimony/wto6_99.htm]).
——. Subcommittee on Risk Management and Specialty Crops. Specialty Crop
Agricultural Issues Relating to the 1999 World Trade Organization Multilateral Trade
Negotiations. 105th Congress, 2nd Session. Testimony of Antonio L. Contreras, Jr.,
Sugar Cane Growers Cooperative of Florida, at a field hearing held in West Palm Beach,
Florida. January 22, 1998. Serial no. 105-38. pp. 18-20, 39-41. (available also on the
Web at [http://www.sugaralliance.org/testimony/1999wto.html])
——. House. Committee on Ways and Means. Subcommittee on Trade. Hearing on U.S.
Efforts to Reduce Barriers to Trade in Agriculture. Testimony by Doreen Brown,
Consumers for World Trade, on the sugar program. Washington, D.C. February 12,
1998. (available on the Web at
[http://www.house.gov/ways_means/trade/testmony/2-12-98/2-12brow.htm]).
——. Importance of Trade Negotiations in Expanding Trade and Resisting Protectionism.
Statement submitted for the hearing record by James W. Johnson, Jr., chairman of the
American Sugar Alliance. "Concerns and Recommendations Regarding Future Trade
Negotiations." Washington, D.C. March 4, 1999. (available on the Web at
[http://www.sugaralliance.org/testimony/wm_3_99.htm]).
FOR ADDITIONAL READING
Grocery Manufacturers of America. Testimony of Mary Sophos, Senior Vice President, at
hearing held by the U.S. Office of the United States Trade Representative's Trade Policy
Staff Committee. Washington, D.C. May 19, 1999 (available on the Web at
[http://www.gmabrands.com/news/docs/Testimony.cfm?docid=337]).
Landell Mills Commodities Studies. The Importance of the Sugar and Corn Sweetener
Industry to the U.S. Economy. Prepared for American Sugar Alliance, Washington,
D.C. August 1994. 35 p. (selected facts from this report are available on the Web, for
the United States and by state, at
[http://www.sugaralliance.org/economic_impact.htm]).
U.S. Department of Agriculture. Agricultural Outlook Forum 1999. Sweeteners Luncheon.
"Sweeteners Industry Trade Policy issues on the Horizon – Dangers, Opportunities," by
CRS-12

---

IB95117
12-15-99
Jack Roney, American Sugar Alliance. Washington, D.C. February 23, 1999.
(available on the Web at [http://www.sugaralliance.org/testimony/roney2_99.htm]).
——. Economic Research Service (ERS). Agricultural Outlook. September 1997.
“Restoring the Everglades: Challenges for Agriculture,” by Marcel Aillery, Robbin
Shoemaker, and Margret Caswell. pp. 16-19. (available in published format on the
Web at [http://www.econ.ag.gov/epubs/pdf/agout/sept97/ao244d.pdf])
——. ERS. Commercial Agriculture Division. Sugar: Background for 1995 Farm
Legislation, by Ron Lord. Agricultural Economic Report No. 711. April 1995. 68 p.
——. Foreign Agricultural Service (FAS). WTO Listening Session at Winterhaven, Florida,
June 4, 1999, statements by (1) Ardis Hammock, sugarcane grower and member of the
Agricultural Trade Advisory Committee (available on the Web at
[http://ffas.usda.gov/itp/wto/florida/hammock.html]), (2) Robert Underbrink, vice
president of King Ranch ([http://ffas.usda.gov/itp/wto/florida/underbrink.html]); (3)
Miller Couse, President of First Bank of Clewiston
([http://ffas.usda.gov/itp/wto/florida/couse.html]), (4) George Cooper, Glade Grove
Supply Company ([http://ffas.usda.gov/itp/wto/florida/cooper.html]), and (5) McKinsley
Chatman, International Association of Machinists and Aerospace Workers
([http://ffas.usda.gov/itp/wto/florida/chatman.html]).
——. WTO Listening Session at St. Paul, Minnesota, June 7, 1999, statements by (1)
Shelden Melberg, sugarbeet grower representing the Minnesota/North Dakota sugarbeet
industry ([http://www.fas.usda.gov/itp/wto/minnesota/melberg.html]), and (2) Mark
Froemke, Bakery, Confectionery, Tobacco and Grain Millers Union, AFL-CIO,
representing workers in sugarbeet refineries
([http://ffas.usda.gov/itp/wto/minnesota/froemke.html]).
——. WTO Listening Session at Memphis, Tennessee, June 16, 1999, statement by Jack
Theriot, sugarcane grower and secretary treasurer of the Louisiana Farm Bureau
Federation [(http://www.fas.usda.gov/itp/wto/tennessee/theriot.html)].
——. WTO Listening Session at Kearney, Nebraska, June 29, 1999, statement by Robert
Busch, sugarbeet and corn farmer in western Nebraska
([http://www.fas.usda.gov/itp/wto/nebraska/busch.html]).
——. WTO Listening Session at Sacramento, California, June 29, 1999, statement by Ben
Goodwin, executive manager of the California Beet Growers Association
([http://www.fas.usda.gov/itp/wto/california/goodwin.html]).
——. WTO Listening Session at Richland, Washington, June 30, 1999, statement by Perry
Meuleman, representing the Idaho Sugar Beet Association
([http://www.fas.usda.gov/itp/wto/washington/meuleman.html]).
——. WTO Listening Session at Austin, Texas, July 8, 1999, statements by (1) Jack Nelson,
president of the Rio Grande Valley Sugar Growers
([http://www.fas.usda.gov/itp/wto/texas/nelson.html]), and (2) Charles Thibaut,
chairman of the National Legislative Committee of the American Sugar Cane League
([http://www.fas.usda.gov/itp/wto/texas/thibaut.html]).
CRS-13

---

IB95117
12-15-99
——. WTO Listening Session at Bozeman, Montana, July 23, 1999, statement by Rick
Dorn, president of the American Sugar Beet Growers
([http://www.fas.usda.gov/itp/wto/montana/dorn.html]).
U.S. General Accounting Office. Commodity Programs: Impact of Support Provisions on
Selected Commodity Prices. Letter Report, GAO/RCED-97-45. February 21, 1997.
Pp. 1-5, 12-13, 16-19, 22, and 50-51 address the sugar program. Page citations can be
viewed on the Web in published-report format at
(http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filena
me=rc97045.pdf&directory=/diskb/wais/data/gao);
entire report also available in browser-viewable format, but without charts, at
(http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filena
me=rc97045.txt&directory=/diskb/wais/data/gao).
——. Sugar Program: Changing Domestic and International Conditions Require Program
Changes. Report to Representative Charles E. Schumer. GAO/RCED-93-84. April
1993. 70 p.
——. Sugar Program: Changing the Method for Setting Import Quotas Could Reduce Cost
to Users. Report to Senator Dianne Feinstein and Representative George Miller. GAO/
RCED-99-209. July 1999. 51 p. Available on the Web in published-report format at
(http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filena
me=rc99209.pdf&directory=/diskb/wais/data/gao);
also available in browser-viewable format, without charts, at
(http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filena
me=rc99209.txt&directory=/diskb/wais/data/gao).
——. Sugar Program: Impact on Sweetener Users and Producers. Testimony to the House
Agriculture Subcommittee on Risk Management and Specialty Crops. GAO/T-RCED-
95-204. May 24, 1995. (summary available on the Web at
http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filena
me=trc95204.txt&directory=/diskb/wais/data/gao)
CRS Memo
“Sugar Program Authority After 2002,” by Remy Jurenas. General Distribution
Memorandum. April 3, 1998. 6 p.
CRS-14

---