Order Code RL34103
Sugar Policy and the 2007 Farm Bill
July 25, 2007
Remy Jurenas
Specialist in Agricultural Policy
Resources, Science, and Industry Division

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Sugar Policy and the 2007 Farm Bill
Summary
Congress is expected to decide the future of the U.S. sugar program in the
omnibus farm bill this year. 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. Food and beverage manufacturers that use sugar want
Congress to address their concerns about the impact of sugar prices and those
program features that restrict supplies.
To meet the current statutory directive that the sugar program operate at no cost,
the U.S. Department of Agriculture (USDA) makes loans available to processors at
mandated price support levels, limits the amount of sugar that processors can sell
domestically under "marketing allotments," and restricts imports. USDA also seeks
to ensure that supplies of sugar are adequate to meet domestic demand. "No cost"
is achieved if USDA applies all these tools in a way that maintains market prices
above support levels. Should prices fall, processors that took out loans have the right
to hand over as payment sugar that has been pledged as collateral, which USDA
treats as a cost.
With free trade in sugar with Mexico set to take effect in 2008, and the prospect
of additional sugar imports under four other negotiated free trade agreements, both
sugar producers and users agree that the program cannot be sustained without change.
If the sugar program were to be continued without change, USDA and the
Congressional Budget Office (CBO) project that prices below support levels because
of imports would result in program costs of up to $1.4 billion over the next 10 years.
This contrasts with USDA's success in recent years in operating the program at no
cost, and even generating revenue.
The House-reported farm bill (H.R. 2419) would mandate a sugar-for-ethanol
provision intended to address any sugar surplus. USDA would be required to
purchase as much U.S.-produced sugar as necessary to maintain market prices above
support levels. Purchased sugar would be sold to bioenergy producers for processing
into ethanol. USDA funding would be open-ended. The bill also would increase
minimum guaranteed prices for raw sugar and refined beet sugar by almost 3%, and
tighten the rules (i.e., remove discretionary authority) that USDA must follow to
implement marketing allotments and administer import quotas. These provisions
reflect the recommendations made by sugar crop producers and processors. CBO
projects that this bill's sugar-related provisions would cost about $660 million over
the five-year farm bill period and $1.2 billion over 10 years.
Food and beverage manufacturers that use sugar oppose the House Agriculture
Committee-reported provisions, arguing that costs to consumers would increase by
$100 million annually and that the availability of sugar for food use in the domestic
market would be further restricted. Their advocates in the House have signaled they
will offer amendments to strike certain Committee-reported provisions and/or simply
extend the current program without change. This report will be updated to reflect key
developments. For additional information, see CRS Report RL33541, Background
on Sugar Policy Issues, by Remy Jurenas.

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Contents
Overview of Sugar Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Issues in Current Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Level of Sugar Price Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Controlling Sugar Supply to Protect Sugar Prices . . . . . . . . . . . . . . . . . . . . . 2
Import Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Marketing Allotments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Sugar for Ethanol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Sugar Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
List of Tables
Table 1. Annual U.S. Sugar Import Commitments When the 2002 Farm Bill
Was Enacted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Outlays (–) or Receipts (+) of the Sugar Program under the
2002 Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 3. CBO’s Projection of Sugar Program’s Cost under House Farm Bill . . . 8

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Sugar Policy and the 2007 Farm Bill
Overview of Sugar Program
The current sugar program is designed to protect the price received by growers
of sugarcane and sugar beets, and by the firms (raw sugar mills and beet refiners) that
process these crops into sugar. To accomplish this, the U.S. Department of
Agriculture (USDA) makes non-recourse price support loans available at mandated
price levels to processors, limits the amount of sugar that processors can sell
domestically under “marketing allotments,” and restricts imports. USDA is required
to operate the sugar program on a “no-cost” basis. This means USDA must regulate
the U.S. sugar supply using allotments, import quotas, and related authorities so that
domestic market prices do not fall below guaranteed minimum price levels. If the
market price is below the support level when a sugar price support loan comes due,
its “non-recourse” feature means a processor can exercise the legal right to forfeit,
or hand over, sugar offered to USDA as collateral for the loan in fulfillment of its
repayment obligation. This report will focus on the issues raised by the sugar
program provisions in major bills and floor amendments. For more information, see
CRS Report RL33541, Background on Sugar Policy Issues.
Issues in Current Debate
This year's consideration of future U.S. sugar policy to date has revolved around
four issues. These are raising the level of minimum price guarantees to be made
available to processors, how to use two tools to manage the domestic sugar supply,
authorizing any sugar surplus to be used as a feedstock for ethanol, and accounting
for projected program costs. Though industrial users of sugar in food and beverage
products explored converting the sugar program to operate similar to the programs
in place for the major grains, oilseeds and cotton, this policy option has not received
further attention.
Level of Sugar Price Support
The sugar program guarantees producers of the sugar crops and the processors
that convert these crops into sugar a price that since the early 1980s has ranged from
two to four times the price of sugar traded in the world marketplace . The statutorily-
set loan rates1 account for most of the effective support level made available to
1 For sugar, the loan rate is the price per pound at which the government will provide
nonrecourse loans to processors by the Commodity Credit Corporation (CCC). This short
term financing at below market interest rates enables processors to hold their commodities
(continued...)

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producers and processors, a level that USDA is directed to protect.2 Loan rates for
raw cane sugar have not changed since 1985; for refined beet sugar, since 1992.
The House Agriculture Committee-reported bill (H.R. 2419) would increase
loan rates by almost 3% – from 18.0¢ to 18.5¢ per pound for raw cane sugar, and
from 22.9¢ to 23.5¢ per pound for refined beet sugar. This increase is about one-half
of what growers and processors reportedly were seeking, and may reflect a scaling
back of expectations to deflect the impact of other sought provisions. They argue
that the increase in the loan rate is needed to cover increased production costs,
particularly energy inputs. Sugar users counter that the proposed higher loan rates
will increase costs to taxpayers by an additional $100 million annually. They also
note that while the bill's ethanol provisions (see Sugar for Ethanol below) "are
supposedly designed to deal with surpluses," the loan rate increase "can only
encourage higher surplus production."3 The Bush Administration, in its statement
on the House farm bill, opposes the increase in the loan rates for sugar.
Controlling Sugar Supply to Protect Sugar Prices
The current sugar program uses two tools – import quotas and marketing
allotments – to ensure that producers and processors receive price support benefits.
By regulating the amount of foreign sugar allowed to enter and the quantity of sugar
that processors can sell, USDA can for the most part keep market prices above
effective support levels, meet the no-cost objective, and ensure that domestic sugar
demand is met. If successful, the likelihood that USDA acquires sugar due to loan
forfeitures is remote.
Import Quotas. The United States must import sugar to cover the balance of
domestic demand that the U.S. sugar production sector cannot supply. However,
USDA restricts the quantity of foreign sugar allowed to enter for refining and/or sale
primarily to manufacturers for domestic food and beverage use. Quotas are used to
ensure that the quantity allowed to enter does not depress the domestic market price
to below support levels. Quota amounts are laid out in U.S. market access
commitments made under World Trade Organization (WTO) rules and under
bilateral free trade agreements (FTAs).
The current sugar program accommodates, or makes room for, imports of up to
1.532 million tons each year. This import level is one of the four factors that USDA
uses to establish the national sugar allotment (called the “overall allotment
1 (...continued)
for later sale.
2 The loan rates alone do not serve as the intended price guarantee, or floor price, for sugar.
In practice, USDA sets marketing allotments and import quota levels in order to support raw
cane sugar and refined beet sugar at slightly higher price levels. Each price level takes into
account the loan rate, interest paid on a price support loan, transportation costs (for raw
sugar), certain marketing costs (for beet sugar), and discounts. These are frequently referred
to as “loan forfeiture levels” or the level of “effective” price support.
3 Letter to Members of Congress, from food and beverage companies and trade associations,
and public interest groups, July 13, 2007.

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quantity”), and reflects U.S. trade commitments under two trade agreements in effect
when the 2002 program was authorized (Table 1).
Beginning on January 1, 2008, U.S. sugar imports from Mexico will no longer
be restricted. However, they could fluctuate from year to year. First, the amount of
Mexican sugar exported to the U.S. market will depend largely upon the extent that
U.S. exports of cheaper high-fructose corn syrup (HFCS) displace Mexican
consumption of Mexican-produced sugar. Surplus Mexican sugar, in turn, would be
expected to move north to the United States. Second, Mexico’s sugar output, though
trending upward, does vary from year to year, depending upon weather and growing
conditions. Mexican government policy also is to hold three months worth of sugar
stocks in reserve and to allow sugar imports when needed to meet demand and lower
prices.4
Table 1. Annual U.S. Sugar Import Commitments
When the 2002 Farm Bill Was Enacted
short tons
World Trade Organization Quota (minimum)
1,256,000
North American Free Trade Agreement – Mexico
276,000
Quota (maximum) a
Total
1,532,000
a. Applies only through the end of calendar year 2007.
Also, the United States has committed under other existing and pending bilateral
FTAs to allow for additional sugar imports.5 Such imports in 2013, potentially the 5th
and last year that the sugar program authorized by the 2007 farm bill would be in
effect, could total from about 420,000 tons to 1.215 million tons above existing
WTO and NAFTA/Mexico trade commitments. The wide range reflects the extent
that HFCS use in Mexico actually displaces sugar consumption and creates a surplus
available for export to the U.S. market.
Legislation. The sugar program provisions in H.R. 2419 do not directly
address the issue of additional sugar imports. Instead, section 9013 in the Energy
Title proposes a new sugar-for-ethanol program to handle the price-related impact of
such imports (see Sugar for Ethanol and Program Costs below). However, the bill
prescribes how USDA would administer import quotas in two ways. First, to cover
shortfalls in what processors can sell (because of hurricanes or other disastrous
4 U.S. sugar processors also will be free to export sugar to Mexico to take advantage of the
occasional higher prices there.
5 Most of the sugar access provisions in the Dominican Republic-Central American FTA
(DR-CAFTA) already are in effect. Congress has yet to consider the FTAs with Panama,
Peru, and Colombia, all of which would grant additional access for their sugar to the U.S.
market.

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events) under allotments, USDA would be directed to ensure that most imports enter
in the form of raw cane sugar rather than refined sugar. While historically most
permitted imports have entered in raw form, USDA allowed large quantities of
refined sugar to enter after the late 2005 hurricanes significantly affected the ability
of cane refineries in Louisiana and Florida to process raw sugar. The Committee’s
provision is intended to ensure that cane refineries (which process raw sugar into
refined sugar) can more fully use their operating capacity. Also, limiting the entry
of refined sugar would enhance the position of the domestic beet sector to increase
their sales of refined sugar.
Second, USDA would be directed to regulate when and how much raw cane
sugar imports are allowed to be shipped to U.S. cane refineries. While USDA
announced shipping patterns in FY2003-FY2005, the impact of the hurricanes led to
a decision not to follow this long-standing practice in FY2006-FY2007. USDA
justified removing these restrictions because of “changes occurring over time in the
domestic marketing of cane sugar.” Food and beverage firms oppose "micro-
managing" the timing of imports, noting that the application of such rules will limit
the ability of cane refiners to efficiently use their processing capacity and could lead
to serious shortfalls at times in the amount of sugar supplied to the market.6 The
Bush Administration has expressed concern over requiring shipping patterns for
sugar imports.
Marketing Allotments. In the 2002 farm bill, the domestic production sector
accepted mandatory limits on the amount of sugar that processors can sell – known
as marketing allotments – in return for the assurance of price protection. It viewed
allotments as a way to try to capture any growth in U.S. sugar demand, and assumed
that the then-U.S. sugar import quota commitments would continue without change
(see Import Quotas above). The statute, however, stipulated that if USDA estimates
imports will be above 1.532 million short tons, then USDA must suspend marketing
allotments. Suspending allotments because of additional imports raises the prospect
of downward pressure on market prices if most sugar demand is already met. If the
additional imports were to cause the price to fall below support levels, forfeitures
would occur and USDA would be unable to meet the no-cost requirement. Including
the allotment suspension provision was designed to ensure that USDA not lose
control over managing U.S. sugar supplies for fear of the consequences that could be
unleashed (i.e., demonstrating its inability to implement congressional policy).
Legislation. Implementation of the 2002 farm bill’s marketing allotment
authority has resulted in the U.S. sugar production sector’s share of domestic food
consumption ranging from a low of 73% in FY2006 to a high of 89% in FY2004.
Concerned with the prospect that their market share would decline as sugar imports
increase under various trade agreements (see Import Quotas above), sugar producers
and processors have decided to pursue a different strategy. H.R. 2419 would
guarantee that the domestic production sector always benefits from a minimum 85%
share of the U.S. sugar for food market. USDA would be required to announce an
“overall allotment quantity” – the amount of sugar that all processors combined can
6 Letter to Members of Congress, July 13, 2007.

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sell – that represents at least 85% of estimated sugar consumption. This addresses
the sector's objective that imports not displace domestic production.
Sugar for Ethanol
Background. Sugar producers and processors have had an ongoing interest
in exploring the potential for using sugar crops and processed sugar as a feedstock
to produce ethanol (a gasoline additive). In the 2002-2003 period, they encouraged
USDA to explore selling forfeited sugar stocks to corn-based ethanol processors. A
few ethanol producers experimented by adding sugar to speed up the ethanol
fermentation process, but the results appear to have been disappointing.
In 2005, Congress approved the Dominican Republic-Central American Free
Trade Agreement (DR-CAFTA) that gives six countries increased access for their
sugar to the U.S. market. During the debate, producers and processors sought a deal
with the Bush Administration on a sugar-for-ethanol package. Their objective was
to have the option available to divert additional sugar imports under DR-CAFTA
whenever domestic prices fall below support levels.7 With Congress mandating in
2005 the use of renewable fuels be doubled by 2012,8 some have advocated that sugar
be considered as a feedstock along with other agricultural crops and waste.
Separately, Hawaii mandated (effective April 2006) that 85% of the gasoline sold
must contain 10% ethanol. This requirement assumes that over time, the sugarcane
produced on the islands will be used as the prime feedstock for ethanol.
If the cost of feedstock is excluded, producing ethanol from sugar cane can be
less costly than producing it from corn. This is because the starch in corn must first
be broken down into sugar before it can be fermented. This extra step adds to the
cost of processing corn into ethanol, when contrasted to using sugarcane or processed
sugar. Further, sugar cane waste (bagasse) can be burned to provide energy for an
ethanol plant, reduce associated energy costs, and improve sugar ethanol's energy
balance relative to corn ethanol.
Brazil’s success at integrating sugar ethanol into its passenger vehicle fuel
supply has stimulated interest in exploring prospects for sugar-based ethanol in the
United States. However, wide differences in sugar production costs and market
prices in the two countries cause the economics of sugar-based ethanol to differ
significantly. In investigating the economics of ethanol from sugar, USDA
concluded that producing sugar cane ethanol in the United States would be more than
twice as costly as U.S. corn ethanol and nearly three times as costly as Brazilian
7 Though the Administration did not agree to such a package, the Secretary of Agriculture
pledged to divert surplus sugar imports – through purchases – for ethanol and other non-food
uses, to ensure that the sugar program operates as authorized only through FY2008. For
additional information, see “Sugar in DR-CAFTA – Sugar Deal to Secure Votes” in CRS
Report RL33541, Background on Sugar Policy Issues, by Remy Jurenas.
8 For more information, see CRS Report RL33564, Alternative Fuels and Advanced
Technology Vehicles: Issues in Congress, by Brent D. Yacobucci.

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sugar ethanol.9 Feedstock costs accounted for most of this price differential.10 The
USDA study showed that while sugar ethanol may be a positive energy strategy in
such countries as Brazil, it may not be economical in the United States.11
Legislation. Section 9013 of H.R. 2419 incorporates a proposal presented by
the U.S. sugar production sector. The “Feedstock Flexibility Program for Bioenergy
Producers” would require USDA to administer a sugar-for-ethanol program using
sugar intended for food use but deemed to be in surplus. USDA would sell both
surplus sugar that it purchases if determined necessary to maintain prices above
support levels, and sugar acquired as a result of loan forfeitures to bioenergy
producers for processing into fuel grade ethanol and other biofuel. Competitive bids
would be used to purchase sugar from processors, at a price not less than sugar
program support levels, to then be sold in turn to ethanol firms. USDA would
implement this program only in those years where purchases are required to operate
the sugar program at no cost. Open-ended funding would be provided by the
Commodity Credit Corporation, USDA’s financing arm. This new program would
take effect in FY2008, one year prior to the expiration of current sugar program
authority.
Because it would cost much more to produced ethanol from U.S.-priced sugar
than from corn, this new program would require a considerable subsidy to operate as
intended. The prime market for such sugar likely would be existing and planned
corn-based ethanol facilities close to sugar beet and sugarcane producing areas (e.g.,
the Upper Midwest and Hawaii). Producers of ethanol from corn in the continental
United States, though, would likely need to adjust their fermentation process and/or
invest in new equipment to handle sugar. As a result, they may not be as interested
in purchasing sugar as a feedstock unless the price is significantly discounted further
(e.g., requiring even more of a subsidy) to reflect the additional costs of processing
sugar instead of corn. However, the availability of this subsidy could facilitate the
development of the ethanol sector in Hawaii and partially reduce the islands’
dependence on importing gasoline for its vehicle transportation needs. CBO
estimates that the demand created by this program would increase demand for sugar
and slightly reduce the cost of the sugar program itself (see Program Costs below).
It appears that a large portion of CBO’s earlier projected baseline cost of continuing
the current program, even with these estimated savings, assumes substantial
forfeitures as prices fall below support levels.
9 Office of Economics, The Economic Feasibility of Ethanol Production from Sugar in the
United States, July 2006.
10 In Brazil, the cost of producing raw cane sugar reportedly ranges from 6 to 9 cents per
pound (or 9 to 12 cents when converted to refined basis). In the United States, raw cane
sugar production costs range from 12 to 20 cents per pound; U.S. production costs for
refined beet sugar range from 17 to 33 cents per pound. For additional perspective, see
"Costs of Production and Sugar Processing" in USDA, Economic Research Service, Sugar
Backgrounder, July 2007, pp. 17-21.
11 This discussion is adapted from “Sugar Ethanol” in CRS Report RL33928, Ethanol and
Biofuels: Agriculture, Infrastructure, and Market Constraints Related to Expanded
Production, by Brent D. Yacobucci and Randy Schnepf.

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As formulated, this program would rely on U.S.-produced (rather than foreign)
sugar. The amount that USDA decides to purchase would approximate its estimate
of the extent that imports under trade agreements reduce the U.S. sugar price below
support levels. Producers support this provision, viewing it as an insurance policy
for receiving the benefits of a guaranteed minimum price for sugar marketed for food
use.
Sugar users oppose this program “to ostensibly manage surplus supplies.” In
their July 13th letter to Members of Congress, they argued that this authority “will
likely be used to short domestic markets, further restricting the availability of sugar
for food use in the U.S. market.” They characterized this approach as “wasteful of
taxpayer resources” because sugar is not price competitive with corn as a feedstock,
and will require large subsidies to ethanol producers “to induce them to accept the
sugar.”
Sugar Program Costs
USDA has succeeded in operating the sugar program at no cost for the years
covered by the 2002 farm bill. Though processors forfeited small quantities of sugar
in FY2004 and FY2005, USDA subsequently sold the acquired sugar to offset the
earlier outlays.12 The net revenue, or sales proceeds (shown as receipts in some
years), were from the sale of acquired sugar (see Table 2). The proceeds shown for
FY2003 reflected the sale of a significant amount of sugar acquired due to loan
forfeiture in FY2000 (under the previous farm bill’s sugar program provisions). In
Table 2. Outlays (–) or Receipts (+)
of the Sugar Program under the
2002 Farm Bill
Fiscal Year
millions of $
2003
+ 84
2004
– 61
2005
+ 86
2006
– 10
2007 Estimate
+ 10
Total, 2003-2007
+ 109
Source: USDA, Farm Service Agency, “CCC Net Outlays
by Commodity and Function,” June 2007 looking at the
entire five year time period, sugar program operations
generated more than $100 million in revenue.
12 The forfeiture of a price support loan results in a budget outlay, because the credit that had
been extended is not paid back by the processor (resulting in a loss to the U.S. government).
To the extent USDA succeeds in selling forfeited sugar, proceeds flow back to USDA and
reduce the loss.

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Budget forecasts issued earlier this year projected that the sugar program, if
continued without change, would cost almost $700 million (USDA) to about $800
million (CBO)for the five-years covered by the 2007 farm bill (FY2008-2012). For
the 10-year period (FY2008-2017), program outlays were projected at almost $1.3
billion (CBO) to $1.4 billion (USDA). These outlays reflect the effect of projected
sugar imports from Mexico and other FTA countries. Projections assume that this
additional supply depresses the domestic sugar price below support levels, and leads
processors to forfeit on portion of their loans.
Though the sugar price support and marketing loan provisions in the House farm
bill are designed to ensure that USDA operates the program at no cost, CBO scores
these provisions as increasing program outlays by $84 million over five years and
$167 million over 10 years. CBO projects that the sugar-for-ethanol program would
increase sugar demand and reduce sugar support program by $107 million over five
years and $240 million over 10 years. With these proposed policy changes, the net
cost of the sugar-related provisions in H.R. 2419 would be $659 million over five
years and $1.2 billion over 10 years (see Table 3).
Table 3. CBO’s Projection of Sugar Program’s Cost under
House Farm Bill
Total Projected Cost
CBO’s Baseline
Effect of House Farm
(Current Law &
Projection
Bill Policy Changes
House Farm Bill
(Current Law)
Changes)
Fiscal Year
Outlays, in millions of dollars
2008
215
0
215
2009
130
-8
122
2010
120
-2
118
2011
109
-4
105
2012
108
-9
99
Subtotal,
682
-23
659
2008 - 2012
Subtotal,
605
-50
555
2013 - 2017
TOTAL, 10-
1,287
-73
1,214
Years
Source: Derived by CRS from CBO’s March 2007 Baseline Projection and detailed CBO
cost estimate published in H.Rept. 110-256, Part 1 accompanying H.R. 2419, pp. 383, 392.

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