Sugar Program: The Basics
Remy Jurenas
Specialist in Agricultural Policy
March 14, 2013
Congressional Research Service
7-5700
www.crs.gov
R42535
CRS Report for Congress
Pr
epared for Members and Committees of Congress

---

Sugar Program: The Basics

Contents
Sugar Policy Overview .................................................................................................................... 1
Price Support Loans ......................................................................................................................... 1
Marketing Allotments ...................................................................................................................... 4
Import Quotas .................................................................................................................................. 7
Feedstock Flexibility Program for Bioenergy Producers ............................................................... 10

Figures
Figure 1. Price Support Loan Making Process for Raw Cane Sugar ............................................... 2
Figure 2. Price Support Loan Making Process for Refined Beet Sugar .......................................... 3
Figure 3. Raw Cane Sugar Prices Have Been Above Loan Forfeiture Level During Most
of the 2008 Farm Bill Period To Date ........................................................................................... 3
Figure 4. Refined Beet Sugar Prices Have Been Above Loan Forfeiture Range During
Entire 2008 Farm Bill Period to Date ........................................................................................... 4
Figure 5. Overall Allotment Quantity Compared to Total U.S. Sugar Supply ................................. 5
Figure 6. USDA Marketing Allotment Decisions Made During FY2011 ........................................ 6
Figure 7. U.S. Sugar Imports, by Trade Agreement......................................................................... 8
Figure 8. Timing of USDA Decisions on Increasing WTO Raw Cane Sugar Import Quota ........... 9

Contacts
Author Contact Information........................................................................................................... 10
Acknowledgments ......................................................................................................................... 10

Congressional Research Service

---

Sugar Program: The Basics

Sugar Policy Overview
The sugar program provides a price guarantee to the processors of sugarcane and sugar beets, and
in turn, to the producers of both crops. The U.S. Department of Agriculture (USDA) further is
directed to administer the program at no budgetary cost to the federal government by limiting the
amount of sugar supplied for food use in the U.S. market. To achieve both objectives, USDA uses
four tools—authorized by the 2008 farm bill and long-standing trade law—to keep domestic
market prices above guaranteed levels. These are:
• price support loans at specified levels—the basis for the price guarantee,
• marketing allotments to limit the amount of sugar that each processor can sell,
• import quotas to restrict the amount of sugar allowed to enter the U.S. market,
and
• a sugar-to-ethanol (feedstock flexibility) backstop—available if marketing
allotments and import quotas fail to prevent a sugar surplus from developing (i.e.,
fail to keep market prices above guaranteed levels).
Price Support Loans
Nonrecourse loans taken out by a processor of a sugar crop, not producers themselves, provide a
source of short-term, low-cost financing until a raw cane sugar mill and beet sugar refiner sell
sugar. Their “non-recourse” feature means that processors—to meet their repayment obligation—
can exercise the legal right to forfeit sugar offered as collateral to USDA to secure the loan, if the
market price is below the effective support level when the loan comes due. Figure 1 and Figure 2
illustrate the options available to beet sugar refiners and raw cane sugar mills, respectively, and
show FY2013 loan rates and effective support levels.
The price levels at which processors can take out loans are referred to as “loan rates.” The raw
cane sugar loan rate (18.75¢/lb.) is lower than the refined beet sugar loan rate (24.09¢/lb.) to
reflect its unprocessed state. Raw sugar must be further processed by a cane refinery to have the
same value and characteristics as refined beet sugar for use in households and in food
manufacturing.
The minimum market price that a processor wants to receive in order to remove the incentive to
forfeit sugar and instead repay a price support loan, though, is higher than the loan rate. The
“effective support level,” also called the loan forfeiture level, represents all of the costs that
processors want to cover if they decide to repay the loan. These costs equal the loan rate, plus
interest accrued over the nine-month term of the loan, plus certain marketing costs. The effective
support level for raw cane sugar is 20.94¢/lb.; for refined beet sugar it ranges from 24.0¢ to
26.2¢/lb., depending on the region.
If market prices are below these loan forfeiture levels when a price support loan comes due (i.e.,
July to September), and a processor hands over sugar earlier pledged to obtain this loan rather
than repaying it, USDA records a budgetary expense (i.e., an outlay). If this occurs, USDA gains
title to the sugar and is responsible for disposing of this asset.
Congressional Research Service
1

---

Sugar Program: The Basics

Market prices for raw cane sugar and refined beet sugar since the 2008 farm bill provisions took
effect have been higher than loan forfeiture levels (Figure 3 and Figure 4, respectively).
Figure 1. Price Support Loan Making Process for Raw Cane Sugar

Note: As of March 12, 2013, mil s that process sugarcane had placed 728,383 tons of raw cane sugar under loan.
This represents 19% of USDA’s March 2013 estimate of raw cane sugar production from the 2012 sugarcane
crop. More will be placed under loan as processing of sugarcane continues through late winter.
Congressional Research Service
2

---

Sugar Program: The Basics

Figure 2. Price Support Loan Making Process for Refined Beet Sugar

Note: As of March 12, 2013, processors of sugar beets had placed 1,319,950 tons of beet sugar and in-process
beet sugar under loan. This represents 25% of USDA’s March 2013 estimate of refined beet sugar production
from the 2012 sugar beet crop. More will be placed under loan as processing of sugar beets continues through
early spring.
Figure 3. Raw Cane Sugar Prices Have Been Above Loan Forfeiture Level During
Most of the 2008 Farm Bill Period To Date
41
38
Raw Cane Sugar Price
35
d 32
r poun
e 29
p
ts 26
cen
23
Loan Forfeiture Level
20
17

Source: USDA, Economic Research Service, for price data; USDA, Farm Service Agency, for loan forfeiture
level.
Congressional Research Service
3

---

Sugar Program: The Basics

Note: Raw cane sugar market price is the average futures price for the nearby month contract for domestic
#16, traded in New York City on the Intercontinental Exchange (ICE).
Figure 4. Refined Beet Sugar Prices Have Been Above Loan Forfeiture Range During
Entire 2008 Farm Bill Period to Date
61
57
Refined Beet Sugar Price
53
49
und 45
r po 41
ts pe 37
cen 33
Loan Forfeiture Range
29
25
21

Source: USDA, Economic Research Service, for price data; USDA, Farm Service Agency, for loan forfeiture
range.
Note: The market price for refined beet sugar is the quoted price for wholesale refined beet sugar in Midwest
markets, as published by Milling and Baking News.
Marketing Allotments
Sugar marketing allotments limit the amount of domestically produced sugar that processors can
sell each year. They do not, however, limit how much beet and cane farmers can produce, nor do
they limit how much sugar beets and sugarcane that beet refiners and raw sugar mills can process.
In a 2008 farm bill change, USDA each year must set the overall allotment quantity (OAQ) at not
less than 85% of estimated U.S. human consumption of sugar for food. The OAQ is intended to
ensure that permitted sales of domestic sugar, when added to imports under U.S. trade
commitments, do not depress market prices below loan forfeiture levels for refined beet sugar and
raw cane sugar.
In recent years, because of growing U.S. sugar demand and weather’s impact on domestic output,
processors have sold all of the sugar they produced. From FY2009 to FY2012, U.S. sugar
production supplied almost 73% of total U.S. food use of sugar. Imports of sugar covered the
balance needed to meet U.S. demand (Figure 5). For this reason, market participants view
USDA’s decisions on setting import quotas rather than marketing allotments as having more of an
impact on market price levels (see “Import Quotas”).
The national OAQ is split between the beet and cane sectors, and then allocated to processing
companies based on previous sales and production capacity. If either sector is not able to supply
sugar against its allotment, USDA has authority to reassign such a “shortfall” to imports. Figure
6 lays out the details of USDA’s marketing allotment decisions made during FY2011 to illustrate
how the complex statutory provisions are administered.
Congressional Research Service
4

---

Sugar Program: The Basics

Figure 5. Overall Allotment Quantity Compared to Total U.S. Sugar Supply
12.0
Imports
10.0
9.24
9.24
9.40
9.61
9.71
8.0
Cane Sugar
value 6.0
aw
, r
ion tons 4.0
ll
mi
Beet Sugar
2.0
0.0
2009
2010
2011
2012
2013 E
Fiscal Year
Overall Allotment Quantity

Source: Derived by CRS from USDA sugar program announcements, and USDA’s World Agricultural Supply
and Demand Estimates reports.
Note: Imports shown occur under terms of U.S. trade commitments, discussed in the next section.
Congressional Research Service
5

---

Sugar Program: The Basics

Figure 6. USDA Marketing Allotment Decisions Made During FY2011
Relationship to U.S. Sugar Production and Imports

Source: Derived by CRS from USDA and Farm Service Agency press releases.
a. OAQ amount announced was equal to 88% of USDA’s food use estimate made in its August 2010 World
Agricultural Supply and Demand Estimates (WASDE) report.
b. Florida, Louisiana, Texas, and Hawai
c. OAQ change reflects USDA’s increase in estimated FY2011 U.S. sugar consumption for food in June 2011
WASDE report. The adjusted OAQ equaled 85.5% of estimated food use, just above required minimum. The
OAQ increase allowed for reassignment of allocations from beet sugar processors unable to fill them, to beet
processors with a supply of sugar available to sell into the marketplace. The increase in the cane allotment
allowed for small adjustments in some raw cane sugar mill al otments. The difference between the adjusted cane
sugar allotment and raw cane sugar production (i.e., the shortfall) was reassigned to imports of raw sugar.
d. USDA estimate made June 2011, which then remained unchanged through September 2011.
e. The 2008 farm bill al ows for reassigning beet sugar shortfall to imports of refined sugar. USDA decided not to
exercise this authority.
f. April and June reassignments were partial y covered by the two increases that USDA announced to the FY2011
WTO import quota (see Figure 8).
g. Final beet and cane al otments, plus the 925,000 ton shortfal reassigned to raw sugar imports, equals the
9,400,000 ton OAQ announced on June 21, 2011.
Congressional Research Service
6

---

Sugar Program: The Basics

Import Quotas
The United States imports sugar in order to meet total food demand. From FY2009 to FY2012,
imports accounted for almost 28% of U.S. sugar used in food and beverages. The amount of
foreign sugar supplied to the U.S. market reflects U.S. commitments made under various trade
agreements. At the same time, a 2008 farm bill provision directs USDA to manage overall U.S.
sugar supply, including imports, so that market prices do not fall below effective support levels.
The most significant import limit is the World Trade Organization (WTO) quota commitment,
which requires the United States to allow not less than 1.256 million tons of sugar (almost all raw
cane) to enter the domestic market from 40 countries. The United States also grants much smaller
import quotas to the six countries covered by the Dominican Republic-Central American Free
Trade Agreement (DR-CAFTA), and to Colombia and Panama under separate free trade
agreements.
Under NAFTA (North American Free Trade Agreement), though, Mexico is free to export any
amount of sugar to the U.S. market. This unrestricted access has introduced uncertainty as to how
much sugar Mexico will ship north in any year. To illustrate, imports since 2008 have ranged
from a low of about 800,000 tons (FY2010) to a high of 1.7 million tons (FY2011). This
variability (Figure 7) reflects large swings in the amount of Mexican sugar available for export in
any year, depending on the impact of drought in some years in Mexico’s sugarcane producing
regions, and the degree to which U.S. exports of cheaper high-fructose corn syrup displace
Mexican consumption of Mexican-produced sugar.
During the FY2009-FY2012 period, almost 53% of U.S. sugar imports entered under the U.S.
WTO commitment. Mexico shipped about 41%, and the DR-CAFTA countries almost 4%
(Figure 7).
To address the uncertainty expected from imports of Mexican sugar, the 2008 farm bill introduced
a new tool to regulate imports, as follows:
At the beginning of the marketing year (October 1), USDA must set the WTO quotas for raw cane
and refined sugar at the minimum level (1.256 million tons) necessary to comply with this trade
commitment (Figure 7). In case there is an emergency sugar shortage (caused by weather or war)
before April 1 of any year, USDA is required to increase these quotas. If there is no such
emergency, USDA must wait until April 1 (the midpoint of the marketing year) before deciding
whether or not to increase the WTO raw sugar quota. Figure 8 shows the timing of USDA
decisions to increase or modify the WTO raw sugar quota under this 2008 provision.
Congressional Research Service
7

---

Sugar Program: The Basics

Figure 7. U.S. Sugar Imports, by Trade Agreement
Raw Cane and Refined Sugar
4.0
WTO Minimum Import Commitment
3.5
3.0
e 2.5
alu
v
aw
, r 2.0
ns
to
n
illio 1.5
m
1.0
0.5
0.0
2009
2010
2011
2012
2013 E
Fiscal Year
a
b
WTO
Mexico / NAFTA
DR-CAFTA
Other

Source: USDA, Economic Research Service, Foreign Agricultural Service, and the World Agricultural Outlook
Board.
Notes: Imports for domestic food/beverage consumption only; excludes sugar imported for the sugar re-export
program.
a. FY2013 imports under the WTO commitment reflect a 400,000 ton shortfal (i.e., the cumulative amount of
sugar that eligible countries with a quota can sell, but are not expected to ship, to the U.S. market for various
reasons).
b. In FY2010, “Other” largely represents entries of over-quota imports of sugar outside of trade agreement
quota commitments. These were subject to a very high tariff. In FY2012 and FY2013, “Other” primarily refers to
entries of sugar imports on preferential terms: from Colombia under the FTA that took effect on May 15, 2012,
and from Panama under the FTA that took effect on October 31, 2012.



Congressional Research Service
8

---

Sugar Program: The Basics

Figure 8. Timing of USDA Decisions on Increasing WTO Raw Cane Sugar Import Quota


Source: Derived by CRS from Farm Service Agency and Foreign Agricultural Service press releases.

CRS-9

---

Sugar Program: The Basics

Feedstock Flexibility Program for Bioenergy
Producers
If market prices fall below levels guaranteed by the sugar program, USDA must administer a
sugar-for-ethanol program using domestic sugar intended for food use. When the Secretary of
Agriculture determines that activating this program is necessary to keep prices above effective
support levels, USDA will sell purchased surplus sugar 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 by USDA to purchase sugar from processors, which it would
then sell to ethanol firms. USDA would implement this program only in those years where
purchases are required to avoid loan forfeitures and ensure that the sugar program operates at no
cost.
USDA has not used this last-resort mechanism since authorized in the 2008 farm bill, because
sugar prices have been above effective support levels. However, over the last year, raw cane sugar
prices have fallen considerably and now are skirting the raw sugar loan forfeiture level (Figure
3). As a result, USDA faces the possibility of needing to decide this coming summer whether or
not to activate this backstop to ensure that producers and processors receive the minimum price
guaranteed by the sugar program.

Author Contact Information

Remy Jurenas

Specialist in Agricultural Policy
rjurenas@crs.loc.gov, 7-7281


Acknowledgments
Jamie Hutchinson and Amber Wilhelm assisted with the charts in this report.
Congressional Research Service
10

---