May 8, 2015
Fundamentals of the U.S. Sugar Program
Overview
loan rate. This “effective support level,” also called the
“loan forfeiture level,” represents all of the costs that
The U.S. sugar program is singular among major farm
processors need to offset to make it economically viable to
commodity programs in that it combines a floor price
repay the loan. These costs equal the loan rate, plus interest
guarantee with a supply management structure that
accrued over the nine-month term of the loan, plus certain
encompasses both domestic production for human use and
marketing costs. The effective support level for 2014-crop
sugar imports. Historically, the U.S. sugar market has been
raw cane sugar is 20.95¢/lb, and from 24.4¢ to 26.1¢/lb for
managed to help stabilize supplies and support prices. The
refined beet sugar, depending on the region.
current sugar program provides a price guarantee to the
processors of sugarcane and sugar beets and, by extension,
If market prices are below these loan forfeiture levels when
to the producers of both crops. The 2014 farm bill (P.L.
a price support loan usually comes due (i.e., from July to
113-79) reauthorized the sugar program that expired with
September), and a processor hands over sugar pledged as
the 2013 crop year through crop year 2018 with no changes.
collateral rather than repaying the loan, USDA records a
As before, it directs the U.S. Department of Agriculture
budgetary expense (i.e., an outlay). USDA then gains title
(USDA) to administer the program at no budgetary cost to
to the sugar and is responsible for disposing of it. To avoid
the federal government by limiting the amount of sugar
loan forfeitures that could result in costly government
supplied for food use in the U.S. market (see CRS Report
outlays, USDA sets annual limits on the quantity of
R43998, U.S. Sugar Program Fundamentals, by Mark A.
domestically produced sugar that can be sold for human
McMinimy). To achieve the dual objectives of providing a
use. It also restricts the level of imports that may enter the
price guarantee to producers while avoiding program costs,
domestic market through tariff-rate quotas and via an
USDA uses four tools to keep domestic market prices
import limitation agreement with Mexico.
above guaranteed levels. These are:
Figure 1. U.S. Supply and Overall Allotment Quantity
• Price support loans—the basis for the price guarantee;
12.0
• Marketing allotments to limit the amount of sugar that
each processor can sell for domestic human use;
10.0
9.61
9.71
9.84
9.99
Import
o s
• Import quotas to control imports of foreign sugar; and
8.0
• A sugar-to-ethanol backstop (Feedstock Flexibility
Cane
n
Program)—to remove sugar from food channels to help
lue
a
v 6.0
Sugar
keep market prices above loan forfeiture levels.
aw
, r
ns
4.0
In addition, agreements with Mexico that were finalized in
illion to
m
late 2014 impose important limits on a hitherto substantial
Beet
2.0
and unrestricted supply of sugar to the U.S. market.
Sugar
Key Program Element: Price Support Loans
0.0
2012
2013
2014
2015 Proj
Fiscal Year
Nonrecourse loans taken out by a processor of a sugar crop,
Ove
v rall Allot
all Allo men
e t
t Quant
an ity

not producers themselves, provide a source of short-term,
Source: Derived by CRS from USDA sugar program announcements
low-cost financing until a raw cane sugar mill or beet sugar
and USDA’s World Agricultural Supply and Demand Estimates.
refiner sells sugar. The “nonrecourse” feature means that
processors—to meet their loan repayment obligation—can
Key Program Element: Marketing Allotments
forfeit sugar offered as collateral to USDA to secure the
loan, if the market price is below the effective support level
Sugar marketing allotments limit the amount of
when the loan comes due. The “loan rate” is the amount
domestically produced sugar that processors can sell each
processors receive for placing sugar under loan. For 2014
year. They do not limit how much beet and cane farmers
crops (FY2015), the national average raw cane sugar loan
can produce, nor do they limit how much sugar beets and
rate is 18.75¢/lb; that of refined beet sugar is higher at
sugarcane that beet refiners and raw sugar mills can
24.09¢/lb. The loan rate for raw cane sugar is lower because
process. The farm bill requires USDA each year to set the
raw cane must be further processed to have the same value
overall allotment quantity (OAQ) at not less than 85% of
and characteristics as refined beet sugar for food use.
estimated U.S. human consumption of sugar for food as
illustrated in Figure 1. Sugar production in excess of a
The minimum market price that a processor requires to
processors’ allotment may only be sold for human use to
repay the loan instead of forfeiting sugar is higher than the
allow another processor to meet its allocation or for export.
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Fundamentals of the U.S. Sugar Program
The national OAQ is split between the beet and cane sectors
The suspension agreements stem from parallel
and then allocated to processing companies based on
countervailing duty (CVD) and antidumping (AD)
previous sales and production capacity. If either sector is
investigations initiated in the spring of 2014 by the U.S.
not able to supply sugar against its allotment, USDA has
government at the behest of U.S. sugar industry interests.
authority to reassign such a “shortfall” to imports. Figure 1
Duties were applied to Mexican sugar imports in the fall of
illustrates the persistent gap between domestic sugar
2014, when preliminary findings in the investigations
production, the higher levels of the OAQ, and U.S.
concluded that Mexican sugar was being subsidized by the
domestic consumption for human use. As a result,
government and dumped in the U.S. market and that these
substantial quantities of sugar have been imported to cover
actions were injuring the U.S. sugar industry. The
shortfall between domestic output and human consumption.
suspension agreements suspended the CVD and AD
investigations and removed the duties in exchange for a
Key Program Element: Import Quotas
number of concessions from Mexico, among which:
• Mexico agreed to relinquish the unlimited, duty-free
The United States imports sugar in order to meet total food
demand. From FY2012 through FY2014, imports accounted
access to the U.S. sugar market it achieved in 2008 via
the North American Free Trade Agreement (NAFTA);
for 31% of U.S. sugar used in food and beverages. The
amount of foreign sugar supplied to the U.S. market reflects
• Mexican sugar exports to the United States would be
U.S. tariff-rate quota (TRQ) import commitments under
subject to minimum references prices (at Mexican
various trade agreements at low, or zero, tariff rates (Table
plants) of 26¢/lb for refined sugar and 22.25¢/lb for all
1), as well as sugar imported from Mexico.
other sugar, levels well above U.S. loan support.
Table 1. Major U.S. Tariff-Rate Quota Commitments
Prior to the suspension agreements, imports of sugar from
(Quantities are in short tons, raw value)
Mexico amounted to about 15% of the sum of U.S. sugar
production plus imports during the three most recent years,
Trade Agreement
CY2015 Quantity
from FY2012 through FY2014, and represented the only
unmanaged source of supply under the sugar program. The
World Trade Organization
1,256,000
agreements impose an annual export limit on Mexican
CAFTA-DR 138,100
sugar based on an assessment by USDA of U.S. needs after
taking into account domestic production and TRQ imports.
Columbia 52,250
Source: U.S. Customs and Border Protection.
Suspension Agreements: Looking Forward
Notes: CAFTA-DR includes Costa Rica, Dominican Republic,
El Salvador, Guatemala, Honduras and Nicaragua.
The changes ushered in by the suspension agreements are
expected to greatly facilitate USDA’s task of operating the
Panama and Peru have smaller TRQs of 6,740 and 2,000
sugar program at no cost to the government. Also, prior to
short tons, raw value, respectively, for 2015. High tariffs
the agreements, Mexican officials had suggested that
discourage imports of over-quota sugar to help fulfill the
retaliation could follow if the duties on Mexican sugar
farm bill directive to avoid incurring program costs.
remained in place. Critics, including the Coalition for Sugar
Reform, representing sugar user groups, contend the
Policy Mechanisms to Counter Low Prices
agreements will result in higher sugar prices for sugar users
and consumers. Alternatively, the American Sugar
In addition to domestic marketing allotments, import
Alliance, which represents many elements of the U.S. sugar
quotas, limits and tariffs, USDA has several policy tools to
industry, has voiced support for the agreements, contending
help prevent prices from slipping below effective loan
they will foster free and fair trade in sugar, while benefiting
forfeiture levels that could result in budget outlays. These
farmers, sugar workers, consumers and taxpayers. A
include offering Commodity Credit Corporation-owned
measure of uncertainty has settled around the agreements
sugar to processors in exchange for surrendering rights to
because two U.S. sugarcane refiners have persuaded the
import tariff-rate quota sugar; purchasing sugar from
Department of Commerce to continue the CVD and AD
processors in exchange for surrendering tariff-rate quota
investigations to final determinations, which are expected
sugar; and purchasing sugar for domestic human use from
by mid-September 2015. If the final determinations reverse
processors for resale to ethanol producers for fuel ethanol
the preliminary findings that Mexican sugar was subsidized
production under the Feedstock Flexibility Program (FFP).
and dumped, or if the International Trade Commission finds
the U.S. sugar industry was not injured by these actions,
Agreements Recast Sugar Trade with Mexico
then the suspension agreements would be terminated.
Events subsequent to the reauthorization of the sugar
Mark A. McMinimy, mmcminimy@crs.loc.gov, 7-2172
program in the 2014 farm bill have materially altered the

U.S. sugar market. In December 2014, the U.S. government
signed so-called “suspension agreements” with the Mexican
IF10223
government and with the Mexican sugar industry that have
fundamentally altered bilateral trade in sugar with Mexico,
with implications for the sugar program and sugar users.
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