May 8, 2015
Fundamentals of the U.S. Sugar Program
The U.S. sugar program is singular among major farm
commodity programs in that it combines a floor price
guarantee with a supply management structure that
encompasses both domestic production for human use and
sugar imports. Historically, the U.S. sugar market has been
managed to help stabilize supplies and support prices. The
current sugar program provides a price guarantee to the
processors of sugarcane and sugar beets and, by extension,
to the producers of both crops. The 2014 farm bill (P.L.
113-79) reauthorized the sugar program that expired with
the 2013 crop year through crop year 2018 with no changes.
As before, it directs the U.S. Department of Agriculture
(USDA) 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 (see CRS Report
R43998, U.S. Sugar Program Fundamentals, by Mark A.
McMinimy). To achieve the dual objectives of providing a
price guarantee to producers while avoiding program costs,
USDA uses four tools to keep domestic market prices
above guaranteed levels. These are:
• Price support loans—the basis for the price guarantee;
• Marketing allotments to limit the amount of sugar that
each processor can sell for domestic human use;
• Import quotas to control imports of foreign sugar; and
• A sugar-to-ethanol backstop (Feedstock Flexibility
Program)—to remove sugar from food channels to help
keep market prices above loan forfeiture levels.
In addition, agreements with Mexico that were finalized in
late 2014 impose important limits on a hitherto substantial
and unrestricted supply of sugar to the U.S. market.
Key Program Element: Price Support Loans
loan rate. This “effective support level,” also called the
“loan forfeiture level,” represents all of the costs that
processors need to offset to make it economically viable 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 2014-crop
raw cane sugar is 20.95¢/lb, and from 24.4¢ to 26.1¢/lb for
refined beet sugar, depending on the region.
If market prices are below these loan forfeiture levels when
a price support loan usually comes due (i.e., from July to
September), and a processor hands over sugar pledged as
collateral rather than repaying the loan, USDA records a
budgetary expense (i.e., an outlay). USDA then gains title
to the sugar and is responsible for disposing of it. To avoid
loan forfeitures that could result in costly government
outlays, USDA sets annual limits on the quantity of
domestically produced sugar that can be sold for human
use. It also restricts the level of imports that may enter the
domestic market through tariff-rate quotas and via an
import limitation agreement with Mexico.
Figure 1. U.S. Supply and Overall Allotment Quantity
million tons, raw value
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 or beet sugar
refiner sells sugar. The “nonrecourse” feature means that
processors—to meet their loan repayment obligation—can
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. The “loan rate” is the amount
processors receive for placing sugar under loan. For 2014
crops (FY2015), the national average raw cane sugar loan
rate is 18.75¢/lb; that of refined beet sugar is higher at
24.09¢/lb. The loan rate for raw cane sugar is lower because
raw cane must be further processed to have the same value
and characteristics as refined beet sugar for food use.
The minimum market price that a processor requires to
repay the loan instead of forfeiting sugar is higher than the
Overall Allotment Quantity
Source: Derived by CRS from USDA sugar program announcements
and USDA’s World Agricultural Supply and Demand Estimates.
Key Program Element: Marketing Allotments
Sugar marketing allotments limit the amount of
domestically produced sugar that processors can sell each
year. They do not 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. The farm bill requires USDA each year to set the
overall allotment quantity (OAQ) at not less than 85% of
estimated U.S. human consumption of sugar for food as
illustrated in Figure 1. Sugar production in excess of a
processors’ allotment may only be sold for human use to
allow another processor to meet its allocation or for export.
www.crs.gov | 7-5700
Fundamentals of the U.S. Sugar Program
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 1
illustrates the persistent gap between domestic sugar
production, the higher levels of the OAQ, and U.S.
domestic consumption for human use. As a result,
substantial quantities of sugar have been imported to cover
shortfall between domestic output and human consumption.
Key Program Element: Import Quotas
The United States imports sugar in order to meet total food
demand. From FY2012 through FY2014, imports accounted
for 31% of U.S. sugar used in food and beverages. The
amount of foreign sugar supplied to the U.S. market reflects
U.S. tariff-rate quota (TRQ) import commitments under
various trade agreements at low, or zero, tariff rates (Table
1), as well as sugar imported from Mexico.
Table 1. Major U.S. Tariff-Rate Quota Commitments
(Quantities are in short tons, raw value)
World Trade Organization
Source: U.S. Customs and Border Protection.
Notes: CAFTA-DR includes Costa Rica, Dominican Republic,
El Salvador, Guatemala, Honduras and Nicaragua.
Panama and Peru have smaller TRQs of 6,740 and 2,000
short tons, raw value, respectively, for 2015. High tariffs
discourage imports of over-quota sugar to help fulfill the
farm bill directive to avoid incurring program costs.
Policy Mechanisms to Counter Low Prices
In addition to domestic marketing allotments, import
quotas, limits and tariffs, USDA has several policy tools to
help prevent prices from slipping below effective loan
forfeiture levels that could result in budget outlays. These
include offering Commodity Credit Corporation-owned
sugar to processors in exchange for surrendering rights to
import tariff-rate quota sugar; purchasing sugar from
processors in exchange for surrendering tariff-rate quota
sugar; and purchasing sugar for domestic human use from
processors for resale to ethanol producers for fuel ethanol
production under the Feedstock Flexibility Program (FFP).
Agreements Recast Sugar Trade with Mexico
Events subsequent to the reauthorization of the sugar
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
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.
The suspension agreements stem from parallel
countervailing duty (CVD) and antidumping (AD)
investigations initiated in the spring of 2014 by the U.S.
government at the behest of U.S. sugar industry interests.
Duties were applied to Mexican sugar imports in the fall of
2014, when preliminary findings in the investigations
concluded that Mexican sugar was being subsidized by the
government and dumped in the U.S. market and that these
actions were injuring the U.S. sugar industry. The
suspension agreements suspended the CVD and AD
investigations and removed the duties in exchange for a
number of concessions from Mexico, among which:
• Mexico agreed to relinquish the unlimited, duty-free
access to the U.S. sugar market it achieved in 2008 via
the North American Free Trade Agreement (NAFTA);
• Mexican sugar exports to the United States would be
subject to minimum references prices (at Mexican
plants) of 26¢/lb for refined sugar and 22.25¢/lb for all
other sugar, levels well above U.S. loan support.
Prior to the suspension agreements, imports of sugar from
Mexico amounted to about 15% of the sum of U.S. sugar
production plus imports during the three most recent years,
from FY2012 through FY2014, and represented the only
unmanaged source of supply under the sugar program. The
agreements impose an annual export limit on Mexican
sugar based on an assessment by USDA of U.S. needs after
taking into account domestic production and TRQ imports.
Suspension Agreements: Looking Forward
The changes ushered in by the suspension agreements are
expected to greatly facilitate USDA’s task of operating the
sugar program at no cost to the government. Also, prior to
the agreements, Mexican officials had suggested that
retaliation could follow if the duties on Mexican sugar
remained in place. Critics, including the Coalition for Sugar
Reform, representing sugar user groups, contend the
agreements will result in higher sugar prices for sugar users
and consumers. Alternatively, the American Sugar
Alliance, which represents many elements of the U.S. sugar
industry, has voiced support for the agreements, contending
they will foster free and fair trade in sugar, while benefiting
farmers, sugar workers, consumers and taxpayers. A
measure of uncertainty has settled around the agreements
because two U.S. sugarcane refiners have persuaded the
Department of Commerce to continue the CVD and AD
investigations to final determinations, which are expected
by mid-September 2015. If the final determinations reverse
the preliminary findings that Mexican sugar was subsidized
and dumped, or if the International Trade Commission finds
the U.S. sugar industry was not injured by these actions,
then the suspension agreements would be terminated.
Mark A. McMinimy, email@example.com, 7-2172
www.crs.gov | 7-5700