Farm Bill Primer: Sugar Program

Farm Bill Primer: Sugar Program

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Updated May 15, 2018
Farm Bill Primer: Sugar Program
Congress reauthorized the sugar program in the 2014 farm
cane sectors and is then allocated among processors based
bill (P.L. 113-79) with no changes from the version it
on previous sales and processing capacity. Any shortfalls
authorized in the 2008 farm bill (P.L. 110-246), making it
between the OAQ and what processors are able to supply
an anomaly among major commodity programs. The U.S.
may be reassigned to imports. Such shortfalls have been a
sugar program also stands out compared with other farm
regular feature of the sugar program, averaging 26% of U.S.
bill commodity programs in that it combines a price support
sugar consumption between FY2015 and FY2017.
feature with a supply management structure that limits both
3. Import quotas. In recent years (FY2015-FY2017),
sugar production for domestic human use and imports. The
domestic production of sugar has met about 74% of U.S.
objectives behind this market intervention are to support
food use of sugar on average, with the balance supplied by
domestic sugar prices without incurring budgetary costs to
imports. The quantity of foreign sugar entering the U.S.
the federal government while also ensuring that adequate
market reflects U.S. tariff rate quota (TRQ) imports under
supplies of beet and cane sugar are available to sugar users.
various trade agreements, as well as duty-free sugar from
A significant development that occurred after Congress
Mexico under bilateral suspension agreements.
reauthorized the sugar program is two bilateral agreements
TRQ sugar imported under various trade agreements at low
with Mexico that limit imports of Mexican sugar. These
or zero tariff rates is shown in Table 1 below. In addition,
exist outside of the sugar program but have had significant
for FY2017, Panama and Peru have TRQs of 7,628 and
implications for the sugar market, as Mexican sugar
2,205 short tons, raw value, respectively. High tariffs are
represents a significant share of U.S. sugar needs.
applied to non-TRQ sugar, amounting to 15.36 cents/lb. for
Four Pillars of the Sugar Program
raw sugar and 16.21 cents/lb. for refined sugar. The tariffs
The U.S. Department of Agriculture (USDA) employs four
effectively discourage over-quota imports, thus supporting
basic mechanisms to keep domestic sugar prices above
market prices and facilitating the farm bill objective of
support levels in order to avoid incurring program costs as
avoiding program costs as a result of loan forfeitures.
directed by Congress. These are price support loans,
marketing allotments, import quotas, and various policy
Table 1. Major U.S. Tariff-Rate Quota Commitments
mechanisms to counter low prices.
(Quantities are in short tons, raw value)
1. Price support loans. USDA price support loans are
Trade Agreement
FY2018 Quantity
available to processors of a sugar crop, not to producers.
They provide short-term, low-cost financing until a raw
World Trade Organization
1,432,118
sugar cane mill or sugar beet processor sells the refined
CAFTA-DR
149,319
sugar while also supporting sugar prices. The loans are
made at statutory rates of 18.75 cents/lb. for raw sugar cane
Colombia
60,076
and 24.09 cents/lb. for refined beet, pledging sugar as the
Source: U.S. Customs and Border Protection.
collateral against the loan. The loans are “nonrecourse,”
Notes: CAFTA-DR includes Costa Rica, the Dominican Republic, El
meaning that when the loan comes due, the sugar processor
Salvador, Guatemala, Honduras, and Nicaragua.
has the option of forfeiting the sugar to USDA. Forfeitures
would typically occur when market prices fall below the
4. Policy tools for countering low prices. In the event that
effective support level (i.e., the sum of the loan rate plus
price support loans, marketing allotments, and import
accrued interest over the nine-month term of the loan plus
quotas and tariffs are insufficient to prevent the government
certain marketing costs). In this circumstance, USDA
from incurring costs through loan forfeitures, the farm bill
would incur a budgetary cost (i.e., an outlay), gain title to
provides several mechanisms that USDA can employ to
the sugar, and be responsible for disposing of it.
remove price-depressing surpluses of sugar. USDA may
2. Marketing allotments. Each year, USDA establishes
offer processors sugar owned by the Commodity Credit
marketing allotments that limit the quantity of sugar that
Corporation in exchange for surrendering rights to TRQ
U.S. processors can sell for domestic human use. The
sugar. USDA may also purchase sugar from processors in
allotments do not limit how much sugar beet and cane that
exchange for giving up TRQ sugar. Under the Feedstock
growers can produce, nor do they limit how much sugar
Flexibility Program, USDA may purchase sugar for
beet refiners and raw cane sugar mills can process. Sugar
domestic human use from processors for resale to ethanol
produced in excess of a processor’s allotment may be sold
producers for fuel ethanol production.
for export or to another processor to allow it to meet its
Program outlays have been essentially zero over the past 10
allocation for domestic human use. The farm bill directs
years with the exception of the 2012/2013 crop year, when
that USDA calculate an overall allotment quantity (OAQ)
a supply glut depressed prices, triggering loan forfeitures
of not less than 85% of estimated U.S. human consumption
and government intervention measures costing $259
of sugar for food. The OAQ is divided between the beet and
million.
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Farm Bill Primer: Sugar Program
Sugar from Mexico a Complicating Factor
reducing the rate for raw cane sugar from 18.75 cents/lb.
A development that is outside the purview of the farm bill,
currently to 18 cents/lb. by crop year 2021, while the rate
but affects the operation of the sugar program, is imported
for sugar beets would be reduced proportionally; (2) direct
sugar from Mexico. Until 2014, sugar from Mexico
USDA to recover from domestic sugar processors the net
represented the only unmanaged source of duty-free sugar
cost of the program beginning in crop year 2019; (3)
in the U.S. market, access that Mexico obtained beginning
terminate flexible marketing allotments that limit the
in 2008 under the North American Free Trade Agreement.
quantity of U.S. sugar that domestic processors can sell into
In the three most recently completed marketing years,
the U.S. market for human consumption beginning in
Mexican sugar has represented between 11% and 18% of
FY2021; (4) direct the Secretary of Agriculture to adjust
U.S. sugar production plus imports, making it the largest
sugar tariff-rate quota imports to achieve an ending stocks-
source of imported sugar.
to-use ratio of 14.5% in FY2019, 15% in FY2020, and
Mexico’s un
15.5% in FY2021-FY2023, which is at or above the 13.5-
restricted access to the U.S. sugar market
14.5% that USDA normally targets; (5) allow countries
ended in December 2014 when the Department of
with TRQ rights to the U.S. market to transfer quota to
Commerce (DOC), Mexico, and Mexican sugar exporters
other countries without affecting their allocation in
signed antidumping duty (AD) and countervailing duty
subsequent years in order to achieve higher stocks-to-use
(CVD) suspension agreements (SAs) that imposed several
ratios; and (6) terminate the surplus sugar-to-ethanol
limitations on this trade. The SAs prevented steep duties
Feedstock Flexibility Program after FY2019.
from being imposed on U.S. imports of Mexican sugar after
the U.S. government concluded that Mexican sugar was
Possible Issues for Congress
being subsidized by the government and dumped in the
Controversy has long been a hallmark of the sugar program
U.S. market and that these actions had injured the U.S.
within Congress, among sugar industry stakeholders, and
sugar industry. The CVD duties ranged from 5.78% to
with businesses that operate in the sugar market. In part,
43.93%, while the AD duties were between 40.48% and
this reflects the supply-management aspect of the program,
42.14%. The duties were to be applied cumulatively.
which is distinctive among major commodity programs.
Since the SAs took effect in late 2014, U.S. imports of
Critics of the sugar program, such as the Sugar Users
Mexican sugar have been limited based on an annual
Association, contend that it has eroded the competitiveness
calculation of U.S. needs once U.S. production and imports
of U.S. food and beverage companies vis-á-vis foreign
of TRQ sugar have been subtracted from projected U.S.
firms, costing the U.S. industry jobs and resulting in
food use of sugar. Under the SAs, Mexican exporters also
consumers paying higher prices for sugar-containing
agreed to observe minimum reference prices for sugar
products. They cite insufficient flexibility to administer the
exported to the United States that were higher than U.S.
program, outdated TRQ import allocations, and an overly
loan support levels and to cap exports of refined sugar to no
restrictive supply-demand balance that USDA aims to
more than 53% of the total bilateral trade.
achieve as problems. In support of the sugar program, the
Over time, the SAs came under increasing criticism from
American Sugar Alliance (ASA) counters that while U.S.
major stakeholders in the U.S. sugar industry who asserted
sugar producers are cost competitive, subsidized and
they had not worked as intended. To address these
dumped foreign sugar would undercut U.S. growers without
shortcomings, the DOC, the Mexican government, and the
the program. ASA further contends that the program
Mexican sugar industry signed amendments to the SAs in
facilitates a stable supply of affordable sugar while
June 2017 that became effective on October 1, 2017.
avoiding federal outlays.
In general, the amendments aim to increase the share of
In the upcoming farm bill debate, Congress could consider
imported Mexican sugar that requires processing by U.S.
whether the sugar program strikes an equitable balance
refiners. It does so, in part, by raising to at least 70% the
among the interests of sugar growers, beet processors, and
proportion of Mexican sugar that must be shipped as raw
cane refiners facing subsidized foreign sugar; the needs of
cane, thereby further restricting Mexican shipments of
food processors and consumers for adequate supplies at
refined sugar, among other changes. The revised SAs also
reasonable prices; and the interests of taxpayers.
further raise the minimum prices of Mexican sugar imports
Since Congress reauthorized the sugar program in early
so as to avoid undercutting U.S. producer prices. If
2014, the suspension agreements have added another
additional sugar imports are needed after May 1, Mexican
dimension to the sugar market—one that exists outside the
sugar is given priority to supply this additional need over
sugar program but is intended to operate in tandem with it.
sugar imports from other origins.
In view of the importance of Mexican sugar to the U.S.
The Farm Bill and the Sugar Program
market and the divided opinion about the SAs within the
On April 18, 2018 the House Agriculture Committee
U.S. industry, Congress could also consider whether the
reported out a farm bill, H.R. 2, the Agriculture and
sugar program, together with the SAs with Mexico, is likely
Nutrition Act of 2018. The bill extends the current sugar
to provide a successful framework for meeting its policy
program intact through the 2023 crop year.
objectives for the sugar market in the years ahead.
One alternative to extending the current program is the
Mark A. McMinimy, Section Research Manager
Sugar Policy Modernization Act of 2017 (S. 2086, H.R.
IF10689
4265), which would (1) lower loan rates progressively,

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Farm Bill Primer: Sugar Program

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