IB95117 - Sugar Policy Issues
23-Mar-2005; Remy Jurenas; 19 p.
Update: May 17, 2005
MOST RECENT DEVELOPMENTS The President's budget for FY2006 (issued February 7, 2005) proposes to apply a 1.2% marketing assessment on domestically produced sugar processed by raw cane mills and sugar beet refiners. This would effectively lower loan rates by more than 0.2¢/lb. A USDA spokesman pointed out this assessment would represent the sugar sector?s contribution, together with payment reductions proposed for other commodity programs, towards budget deficit savings. The U.S. sugar industry opposes this proposal, claiming that sugar prices are at already relatively low levels.
Abstract: The sugar program is designed to protect incomes of growers of sugarcane and sugar beets, and of firms that process each crop into sugar. To accomplish this, the U.S. Department of Agriculture (USDA) supports domestic sugar prices by making available loans at minimum price levels to processors, restricting imports, and limiting the amount of sugar that processors can sell domestically ? intended to meet U.S. import commitments under two trade agreements.
Debate in 2001-2002 on future U.S. sugar policy occurred against the backdrop of a sugar oversupply situation, which resulted in historically low prices and processors' subsequent forfeiture of sugar pledged as collateral for price support loans to USDA. Sugar crop growers and processors stressed the industry?s importance in providing jobs and income in rural areas. They called for resolving trade disputes, retaining current loan rate levels, and relying on domestic marketing controls to control supplies. Sugar users, some cane refiners, and their allies argued that U.S. sugar policy costs consumers and results in lost jobs at food firms in urban areas. Three amendments to reduce the level of price support and/or phase out the program were offered and rejected during floor debate in the 107th Congress.
The sugar program enacted as part of the 2002 farm bill increases the effective support level by 5%-6%, gives USDA tools to operate the program at no cost, and reactivates ¨marketing allotments¨ to limit the amount of domestically produced sugar that processors can sell in the U.S. market. Sugar producers and users continue to scrutinize USDA decisions on the level at which USDA sets the national sugar allotment quantity, because of its impact on sugar prices.
The U.S. sugar production sector argues that liberalizing trade in sugar should be addressed in multilateral World Trade Organization (WTO) negotiations, but excluded from hemispheric and bilateral free trade agreements (FTAs). Its concern is that additional market access provided to FTA candidates, which are major sugar exporters with lower labor and environmental rules, would undermine the U.S. sugar program and threaten the sector?s viability. Sugar users advocate including sugar in all trade negotiations, eyeing the prospect over time of lower-priced sugar they have not been able to secure through congressional initiatives. U.S. negotiators did include sugar in the Dominican Republic- Central American Free Trade Agreement (DRCAFTA) but excluded sugar in the FTA with Australia. The U.S. sugar industry has stated it will oppose DR-CAFTA when submitted to Congress. H.Res. 510 and S.Res. 289 call upon the President to drop CAFTA?s sugar provisions and exclude sugar in all FTAs.
Efforts to resolve longstanding sweetener trade disputes with Mexico ? involving Mexican sugar exports to the U.S. market and sales of U.S. high fructose corn syrup (HFCS) to Mexico ? have shifted to the private sector after substantive government-to-government talks stalled in late 2002. In October 2003, U.S. and Mexican sweetener industry representatives reached agreement on ?broad principles? to settle these disputes, but have not yet agreed upon details to present to each government. S. 1952 and the filing of a WTO case seek to pressure Mexico on the HFCS issue.
The Trade Act of 2002 requires USDA and U.S. Customs to monitor imports of sugar and sugar-containing products to ensure that their entry does not circumvent the import quota and undermine the sugar program.