U.S. sugarcane and sugar beet farmers are bracing for a flood – but not one caused by the weather. Rather, it’s a flood of imported sugar from Mexico. Record production and imports are poised to sweeten the U.S. market a bit too much.
“This is a lot of sugar for our country to cope with,” said Jack Roney, the director of economics and policy analysis at the American Sugar Alliance, an industry group of U.S. sugar producers. “Prices are dropping to levels not seen since the 1980s, and the USDA is trying to avoid the consequences of that catastrophe.”
To deal with the glut, the U.S. Department of Agriculture has taken the unusual step of retiring sugar-import credits and purchasing more than 100,000 tons of sugar, which allowed it to take 330,000 tons of surplus sugar off the market.
The plan, which cost $43.8 million, weaved through a maze of sugar policy, transferring purchased sugar from the Agriculture Department to refiners in an attempt to lower foreign imports. In return, refiners surrendered import credits that had been awarded to allow them to bring in sugar from overseas.
The Agriculture Department expects the plan to save it an estimated $66.9 million by avoiding loan forfeiture costs from its sugar loan program. But many surrounding the industry say the move doesn’t make up for what they charge is outdated policy.
Brian Mabry, acting coordinator of the department’s communications office, said officials had to take action among “atypical market conditions this crop year, including record yields and increased imports.”
Mexico’s recent sugar surplus is causing problems for the U.S. market because that country has unlimited access to the U.S. market, due to provisions that are part of the North American Free Trade Agreement. A June Agriculture Department report predicts that Mexico will export its record sugar surplus to the U.S., shipping more than 1.9 million tons into an already-saturated market this year.
“It’s really become one market only separated by the costs of moving product around,” said Tom Earley, vice president of Agralytica, a Washington food and agriculture consultancy.
Couple the solid season in Mexico with what Agralytica says is another strong crop in the U.S., and domestic prices are at prolonged lows.
Sugar prices are nearing levels unseen since the 1980s. Prices have fallen to 16 cents per pound for raw sugar. U.S. prices peaked at an average of 38 cents per pound in 2011, after having fallen to 18 cents in 2000.
Protecting the domestic market from heavily subsidized foreign sugar producers – such as those in Mexico, where the government owns a 20 percent stake in the sector – is a priority for the American Sugar Alliance.
“We have a U.S. sugar policy for one reason only, and that’s foreign subsidization,” said Phillip Hayes, the alliance’s director of communications. Hayes said the subsidization had led to the record supplies and artificially depressed prices of the current market.
The Agriculture Department recently finished the process of buying sugar from domestic producers. Those in the industry are satisfied that the program worked to expedite the relief of the market at the lowest price possible for the government.
“If anything, it underscores the need to address foreign subsidization that is manipulating the world market to America’s detriment,” said the alliance’s Roney. “Congress and U.S. trade negotiators should make eradication of foreign subsidization a priority so a true free market can take hold.”
But opposition to the safety nets enacted under the U.S. sugar program rose to new levels during this year’s debate over a new five-year farm policy. Many confectioners and candy companies view the surplus plan as a patch for outdated policy.
“The fact that the current sugar program is forcing the USDA – and ultimately American taxpayers – to pay a $44 million down payment for excess sugar ahead of expected loan forfeitures later this summer underscores exactly why this program needs to be reformed," said Jennifer Cummings, a spokeswoman for the Coalition for Sugar Reform.
Industry stakeholders charge that the sugar program contributes to consumers’ and sugar-using manufacturers’ rising sugar costs. The Coalition for Sugar Reform, for example, says American candy factories and bakeries cut nearly 127,000 jobs from 1997 to 2011 because of rising sugar prices.
Spangler Candy Co. produces Dum Dum brand lollipops and candy canes. In 2000, the Ohio-based company moved two-thirds of its production – 200 jobs – to Mexico.
Kirk Vashaw, Spangler’s president, said labor costs were largely the same in Mexico as in Spangler’s automated plant in Bryan, Ohio. But sugar costs drove the company to move jobs to a cheaper market.
The sugar program “hit confectionary companies like ourselves that produce hard candy particularly hard and forced most of the companies to move out of the country,” Vashaw said.
For Vashaw, a fundamental move away from a heavily regulated domestic market is ideal.
“I just want to buy sugar on the free market,” Vashaw said. “It would allow us to grow our business domestically, and there are a lot of people in our industry who just want to do business in the United States.”
The sugar program began during the Great Depression to provide farmers with a safety net.
The current policy gives producers price-support loans that set minimum price levels in the U.S. market and prop up the industry. For the first time since before a 2008 revision of the program, U.S. market prices aren’t high enough to allow farmers to cover the costs of these loans.
When that happens, many producers face default on their loans. The USDA then has to store the surplus sugar that’s forfeited as collateral.
The department keeps a firm grasp on U.S. sugar stocks by setting aside at least 85 percent of sugar production for domestic farmers. The remainder is divided among 41 countries with a system of quotas. The lone exception to the quotas, Mexico, is a central cause of this year’s surplus.
Sugar program costs are expected to rise through the end of this year. The Agriculture Department plans to continue monitoring the market and taking action to reduce the costs of the program.