Sugar users, producers square off before I.T.C.

by Ron Sterk
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WASHINGTON — The Sweetener Users Association and the American Sugar Alliance on March 19 squared off in testimony before the U.S. International Trade Commission in preparation for the eighth update in investigation No. 332-325, The Economic Effects of Significant U.S. Import Restraints.

The I.T.C. conducts hearings every two years to investigate how U.S. sugar import restraints impact the economy. Except for unrestricted sugar imports from Mexico under the North American Free Trade Agreement, and some other free trade arrangements, U.S. sugar imports generally are set at agreed World Trade Organization minimums and increased after April 1 if the U.S. Department of Agriculture deems it necessary due to tight supplies.

Tom Earley, vice president of Agralytica and an economist for the Sweetener Users Association (S.U.A.), said in testimony to the I.T.C. that U.S. sugar policy has destabilized the sugar market, driven up costs to consumers and businesses and jeopardized job creation.

“The last four years have served as a perfect example of what is wrong with U.S. sugar policy,” Mr. Earley said. “For the first four years under the 2008 farm bill, the result was a period of extraordinarily high domestic sugar prices, reaching record levels in 2010 and 2011, with a total impact on consumers of $14 billion. Not surprisingly, a couple of years of record prices stimulated production in both the U.S. and Mexico. Sugar output in both countries is estimated by U.S.D.A. to be up about 20% since the 2008-09 marketing year, and ending stocks in both markets are projected to be much higher than normal. This is creating the threat of sugar loan forfeitures later this summer that would result in the first budget costs for the sugar program in over a decade, probably more than $100 million in connection with triggering the so-called Feedstock Flexibility Program, which involves U.S.D.A. buying surplus sugar and selling it for pennies a pound to ethanol producers.”

Mr. Earley added, “Food and beverage companies, and the consumers they serve, want a reliable sugar supply at a reasonable price. A viable, economically healthy sugar-producing sector in the United States is important to sugar users. And they also want a viable cane sugar refining industry that can process both domestic and imported raw sugar. S.U.A. is not opposed to policies that provide economic support to sugar producers. However, present U.S. policies are poorly designed and both distort and destabilize markets.”

The American Sugar Alliance (A.S.A.), which represents sugar producers, in its testimony encouraged the I.T.C. to publicly note the positive effect U.S. sugar policy has on the economy, including low sugar prices, 142,000 jobs supported by the industry, expansion in U.S. candy business and recent developments in Europe’s sugar industry, where production also is restricted.

“The I.T.C., in its last several updates, has moved encouragingly toward the A.S.A.’s long-held position that U.S. sugar policy and import restraints provide a net benefit to the U.S. economy, and not a net cost,” Jack Roney, director of economics and policy analysis for the A.S.A, told the Commission.

“I.T.C. has consistently underestimated the number of jobs involved in U.S. sugar production, and therefore has underestimated the number of jobs lost if that industry is harmed,” Mr. Roney said. “The I.T.C. overestimates the number of jobs that would be created in sweetened-product production, because it overestimates the effect on consumer prices and on sweetened-product demand if producer prices for sugar were to fall.”

Mr. Roney said that sugar policy’s biggest critics – large confectioners – have expanded production in recent years and are booking impressive profit margins rather than passing along the savings from lower ingredient costs to consumers.

World average retail sugar prices are 14% higher than U.S. prices, “further proof that American consumers benefit from U.S. sugar policy,” Mr. Roney said.

Bulk refined (industrial) sugar prices reported by Milling and Baking News have declined by 45% or more from a year earlier and are approaching loan forfeiture levels.

“The opening of the U.S. sugar market to duty-free foreign sugar has already been in place since 2008, when Mexico gained duty-free access for its production,” the A.S.A. testified.

The hearing, based on a Nov. 2, 2012, request from the U.S. Trade Representative, came in the midst of major public attention to the U.S. sugar program following a March 13 story in The Wall Street Journal.

The story said the U.S.D.A. was considering implementing the feedstock flexibility program at a potential loss of $80 million to remove 400,000 tons of excess sugar from the U.S. market to prevent sugar processors from defaulting on government loans of $862 million. That story prompted a letter later the same week from four senators asking the department to “explain” the potential cost and provide details about the loans.

Following the story, Republican Senators John McCain of Arizona, Pat Toomey of Pennsylvania and Mark Kirk of Illinois and Democrat Senator Jeanne Shaheen of New Hampshire signed the letter asking the U.S.D.A. to “explain and justify the potential $80 million cost to the American taxpayer,” and to “identify each corporation or other entity currently receiving operating loans under the sugar program, and of those entities, which have outstanding loan balances . . . at risk for defaulting.”

Senators Toomey, Kirk and Shaheen were part of a larger bipartisan group that introduced the Sugar Reform Act in both houses of Congress on Feb. 14 seeking to make changes to the long-standing sugar program.

The loans under question generally are normal operating procedure under the farm bill’s sugar program and are repaid when processors sell sugar as the year progresses, or if sugar prices drop below specified loan rates they can use the actual sugar as repayment.

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