Sweet Program for Sugar Producers, Sour Taste for Consumers
A bipartisan group of U.S. Senators has introduced the Sugar Reform Act of 2013 (Senate Bill 345) to lower sugar prices to consumers and confectionery companies without using federal supply interventions.
Sugar producers and processors have said they will lobby to keep the current program in place.
"Illinois is the 'Candy Capital of the World,' but in the last decade the number of jobs in the industry has steadily decreased because of our current policies, which artificially inflate the price of sugar," said Sen. Mark Kirk (R-IL), who maintains a Senate "candy desk" with candy stocked from Illinois companies. "The [Sugar Reform Act] will end unfair pricing in the industry and keep companies from shipping skilled manufacturing jobs overseas."
Kirk made his statement at a joint press conference with Congressmen Joe Pitts (R-PA), Earl Blumenauer (D-OR), and Danny Davis (D-IL). A similar reform effort in 2011 garnered 46 votes in the Senate, not enough to advance.
In addition to Kirk, other sponsors of SB 345 include Senators Jeanne Shaheen (D-NH), Pat Toomey (R-PA), Dick Durbin (D-IL), Rob Portman (R-OH), Frank Lautenberg (D-NJ), Dianne Feinstein (D-CA), Bob Corker (R-TN), Kelly Ayotte (R-NH), Lamar Alexander (R-TN), and John McCain (R-AZ).
“We applaud the Senators’ leadership in supporting an effort to defund a wasteful government program that only benefits one special interest while potentially costing taxpayers millions,” said Larry Graham, president of the National Confectioners Association and chairman of the Coalition for Sugar Reform, in a statement. “Over the last four calendar years, U.S. refined sugar prices were artificially high and supplies were tight, and now, taxpayers may potentially have to foot the bill for tons of excess sugar because raw sugar prices are low. The sugar program is directly responsible for this instability in the market, and it’s time for reform.”
The American Farm Bureau Federation (AFBF), the world’s largest farm membership organization, includes the 2012 Farm Bill (and the sugar program) as one of its priority issues.
“In the 2012 Farm Bill, it’s a top priority because it’s a key component of the farm safety net and is being unfairly attacked,” said Mary Kay Thatcher, director of public policy for the AFBF at a press briefing during the organization's 2012 annual meeting. “It works as designed and at no cost to the American taxpayer. You don’t get much better than that.”
The 2008 Farm Bill was extended in 2012 by Congress until Sept. 30, 2013, so there is no 2012 Farm Bill just yet. Concerning sugar, AFBF policy states, “We will focus on maintaining the current sugar program.”
Loans for Sugar
The current sugar program offers loans to processors that are secured by the sugar. Reform advocates say producers could default and “give up” to the federal government their sugar, potentially leaving taxpayers holding the bag. Program supporters say this has not happened due to safeguards built into the system, so the sugar program actually imposes no cost on taxpayers.
In a recent editorial, the Chicago Tribune placed the potential default at 400,000 tons of sugar and a cost of $80 million.
Iowa State University uses an agricultural model that can predict prices of sugar based on supply and demand. The key personnel involved with it are John Beghin and Amani Elobeid, both professors in the department of economics. In a paper they wrote in 2011, they analyzed the probable effects of ending the government’s sugar program and moving to free trade in sugar.
Beghin and Elobeid concluded:
“The U.S. price of raw sugar falls by 24% to 34% (rounded) depending on the year of the projection. The wholesale refined sugar price falls by 32% to 40%, and the retail refined sugar price falls by 26% to 33%. These effects are net of the increase in the world price of sugar induced by larger imports by the US economy.
- The raw sugar price on the world market increases by 2% to 4% or by about 1 cent per pound.
- These U.S. price changes reduce the cost of sugar in food processing and sugar retailing with benefits accruing to food processors and consumers. However, they induce contracting margins for all U.S. sugar industries from sugar crops to refiners.
- Domestic sugar production (beet sugar and raw cane sugar) initially declines about 10% and then recovers to nearly unchanged.
- Consumption rises about 15%. Imports rise about 80%. Cane sugar refiners operate at full capacity using raw sugar imports as input. The US shifts from being a net importer of sugar-containing products to being a net exporter.”
The American Sugar Alliance contests the findings. “A 2011 Iowa State University report contained material deficiencies and minimized the negative consequences of eliminating U.S. sugar policy,” the Alliance declared in a press statement after the paper’s release.
So the debate between producers and consumers will continue, as Congress tries to craft a new five-year Farm Bill, including sugar, by the end of September.
“The Impact of the U.S. Sugar Program,” John Beghin and Amani Elobeid: http://sugarreform.org/wp-content/uploads/2011/11/The-Impact-of-the-U.S.-Sugar-Program-Beghin-Elobeid-Report-11.17.11.pdf