Sugar program working — at least for now
August 07, 2015 |01:38 PM
SANTA ANA PUEBLO, N.M. — The U.S. sugar program is functionally fairly smoothly, but sweetener users are complaining that prices are too high and there are court cases and other issues that could cause complications in the months ahead.
That’s a summary of multiple presentations on the sugar program and supply-and-demand issues here this week at the International Sweetener Symposium sponsored by the American Sugar Alliance, the association of U.S. cane and beet growers.
The 2014 farm bill continued the U.S. sugar program, which sets floor prices for beet and cane sugar and gives U.S. producers the right to forfeit sugar to the government and be paid for it if prices fall below those levels.
But the farm bill also instructs the Agriculture Department to run the sugar program at a “zero” cost basis.
For decades USDA managed the program on a zero-cost basis, mainly by controlling imports, but this has become more difficult since the North American Free Trade Agreement gave Mexico the right to export unlimited amounts of sugar to the United States
In 2013 Mexican exports rose so high that the U.S. prices dropped below the floor and the Agriculture Department paid the growers $259 million. The payments were the first to sugar growers since 2002.
NAFTA did not give Mexico the right to violate anti-subsidy and anti-dumping trade laws. In March 2014 the U.S. growers filed cases with the Commerce Department and the International Trade Commission charging that Mexico had been exporting government-subsidized sugar to the United States and dumping it at prices below the cost of production.
The U.S. government agencies began investigations of the Mexican situation and made preliminary determinations of injury, subsidy and dumping.
Threatened with punitive duties, Mexico in December agreed to limit exports to the United States under what the U.S. and Mexican governments call “suspension agreements” that are scheduled to be in place for five years.
Sugar prices have since risen and, under prodding from ASA leaders, U.S. government officials repeatedly acknowledged here that the Agriculture Department, the Congressional Budget Office and the Food and Agricultural Policy Research Institute have all forecast the cost of the sugar program through 2019 at zero.
Asked by Carolyn Cheney, the vice chair of the Sugar Cane Growers Cooperative of Florida and ASA chair for the past year “whether the suspension agreement have restored the ability to operate [the program] at no cost,” Agriculture Undersecretary for Farm and Foreign Agricultural Services Michael Scuse said, “I certainly hope so. I think that going forward we will have the ability to manage the program the way it is supposed to be managed.”
Scuse also said, “We are keeping an eye on the market” to make sure there are adequate supplies.
Under questioning from ASA Chief Economist Jack Roney, Barbara Fecso, the director of dairy and sweetener analysis at USDA’s Farm Service Agency, acknowledged that the expected taxpayer cost of the program is zero and that “the program should be easier to manage under the suspension agreement.”
But she added that USDA may still be in “the position of making difficult choices” regarding how much sugar to allow into the country from countries other than Mexico.
The law says that if the Agriculture secretary believes domestic supplies may be inadequate to meet domestic demand at reasonable prices, he may modify the tariff rate quotas for sugar, Fecso pointed out, saying that later this year USDA may face that issue if Mexico offers sugar at a price cane refiners say is too expensive.
“The price is the issue,” she said. “We have not been tested on that. I think we will know when the price is too high just from the noise level.”
Fecso also noted, “The suspension agreement is only in place as long as all parties agree it is better than having duties applied or if the ITC determines that imports from Mexico did not damage the U.S. sugar industry or someone violates the agreement.”
Greg Bruenig, vice president of operations for Clasen Quality Coatings Inc., and executive vice chair of the Sweetener Users Association, said that the Mexican case and the suspension agreements had amounted to a “stealth price support increase” for sugar.
Bruenig said the price increase makes it difficult for small companies like his, which makes candy coatings and fillings, to compete with companies in other countries. Under the suspension agreement, he said, the wholesale refined price of sugar has risen from 26.8 cents to 35.1 cents per pound while the world refined price has declined from 20.8 cents to 19.3 cents.
“If you were a small food company … would you really build in the U.S. rather than outside the U.S.?,” Bruenig asked.
Although Senate Agriculture Committee Chairman Pat Roberts, R-Kan., said in a video that he has no intention of reopening the farm bill, the Sweetener Users Association has been encouraging Congress to take some action on the sugar program.
Bruenig said that the suspension agreements changed the program, and have “enshrined” the U.S. stocks-to-use ratio that is to be maintained at 13.5 percent while that ratio has usually varied between 13.5 percent and 15.5 percent.
Bruenig also said he fears Mexico may end its sugar re-export program, and said USDA should urge the Mexican government to maintain it.
Fecso would say only that “we have a good relationship with the government of Mexico. This has been part of our communication.”
Roney asked Bruenig for his “view of a fair price,” but Breunig said only that the price he wants is one under which “I can compete with our competitors.”
Bruenig also said he is pleased with the “high-quality, safe” domestic supplies of sugar that are also “reliable.” But he said, “What we need is the ability to compete.”
Roney responded that the U.S. wholesale refined price of 34 cents is lower than the developed country average of 41 cents, and that market prices for sugar have been flat for 30 years while general price inflation has been 120 percent since 1985.
Another issue that came up is whether Mexico may be violating the suspension agreements by declaring refined sugar as raw sugar in order to import it at a lower price. Scuse said USDA is conducting a thorough review of data to determine whether to impose reporting requirements on companies that are not currently required to report detailed information.
“I have said repeatedly if we are going to manage the program going forward we have to have the best information available to us,” Scuse said.
The biggest wild card for the sugar program is that the International Trade Commission and the Commerce Department still have to issue final subsidy and antidumping determinations. Two cane refiners, Imperial Sugar and AmCane Sugar, have raised issues with the preliminary determinations.
The Commerce Department is scheduled to make its final subsidy and antidumping determinations by September 16 and an ITC hearing is scheduled the same day.
The ITC is scheduled to vote on the matter on October 20 and the ITC is scheduled to make a final determination on November 2.
No representatives of the Mexican government or the Mexican sugar industry spoke at the conference, but several speakers said they believe that Mexico is satisfied with the suspension agreements because they have brought order to the U.S.-Mexican sugar relationship.
ASA officials said they are quite confident that the suspension agreements will stay in place, but Robert Cassidy, a lawyer representing the U.S. growers, said that if the ITC votes that there is not material injury and free trade in sugar between Mexico and the United States is reestablished, “I would predict chaos in the market place.”
