A Tumultuous Time for American Sugar Producers

Published in the March 2013 Issue Published online: Mar 05, 2013 Jack Roney
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It has been a tumultuous time for American sugarbeet and sugarcane growers, both for the market and for sugar policy.

During the past year we have gone from strong prices to menacing oversupply and a price collapse. We have also gone from having a five-year farm bill nearly complete in 2012, to having to start over from scratch in 2013.

Background

Before going into more detail, here's a bit of background on the U.S. sugar industry.

We are one of a very few countries to have large, efficient beet and cane industries. We grow beets in 11 states, mostly northern tier, and cane in four southern states, Florida, Hawaii, Louisiana and Texas. We are the world's fifth-largest sugar producer; a little more than half our sugar production is from beets (Figure 1). Our industry generates 142,000 jobs and nearly $20 billion in annual economic activity.

We are proud of the fact that LMC International's rankings for 2010-11 placed the U.S. as 20th lowest cost of the 95 sugar-producing countries or regions they studied, with our beet industry the lowest cost of all beet producers. Since, like European producers, we face some of the world's highest, and costliest, government standards for protecting workers, consumers and the environment-our achievement is all the more impressive in a sugar world dominated by developing countries.

We have been through wrenching consolidation, brought about by years of low market prices and rising input costs. Since 1985, more than half of our beet or cane processing operations have closed, 53 in all. During this period all of the surviving beet processing operations have been purchased cooperatively by their beet growers. Had it not been for this grower investment, all these beet factories likely would have closed.

We are also proud of U.S. sugar policy, which has operated at zero cost to U.S. taxpayers since 2002. The government uses domestic marketing allotments and import tariffs to balance supply and demand and maintain market stability. This has been particularly challenging since 2008 when, under the provisions of the North American Free Trade Agreement (NAFTA), Mexico gained unlimited duty-free access to the U.S. sugar market.

In addition to Mexico's free access, we guarantee access to 40 countries under the WTO and, under separate agreements, to Central American countries (CAFTA), Colombia, Peru and Panama. These access concessions exceed 1.3 million metric tons, and are provided regardless of actual U.S. market needs. As a result, we are consistently among the world's largest sugar importing countries (Figure 2).

U.S. Sugar Market

During 1982-2008, U.S. wholesale refined sugar prices rarely strayed from a range of 25-29 cents per pound. General price inflation during this extended low-price period was 123 percent, which took a terrible toll on U.S. sugar operations.

During 2010 and 2011, however, the spike in world sugar prices drove U.S. prices to 30-year highs, averaging close to 54 cents/lb. This gave our remaining producers a chance to pay down some debt and re-invest for more difficult times in the future.

The future came quickly. With the blessing (the curse?) of widespread good weather, we have the coincidence in 2012/13 of excellent crops of American sugarbeets and sugarcane and of Mexican sugarcane. U.S. prices have plummeted by nearly 50 percent to 32 cents per pound or less.

As we face a return to oversupply, American producers face the possibility of government-imposed limitations on how much sugar they can market.

We are hoping the amount of sugar that Mexico exports to the United States is not excessive. Our imports from Mexico historically had been minimal, but since free trade began in 2008 have soared to as high as 1.5 million metric tons (Figure 3). Our producers note that the largest sugar producer and exporter in Mexico is the Mexican government, which owns and operates about one fifth of Mexican mills. But, these are the rules of trade and we must live with them.

U.S. Sugar Policy

The U.S. Congress writes omnibus agricultural policy laws, the so-called Farm Bill, about every five years. In 2012, after much hard work by our industry and others, the United States Senate passed a 5-year Bill that, as we had hoped, left U.S. sugar policy virtually unchanged. In the other legislative chamber, the House, the Agriculture Committee passed a favorable Farm Bill, but it was never taken up on the House floor for final passage. Instead, Congress passed a simple one-year extension of the old farm bill.

Sadly, we must begin anew in 2013. As we did in 2012, we will face assaults from the food manufacturers, who would like to reduce or eliminate U.S. sugar policy to enhance their access to subsidized world dump market sugar. The sweetener users claim consumers would benefit, with lower retail sugar and sweetened-product prices.

We will counter the food manufacturers' rhetoric with facts such as these:

 The gap between U.S. and world raw and refined sugar prices is now virtually non-existent.

 While producer prices for sugar have dropped nearly in half the past two years, retail prices for sugar and sweetened products have gone up, not down (Figure 4). Consumers, in fact, see no benefit when producer prices for sugar fall. The savings on sugar go instead to increased profits for food manufacturers.

We will also remind Congress of the harsh consequences of European Union sugar policy "reform" in 2006-83 mill closures and 120,000 jobs lost, according to EU sources. U.S. legislators should be loath to emulate such an outcome.

Likewise, we will remind our legislators that American consumers would not wish to emulate EU consumers' growing dependence on a volatile world sugar market that is grossly distorted by subsidies in mega-producer Brazil and other sugar-exporting countries.

Conclusion 

The costs associated with producing and marketing sugar have increased enormously in the United States over the past three decades, but, with the exception of 2010 and 2011, sugar prices have not. American producers remain under enormous pressure to innovate, reduce costs and further improve efficiency. In the meantime, we will work to ensure that the U.S. farm legislation continues to provide some economic safety net for American sugar farmers, and some buffer to the unfair threat of subsidized foreign sugar.

Figure 4