The North American Free Trade Agreement eliminated the quota and tariffs on Mexican sugar, allowing unlimited sugar exports from Mexico.
About 1 million tons of sugar flows into the U.S. each year, exacerbating the nation's oversupply, driving down prices and threatening 142,000 U.S. jobs, says Mark Flegenheimer, president and CEO of grower co-op Michigan Sugar.
In an article posted on the website of American Sugar Alliance, an industry lobby, Flegenheimer writes that the Mexican government owns about 20 percent of the nation's sugar production.
He says that subsidies there and to other major sugar producers such as Brazil should be stopped to ensure fairness.
"Sugar producers urged the elimination of all global subsidies and border protections 30 years ago when market manipulation was first becoming prominent," Flegenheimer writes. "The industry knew then, and knows today, it can thrive in a free market where the best business people, and not the most subsidized, win."
However, American sugar producers hardly operate in a free market. Sugarbeets and sugar cane producers don't receive direct subsidy payments like other crops such as wheat and corn. The federal sugar program offers three protections: 1) The government limits foreign imports to 15 percent of the U.S. sugar market (though trade agreements allow exceptions, like NAFTA's for Mexico). 2) The U.S. Department of Agriculture will buy sugar when an oversaturated market triggers prices to drop below set thresholds. Idaho sugarbeet farmers received $43.8 million from 2000 to 2003, according to the Environmental Working Group, an environmental health research and advocacy organization. Idaho farmers haven't received any money through government purchases since 2005. 3) The USDA gives loans to sugar producers to help pay upfront production costs. Three sugarbeet processors, including Amalgamated Sugar Co., received the majority of $1.1 billion in loans the USDA has made to sugar producers since September, according to documents viewed by the Wall Street Journal. Amalgamated borrowed $274 million and still owes $168 million.
Duane Grant, chairman of the Amalgamated board, says probably all U.S. sugar processors take federal loans to cover harvest costs. Amalgamated has taken loans in every one of Grant's 30 years with the co-op and has paid back the loans every year except in 2002, he says.
"(Federal loans) are not a new phenomenon," Grant says. "It's part of the U.S. government food policy for commodities and has been for at least five decades."
Amalgamated must store a pre-established amount of sugar to collateralize its loans. If the company doesn't repay a loan, the federal government takes possession of the sugar and is left to its own devices to sell it, Grant says.
Using sugar as collateral gives commodity companies like Amalgamated a safeguard against oversaturated markets, Grant says.
The loans are low-interest but not enough to prop up an unprofitable industry, he says.
"I can tell you without hesitation that the loan-range value on sugar is not a price level that will sustain sugar production in the U.S.," Grant says. "It is well below the cost of production by probably 30 to 40 percent."