Sweetener users: Sugar program still needs to change

Published online: Feb 28, 2014

DANA POINT, Calif.—The Sweetener Users Association will not wait for the next farm bill to try to convince Congress to make changes to the sugar program, a key adviser to the group said here Tuesday.

Although sugar prices are now low and the users lost a battle to make changes to the program in the new farm bill, the high prices from 2009 to early 2013 were “too traumatic an experience and hurt too many people,” said Bill O’Conner, a senior policy adviser at McLeod, Watkinson and Miller who is a consultant to the users’ association. “There will be searches for other vehicles, other venues.”

Speaking on the same panel at the International Sweetener Colloquium here, Jack Roney, chief economist for the American Sugar Alliance, which represents the growers, said that in order to make changes to the program the users would need to address the impact of the large sugar imports from Mexico.

O’Conner said the users had not tried to eliminate the sugar program in their quest for changes, but wanted to correct policies in the 2008 farm bill that were continued in the 2014 bill.

Commodity programs should protect the growers from low prices, but “once beyond the safety net, you should be out there in the market,” O’Conner said.

But when sugar prices skyrocketed after Hurricane Katrina-related declines in production and world prices were less, the U.S. sugar policy that restricts imports meant that the users could not cut their ingredient costs by relying on the world market, O’Conner said.

When U.S. domestic sugar prices hit between 50 and 60 cents per pound, he said, there was sugar available on the international market for 30-some cents, but U.S. sweetener users could not buy it.

Between 2009 and 2014, small confectionary businesses and baking companies went out of business because they could not handle the high prices and did not have economies of scale, O’Conner said, although he did not offer any examples.

Even big candy companies have trouble when there are sustained periods of high prices. Companies can only buy forward so far, and if they do buy future supplies at high prices and then prices go down, they are stuck with the high-priced sugar.

High U.S. prices encourage increased production in other countries, he said. And then, particularly in the case of Mexico, which has the right to export any amount of sugar to the United States under the North American Free Trade Agreement, they want to sell that sugar in the United States.

“It is the growers’ turn to experience the nightmare,” O’Conner said, noting that he believes this has become a cycle. “High prices encourage other countries to produce more sugar,” he said. “That will continue until we correct this program.”

Roney defended the program, saying it has resulted in stable supplies of sugar, but that it has become complicated by the free-trade agreements that the United States has signed, particularly NAFTA.

U.S. sugar growers have the right only to supply 85 percent of the U.S. market so that there will be room for the sugar that the United States has agreed to import under the agreements.

“Mexicans have better access to the U.S. market than American producers,” Roney said, because there are no restrictions on the amount of sugar Mexico can export to the United States under NAFTA.

With sugar prices hovering at forfeiture levels, Roney said he is worried that both cane and beet producers may go out of business or at least plant fewer acres to sugar. If co-op owned processing facilities have fewer beets to process, the unit cost of production will go up, he noted.

While U.S. acreage has gone down, Mexico increased its sugar acreage by 66 percent since NAFTA went into effect 20 years ago, Roney said, calling that expansion “reckless.”

Although Agriculture Undersecretary for Farm and Foreign Agricultural Services Michael Scuse said on Monday he does not foresee forfeitures or government costs to run the program in 2014, Roney said he is uncertain.

“People don’t know if there will be forfeitures this year,” Roney said. “It all depends on one word: Mexico.”

Mexico may export onto the world market, Roney said but he added, “I fear we are going to continue to see much larger Mexican crops and unloading on the U.S. market.”

O’Conner said sugar growers had convinced Congress to continue their program by “assuring them that the program did not cost anything.”

“They were very skillfull,” O’Conner said. “They managed to stave off defeat.”

But then the program cost $258 million, “O’Conner said, adding that “the no-net-cost myth is gone.”

But Roney noted that the $258 million was less than 3 percent of commodity spending and the first time in a decade that the sugar program had not operated at no net cost to the taxpayer.

Roney said the answer to balancing sugar supply and demand is joint management of sugar by the United States and Mexico. He noted that the Mexican Sugar Chamber and the American Sugar Alliance have signed an agreement asking their respective governments to develop stabilization programs.

The Agriculture Department did everything it could to keep down taxpayer costs when there were forfeitures in 2013, said Dan Colacicco, who managed the sugar program until he recently took a buyout from USDA. He retired and founded Cicco Commodities LLC, a consulting firm whose clients include the sugar growers.

Under the 2008 farm bill, Colaccio noted, USDA had to remove the forfeited sugar from the supply for human consumption, and that policy has been continued under the 2014 farm bill.

After swapping sugar for import rights and taking other administrative actions, USDA used the Feedstock Flexibility Program to sell the unused sugar to ethanol plants for much less than the government paid for it.

Colacicco said he believed USDA officials had done everything they could to keep taxpayer costs as low as possible and that even if there are no forfeitures this year, the experience will be valuable at some point in the future.

On a separate panel, Geoff Cooper of the Renewable Fuels Association said that U.S. ethanol plant operators were initially not very interested in buying sugar because they did not have a lot of experience with it as a feedstock.

They became more interested because corn was high priced, Cooper said, adding that if USDA has sugar forfeitures in the future, the ethanol operators’ interest in it will depend on the corn market.

Source: www.hagstromreport.com