Sour Price Drop During Farm Bill Debate

Published in the March 2014 Issue Published online: Mar 14, 2014 Phillip Hayes

Since Congress first began debate of a new farm bill, the price of sugar has taken a nose dive—dropping more than 50 percent in the past couple of years.

Driven down in large part because of foreign subsidies and subsequent overpro­duction, the price U.S. sugarcane growers receive for their crop today is actually 10 percent less than the average price received in the 1980s.

Meanwhile, the cost of doing business has steadily risen over that time. Since 1985, sugar growers’ fuel costs have climbed 291 percent; labor is up 131 percent and equip­ment costs 98 percent more.

“The bottom line is that our bottom lines are shrinking because sugar prices are stuck in the ’80s but our costs aren’t,” said Jack Roney, an economist with the American Sugar Alliance.

Roney said the price free fall is the result of a flood of subsidized Mexican sugar cas­cading onto the U.S. market. Mexico, which sent almost no sugar to the U.S. before 2008, sent more than 2 million tons last year—enough to fill roughly 20 percent of America’s consumption.

And he’s crying foul because the Mexican government directly owns one-fifth of the country’s sugar industry, making it Mexico’s largest producer and exporter.

“We are among the most efficient sugar producers in the world, but no matter how efficient you are, you can’t compete with foreign treasuries,” Roney said.

U.S. producers are battling more than just Mexican subsidies, too. The global sugar market—long known as the world’s most dis­torted commodity market—is being increas­ingly manipulated by foreign subsidies.

For example, the four biggest global producers of sugar—Brazil, Thailand, India and China—have high subsidization rates and many have stepped-up their subsidy programs in recent months.

Last summer, Brazil announced a $480 million bailout package for its sugarcane ethanol industry, forked over $65.2 million in new subsidy checks to sugarcane growers and admitted to the WTO that it has doubled subsidies in the past three years. That’s on top of the $2.5 billion a year in sugar subsi­dies Brazil has used over the years to seize control of half of the global export market.

More recently, India, the world’s second biggest sugar producer, has enhanced its policies in a subsidy arms race with Brazil. On top of its mandated pricing scheme, India has just announced $1 billion worth of interest free loans, new tax breaks and other incentives to help sugar producers boost exports.

And not to be outdone, China is report­edly looking to supplement its government-run sugar stockpiling program with direct subsidy checks.

“With foreign subsidies growing and sugar prices falling, these are tough times to be a sugar producer in America,” Roney said. “But Congress can provide the tools that can help us cope for the short term with a grossly distorted market.”

That’s where continuing current sugar policy comes into play, and Roney said pro­tecting that policy would remain a top ASA goal moving forward.