DOMESTIC sugar prices have decreased 30% over the last few months to sink to levels not seen since the 1980s.
Meanwhile, sugar oversupplies are at record highs, leading the U.S. Department of Agriculture to stabilize the market by purchasing domestic sugar surpluses.
USDA announced June 17 that it planned to purchase 85,000 metric tons of domestic sugar to manage the current sugar surplus. The action is aimed at mitigating the negative impact of anticipated sugar loan forfeitures later this summer, which are projected to range from $110 million to $320 million if these actions fail, USDA explained.
The U.S. sugar industry regularly touts its sugar policy as "no cost" to the taxpayer. The American Sugar Alliance (ASA) explained in a statement that sugar growers don't receive subsidy checks, "which is why it has run without any taxpayer cost since 2002."
ASA said the policy has operated $200 million under budget over the course of the 2008 farm bill. However, USDA is calling for steps that will cost approximately $38 million, subject to sequester — the first cost to U.S. sugar policy in more than a decade.
USDA also plans to exchange sugar for credits under the Refined Sugar Re-export Program. Since no fewer than 2.5 tons of import credits will be exchanged per ton of sugar, there will be a minimum net reduction of 1.5 tons of sugar in the U.S. market per ton of sugar exchanged, making this a less costly option than forfeitures, USDA said.
The agency anticipates that this action could remove around 300,000 tons of sugar from the U.S. market and cost approximately $38 million.
ASA said USDA's action "is an attempt to avoid forfeitures on loans that sugar producers normally repay with interest, and it is by far the least costly option for taxpayers."
It said sugar producers have warned, for months, that oversupplies caused by subsidized sugar from Mexico and the resulting low prices were at dangerous levels, and ASA believes USDA's action confirms the severity of the situation. The Mexican government owns and operates 20% of the country's sugar industry and is Mexico's largest producer and exporter, ASA said.
"If anything, (USDA's) announcement underscores the need to address foreign subsidization that is manipulating the world market to America's detriment," ASA said. "Congress and U.S. trade negotiators should make eradication of foreign subsidization a priority so a true free market can take hold."
The Coalition for Sugar Reform countered that the action instead underscores the need to reform the federal sugar program. It believes that the current instability in the U.S. sugar market is a direct result of market-distorting changes made to the sugar program in the 2008 farm bill.
The coalition said researchers at Iowa State University estimate that the U.S. sugar program costs American consumers and businesses up to $3.5 billion per year.
Nearly 90 members of the House have signed on to support the Sugar Reform Act, which would roll back the sugar industry's "most costly, restrictive and market-distorting provisions enacted as part of the 2008 farm bill."
The legislation leaves protections in place for sugar producers and processors while helping lower prices, the coalition said.
Although the House failed to pass its overall farm bill, an attempt to reform the sugar program also failed on a vote of 206-221. The Senate did not approve any changes to the sugar program, either, during its farm bill debate.