Sugar producers and sugar users have been engaged in a war of words since the U.S. government adopted the first sugar program in 1934.
Producers take pride in noting their program operates at no net cost to the taxpayer. Food manufacturers, on the other hand, say it keeps sugar prices artificially high, costing consumers $1.9 billion a year.
The 2002 farm bill sets the cane sugar loan rate at 18 cents per pound raw value and the beet sugar loan rate at 22.9 cents per pound refined value. (Beet sugar processors enjoy a higher rate due to the difference in refining costs.)
Manufacturers claim the loan levels support domestically produced sugar at twice the world price. Producers argue the latter is actually the world “dump” price that results from the subsidies other governments provide their producers.
The latest salvo in this verbal war came from a report issued by the Cato Institute, a Washington-based think tank that has criticized the sugar program in such papers as “Sugar Program Brings Bitter Taste to Holiday Season.”
The latest Cato Institute missive, which argued the sugar program does not appear to be as vulnerable to a WTO challenge as other U.S. commodity programs, caught sugar producers by surprise.
The producers' American Sugar Alliance said the Cato paper and a similar one issued by the Congressional Research Service calls into question a sugar users proposal to replace the sugar loan with a more conventional price support program. The estimated cost: $1.3 billion a year.
“Under this proposal, sugar producers would receive checks from the federal government, which would manipulate the market downward and make sugar even cheaper so food manufacturers could boost profits,” the Alliance said. “The proposal to make the sugar program more like other commodities' would be ‘courting WTO suicide.'”
The Sweetener Users Association argues the sugar program will have to be changed sooner rather than later. For openers, the Congressional Budget Office says the program will stop operating at “no net cost to the taxpayer” by 2009.
Another problem: NAFTA will allow Mexican sugar to enter the U.S. market without restrictions in 2008. Sugar producers have been trying - unsuccessfully - to amend or delay the expiration of the transitional mechanism. “In any case, the legislators who write the 2007 farm bill will not be able to craft a sugar title without taking post-2008 Mexican access into account,” says the Sweetener Users' Randy Green.
This is more than an academic exercise for other farmers. Although sugar producers do not receive payments, USDA estimates the subsidy equivalent of the sugar program at $1.15 billion. If the amber box ceiling for U.S. farm programs is reduced to $7.6 billion under the U.S. WTO proposal, sugar could take a big bite out of farm program spending.
As you prepare to bite into the Christmas fudge, you might think about the ongoing debate over the sugar program and what it could mean to other U.S. commodities.