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Published August 10, 2010, 08:33 AM

Underestimating US sugar

VAIL, Colo. — Management of the U.S. sugar program in the 2008 farm bill is proving difficult because Congress and analysts expected the U.S. sugar market to be flooded with foreign sugar, but the reverse is true, USDA officials said at the American Sugar Alliance International Sweetener Symposium in Vail, Colo.

By: Jerry Hagstrom, Special to Agweek

VAIL, Colo. — Management of the U.S. sugar program in the 2008 farm bill is proving difficult because Congress and analysts expected the U.S. sugar market to be flooded with foreign sugar, but the reverse is true, USDA officials said at the American Sugar Alliance International Sweetener Symposium in Vail, Colo.

Because Mexico gained full market access to the United States under the North American Free Trade Agreement, its sugar was expected to flow northward. But this year, Mexico has had production problems and has exported only one-third of the sugar it sent to the United States. At the same time, Brazil is experiencing weather problems, which are delaying the export of sugar to the United States. The result has been tight supplies and high sugar prices, which please the U.S. growers, but anger sweetener users.

Understanding

“Neither CBO nor USDA expected undersupply to be the issue,” said Daniel Colacicco, director of dairy and sweetener analysis at USDA’s Farm Service Agency.

Because Congress expected an oversupply, the program includes detailed instructions on how to control supply, including a program to use surplus sugar for ethanol production, but “there is no comparable mandate to ensure adequate supply at fair prices,” Colacicco said.

Because the farm bill orders USDA to operate the program so that prices do not become so low that

sugar growers exercise their right to forfeit sugar to the government, USDA has has been “conservative” in making decisions to allow increased imports, Colacicco added.

But Frank Jenkins, a Connecticut-based sugar analyst, said USDA has underestimated sugar demand, leading to “precariously low” inventory.

“USDA has abdicated responsibility for managing supply and is relying on sugar that comes into the country at high tariffs to supply the market,” Jenkins said. “It is a sea change from the way the program was run for the past 15 years,” he added.

Demands

Agriculture Undersecretary for Farm and Foreign Agricultural Services Jim Miller told the growers that Mexico has improved its sugar collection data but that he hopes a recent U.S.-Mexican agreement will lead to even better data so that USDA can better manage the program.

Meanwhile, despite the high prices, U.S. sugar demand has risen because food companies have shifted from high-fructose corn syrup, a usually cheaper sweetener, because of consumer demand. James McDonough, director of procurement an strategic sourcing for Ocean Spray Cranberries, a grower-owned cooperative based in Massachusetts, said Ocean Spray had been one of the first to convert from sugar to high-fructose corn syrup in 1973, but converted back to sugar in 2007 because consumers said they considered sugar a more “natural” sweetener.

“There was a cost, but it would have been more expensive long term if we did not provide the natural product the consumer wanted,” McDonough said.

But analysts said that conversion from high-fructose corn syrup to sugar has slowed and that Mexican use of high-fructose corn syrup is increasing.

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