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Published March 01, 2011, 01:53 AM

Changes possible in sugar program?

SAN DIEGO — World sugar prices are well above the U.S. support price, but that doesn’t mean there won’t be a battle over the sugar program during the 2012 farm bill debate.

By: Jerry Hagstrom, Special to Agweek

SAN DIEGO — World sugar prices are well above the U.S. support price, but that doesn’t mean there won’t be a battle over the sugar program during the 2012 farm bill debate.

Sweetener Users Association leaders said at their recent annual convention in San Diego they intend to challenge the current sugar program in the 2012 farm bill debate, while sugar growers warned users that sugar prices will have to stay high to assure a domestic supply of sugar.

“We’re getting hurt” under the sugar program established in the 2008 farm bill, said Randy Green, executive director of the Washington-based Sweetener Users Association. The users group represents candy makers and other companies that use sugar as an ingredient on an industrial level.

Bill O’Conner, a former Republican policy director for the House Agriculture Committee who now is a senior policy adviser at the Washington law firm of McLeod, Watkinson & Miller, told users during a Feb. 15 panel discussion they have a much better chance of achieving changes to their liking in 2012 than in 2008, when the Democrats controlled both houses of Congress.

The sugar debate “was very lopsided” in 2008,” O’Conner said. “The growers’ side had a disproportionate control of the process. They were adamant, they had the votes, they made it stick.”

Republican control of the House and the increased number of Republicans in the Senate will change the process, O’Conner said.

“Will it change the outcome? That remains to be seen,” he says.

Growers and users

O’Conner noted that for years, growers successfully have defended the program by pointing out that the program, which forces industrial users to pay higher prices for sugar, operates at no cost to the government.

But he said Tea Party freshmen Republicans are committed not only to reducing the budget deficit but to getting the government out of people’s lives — and that the latter goal may mean they will be more willing to change the sugar program.

O’Conner told Agweek he will work for the users group on the 2012 farm bill, aiding Green, who also works at McLeod, Watkinson & Miller.

But Jack Roney, chief economist for the American Sugar Alliance, which represents sugar beet and sugar cane growers, said in the same panel discussion that all commodity prices have risen, and that if prices do not stay up, growers would shift to other crops and users would lose their domestic source of supply.

“We will defend the current program vigorously,” Roney added in an interview. “This is the program that works for us, works for consumers and for taxpayers. I think the users realize that, absent our industry, they would have a hard time accessing a reliable, safe, high-quality supply on a timely basis.”

Though Tea Party Republicans would seem sympathetic to the sugar users’ world view, it would be unwise to count out the growers.

House Agriculture Committee ranking member Collin Peterson, D-Minn., has said he will defend the program in 2012. Senate Budget Committee Chairman Kent Conrad, D-N.D., and incoming Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., also are key sugar program supporters. Sugar growers are known for their use of political campaign contributions to gain the support of members in cities and other areas of the country where sugar is not grown.

Exactly what changes sugar users may seek — and what elements they might want to keep — are unclear.

Movement for elimination

Sens. Jeanne Shaheen, D-N.H., and Mark Kirk, R-Ill., have introduced a bill to eliminate the sugar program on the grounds that it raises consumer costs and kills jobs.

On Valentine’s Day, Shaheen visited a bakery in Stratham, N.H. and said, “We’re paying more in the U.S. for sugar than the world market is. Bakeries, anybody who needs sugar, is affected by these high sugar prices, not to mention consumers, who are paying almost twice the world price.

Shaheen and Kirk call their bill the Stop Unfair Giveaways and Restrictions — SUGAR — Act. It would phase out the current federal sugar program.

The Sweetener Users Association has endorsed the Shaheen-Kirk bill, but it is unclear they want to kill the program entirely, and Green said the group expects to support other sugar reform measures as well.

“We will support a wide range of proposals because we want a wide-ranging debate on reform,” Green said.

The users’ attitude toward the sugar program has varied with the availability of sugar.

The core of the U.S. sugar program has been in place for decades. It sets a floor price by allowing sugar cane and sugar beet farmers to forfeit sugar to the government and get paid for it if the price goes below certain levels. It orders the government to restrict imports so there are no forfeitures.

In the 2008 farm bill, Congress also raised the support levels. It said 85 percent of U.S. sugar should come from domestic sources and tightened up the rules under which USDA decides if imports are warranted.

The bill also included a program to convert sugar to ethanol if there was a surplus.

Production and supply

For many years, the Sweetener Users Association opposed the sugar program. But after Hurricane Katrina reduced the supply of sugar from Louisiana in 2005, the industry became unexpectedly dependent on imports, and the users took the position in the 2008 debate that they wanted to continue the same level of domestic sugar production on the same geographically dispersed basis.

Sugar cane is grown mostly in Florida, Louisiana, Texas and Hawaii, while sugar beets are grown in many states, including North Dakota, Minnesota, Michigan, Montana and Wyoming.

The North American Free Trade Agreement created a free market in sugar between the United States and Mexico, making USDA management of imports from countries other than Mexico more difficult in recent years. USDA officials find it difficult to predict how much sugar Mexico will send to the United States because Mexican statistics on sugar supply and demand are not as reliable as U.S. government statistics and because Mexican beverage companies are converting to the use of high-fructose corn syrup.

Dan Colacicco, the director of dairy and sweeteners at USDA’s Farm Service Agency, said at the users’ meeting that the agency is managing sugar imports “cautiously.”

Prices

Presently, the price of sugar in the United States is affected by bigger factors than the support price, which is 18.5 cents per pound for cane this year.

Because of increased demand in Asia and the Middle East, the exit of Europe from sugar export markets and weather problems in Australia and Brazil, the world price of sugar has been around 40 cents per pound. That price would seem to make the U.S. program at most a minor factor in current sugar prices, but users contend the Obama administration unnecessarily has restricted sugar imports.

One conference participant with a knowledge of the situation said the Bush administration managed the program with an eye toward avoiding high prices, while the Obama administration has required the prospect of physical shortages to warrant an increase in imports.

Some users said at the conference that if they wanted to buy sugar at the present time, the price might be 50 cents per pound.

Roney said sugar growers’ prices were flat from 1985 to 2009 and that the industry has seen mills and refineries closing and lost geographic diversity, while making gains only through increases in productivity.

Roney also contended that current prices still are below the real price for sugar in 1985, but he acknowledged that high prices have allowed growers to pay down debt and modernize their operations.

Market analysts at the conference said while the balance between supply and demand is tight and they expect prices to remain high, future prices depend on unpredictable factors such as Mexican exports to the United States and the resolution of federal court cases over the planting of genetically modified sugar beets. Growers have said if the courts require them to revert to conventional seed, their production will be lower.

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