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Published March 03, 2014, 09:48 AM

Undersecretary, others speak at sugar colloquium

DANA POINT, Calif. — Agriculture Undersecretary for Farm and Foreign Agricultural Services Michael Scuse said on Feb. 25 that he does not expect USDA to have to spend any money on the sugar program in fiscal year 2014, but Jack Roney, the chief economist for the American Sugar Alliance, said the next day he is not so sure.

By: Jerry Hagstrom, Agweek

DANA POINT, Calif. — Agriculture Undersecretary for Farm and Foreign Agricultural Services Michael Scuse said on Feb. 25 that he does not expect USDA to have to spend any money on the sugar program in fiscal year 2014, but Jack Roney, the chief economist for the American Sugar Alliance, said the next day he is not so sure.

After a speech to the International Sweetener Colloquium in Dana Point, Calif., a meeting sponsored by the sweetener users, Scuse told Agweek that even though the U.S. Department of Agriculture had to spend money in fiscal year 2013, he thinks the department will be able to comply with Congress’s mandate to run the program without taxpayer expense.

Scuse did not discuss program costs in his speech to the colloquium, but said in the interview that there will be a better equilibrium in the North American market because of improved information gathering and certain actions by Mexico.

Scuse also noted that the 2013 sugar crop in both the U.S. and Mexico was huge and that any bad weather would have changed the dynamics of that market.

In his speech, Scuse noted that USDA’s Commodity Credit Corp. had to take 10 separate actions on sugar to comply with the program under the 2008 farm bill. The actions included exchanges of rights to import sugar, accepting sugar under growers’ rights to forfeit sugar to the government if prices fall below support prices, and selling the forfeited sugar to biofuels plants.

Although he did not mention the cost of these actions in his speech, he said in the interview that the total cost was $280 million, but that the government gained $20 million from the sales of sugar to biofuel plants, bringing the final cost down to $260 million. (The official spending amount was apparently $258 million.)

The next day, Roney, who works for the sugar growers, told the sweetener users, “People don’t know if there will be forfeitures this year. It all depends on one word: Mexico.”

Mexico might export onto the world market, Roney said, but he added, “I fear we are going to continue to see much larger Mexican crops and unloading on the U.S. market.”

The 2014 farm bill has continued the sugar program with no changes.

Can’t wait

The Sweetener Users Association will not wait for the next farm bill to try to convince Congress to make changes to the sugar program, a key adviser to the group said Feb. 26 at the colloquium.

Although sugar prices are now low, the high prices from 2009 to early 2013 were “too traumatic an experience and hurt too many people,” said Bill O’Conner, a senior policy adviser at McLeod, Watkinson and Miller who is a consultant to the users’ association. “There will be searches for other vehicles, other venues.”

Speaking on the same panel at the International Sweetener Colloquium, Roney said to make changes to the program, the users would need to address the impact of the large sugar imports from Mexico.

O’Conner said the users had not tried to eliminate the sugar program in their quest for changes, but wanted to correct policies in the 2008 farm bill that were continued in the 2014 bill.

Commodity programs should protect the growers from low prices, but “once beyond the safety net, you should be out there in the market,” O’Conner said.

But when sugar prices skyrocketed after Hurricane Katrina-related declines in production and world prices were less, the U.S. sugar policy that restricts imports meant the users could not cut their ingredient costs by relying on the world market, O’Conner said.

When U.S. domestic sugar prices hit between 50 and 60 cents per pound, he said, there was sugar available on the international market for 30-some cents, but U.S. sweetener users could not buy it.

High U.S. prices encourage increased production in other countries, O’Conner said. And then, particularly in the case of Mexico, which has the right to export any amount of sugar to the U.S. under the North American Free Trade Agreement, they want to sell that sugar in the U.S.

“It is the growers’ turn to experience the nightmare,” O’Conner said, noting that he thinks this has become a cycle. “High prices encourage other countries to produce more sugar,” he said. “That will continue until we correct this program.”

Roney defended the program, saying it has resulted in stable supplies of sugar, but that it has become complicated by the free-trade agreements that the U.S. has signed, particularly NAFTA.

U.S. sugar growers have the right only to supply 85 percent of the U.S. market so there will be room for the sugar that the U.S. has agreed to import under the agreements.

With sugar prices hovering at forfeiture levels, Roney said he is worried that both cane and beet producers might go out of business, or at least plant fewer acres to sugar. If co-op owned processing facilities have fewer beets to process, the unit cost of production will go up, he noted.

While U.S. acreage has gone down, Mexico increased its sugar acreage by 66 percent since NAFTA went into effect 20 years ago, Roney said, calling that expansion “reckless.”

O’Conner said sugar growers had convinced Congress to continue their program by “assuring them that the program did not cost anything.”

“They were very skillfull,” O’Conner said. “They managed to stave off defeat.”

But then the program cost $258 million, “O’Conner said, adding that “the no-net-cost myth is gone.”

Balancing supply and demand

Roney said the answer to balancing sugar supply and demand is joint management of sugar by the U.S. and Mexico. He noted that the Mexican Sugar Chamber and the American Sugar Alliance have signed an agreement asking their respective governments to develop stabilization programs.

USDA did everything it could to keep down taxpayer costs when there were forfeitures in 2013, said Dan Colacicco, who managed the sugar program until he recently took a buyout from USDA. He retired and founded Cicco Commodities LLC, a consulting firm whose clients include the sugar growers.

After swapping sugar for import rights and taking other administrative actions, USDA used the Feedstock Flexibility Program to sell the unused sugar to ethanol plants for much less than the government paid for it.

On a separate panel, Geoff Cooper of the Renewable Fuels Association said U.S. ethanol plant operators were initially not very interested in buying sugar because they did not have a lot of experience with it as a feedstock.

They became more interested because corn was high priced, Cooper said, adding that if USDA has sugar forfeitures in the future, the ethanol operators’ interest in it will depend on the corn market.