USDA taking steps to manage sugar surplus: More needed, some say
July 10, 2013
U.S. Department of Agriculture officials said this week they'll take more actions to manage the nation's sugar surplus, which has caused a historic drop in sugar prices this year.
However, ag economists, farmers and officials in the U.S. sugar industry say the government's recent moves could be — or even should be — just a jumping-off point for continuing to examine its overall sugar policy, particularly how it imports the commodity. The government's recent and future actions could have huge implications for about 1,400 farmers in Colorado, Wyoming, Nebraska and Montana, who grow sugar beets for the Western Sugar Cooperative, headquartered in Denver.
A surge of sugar imports and record-high domestic production in some regions last year led to too much sugar in the U.S., and heading into sugar beet planting this spring, the price of sugar had fallen by nearly 40 percent from the previous year.
Things haven't gotten better since.
In response, the USDA announced actions last Monday aimed at stabilizing the domestic market, as is required of the federal agency by law.
According to a USDA news release, the actions are designed to manage the sugar program while minimizing federal sugar program expenditures.
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As part of those actions, USDA officials said the government will purchase sugar from domestic sugarcane or sugar beet processors and subsequently conduct voluntary exchanges for credits under the Refined Sugar Re-export Program.
Exchanging sugar for credits reduces imports into the U.S.
USDA officials stressed that these moves are a less costly option than loan forfeitures.
They anticipate their actions could remove around 300,000 tons of sugar from the U.S. market and cost approximately $38 million, subject to sequester, which is one-third the expected cost of forfeitures.
According to officials with the American Sugar Alliance, the federal government spending $38 million to purchase sugar would be the first cost to U.S. sugar policy in more than a decade.
The sugar policy has operated $200 million under budget during the 2008 Farm Bill, they said.
The USDA also announced last Monday that licensed refiners now have 270 days — rather than 90 days — to make required exports or sugar transfers under the Refined Sugar Re-export Program.
This action increases the pool of available re-export credits.
The recent moves build on actions the USDA had taken in recent months to stabilize the domestic sugar market.
While sugar prices have recently tanked, there's little sugar beet farmers can do about the situation.
Most farmers who grow sugar beets in Colorado, Wyoming, Nebraska and Montana do so through the Western Sugar Cooperative.
As part of their contracts with the cooperative, farmers agree to plant a certain amount of beets each year.
In many other cases, farmers can decide to plant less of a certain crop if the commodity price declines, but Western Sugar's beet growers don't have that option, because of their contacts.
Fortunately, farmers say, sugar-beet production has been profitable in recent years, which will help cushion any blow in the future if sugar prices stay low for a while and profits are limited.
Western Sugar officials continually adjust their acreage allocations for farmers heading into the planting season, basing those adjustments on the availability of water, market prices and many other factors.
With the oversupply of sugar in the U.S., Western Sugar officials had their farmers/shareholders plant slightly fewer acres this year than in previous years. They can never cut acres too much, Western Sugar officials have said, because their sugar-processing plants still need enough beets to operate profitably.
When asked about the government's recent moves and sugar policy in general, sugar beet growers and officials at the Western Sugar Cooperative declined to comment, and referred inquiries to officials with the American Sugar Alliance.
In a statement, ASA officials expressed appreciation for the USDA's recent moves, but also expressed frustration, criticizing the federal government for long allowing "subsidized Mexican sugar" to flood the U.S. market "through a NAFTA loophole."
They added that this week's regulatory moves underscore "the need to address foreign subsidization that is manipulating the world market to America's detriment."
P. Lynn Kennedy — the son of a northern Colorado sugar beet farmer, who's now an ag economist and professor at Louisiana State University, specializing in international sugar and rice trade — said the recent events in the sugar market could indeed spark further discussion regarding the nation's overall sugar policy, but "only time will tell."
"With the way things are now, we've lost some flexibility in how we import sugar, and that might get looked at," he said. "I'm sure there are many people wanting to see that happen." ❖