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Questions Surround USDA's 'Sugar Bailout'

Media reports of a possible USDA sugar buy give way to discussions about U.S. sugar policy

Published on: Mar 18, 2013

A Wall Street Journal article appearing last week raised questions that U.S. sugar policy could be failing.

The article, "Big Sugar is Set for a Sweet Bailout," reported that USDA was considering a buy of 400,000 tons of sugar, apparently to boost sugar prices, which have fallen 18% since October. The price boost would prevent $862 million in loan defaults on the part of sugar processors.

An increase in sugar prices could hit food and candy makers, grocers and other sugar users, WSJ says.

However, USDA economist Barbara Fecso told the paper that if sugar prices bounce back, USDA may rescind its plans to buy. A final decision, the article reported, would come as early as April 1.

Media reports of a possible USDA sugar buy give way to discussions about U.S. sugar policy
Media reports of a possible USDA sugar buy give way to discussions about U.S. sugar policy

Sugar groups fire back

The American Sugar Alliance explained that the sugar price drop is caused by "a flood of unneeded subsidized imports" and oversupply – this is why USDA is looking for alternatives.

ASA said it's the nature of the sugar policy to run at zero taxpayer cost. Pre-emptive USDA actions, ASA said, would save taxpayers money by avoiding the more than $800 million in loan forfeitures that would be more costly.

As for increasing sugar prices for food and candy makers, ASA explained that grocers and food manufacturers have passed none of their savings from recent steep producer price drops along to consumers.

"This might explain why confectioners are booking impressive profits and are expanding production," ASA said.

Senators push for USDA answers

Four Senators Friday issued a letter to USDA Secretary Tom Vilsack questioning the sugar buy, which some have dubbed the "sugar bailout."

In the letter, the Senators – John McCain, R-Ariz., Pat Toomey, R-Penn., Mark Kirk, R-Ill., and Jeanne Shaheen, D-N.H. – asked for clarification on which entities received loans under the sugar program and if the sugar program has gone above cost projections. Additionally, the Senators asked about USDA's consideration of the effects of higher sugar prices on consumers.

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"Special interests groups supporting the USDA sugar program have long touted the argument that the sugar program is statutorily obligated to operate at "no cost" to the American taxpayer. This claim appears to hold true only when the loan program, which is really a price-support program, operates under favorable economic conditions and if USDA doesn't sell excess sugar at an unmanageable loss to ethanol producers using the USDA Feedstock Flexibility Program," the letter said.

"Eighty-million dollars does not mean "no cost" to any hardworking, taxpaying American family," the Senators added.

Reform group looks for other options

Toomey, Shaheen and Kirk aren't new to sugar policy. Last month, the group introduced legislation that would reform domestic supply restrictions, lower price support levels and lower sugar prices.

The bill was similar to an amendment Toomey introduced during farm bill talks last summer, and would nullify sugar program changes made in the 2008 Farm Bill.

Shaheen, Kirk and McCain also offered separate amendments to the Senate's continuing resolution Friday, which would withhold funding for the Feedstock Flexibility Program – the provision that requires USDA to sell excess sugar to ethanol producers at a loss – and the federal loan program that subsidizes sugar producers.

The Coalition for Sugar Reform disagrees with the American Sugar Alliance about the sugar program, saying that world sugar prices are higher in the U.S., costing consumers.

"Despite a lot of ads and empty rhetoric from the sugar lobby to the contrary, we are not looking to put domestic producers out of business. We need a healthy domestic sugar industry, but what we are asking Congress to do is to help ensure the sugar program works for businesses and consumers, not just one special interest group," said Larry Graham, president of the National Confectioners Association and Chairman of the Coalition for Sugar Reform.