Policy
The U.S. sugar program uses price supports, domestic marketing
allotments, and tariff-rate quotas (TRQs) to influence the amount
of sugar available to the U.S. market. The program supports U.S.
sugar prices above comparable levels in the world market. The
origin of the program can be traced to legislation in the
Agriculture and Food Act of 1981 (1981 Farm Act). The program has
been reauthorized with some modifications in succeeding Farm Acts.
An important aspect of the program is that it operates, to the
maximum extent possible, at no cost to the Federal Government by
avoiding loan forfeitures to USDA's Commodity Credit Corporation
(CCC).
A new measure introduced in the Food, Conservation, and Energy
Act of 2008 (2008 Farm Act) to help avoid loan forfeitures is the
Feedstock Flexibility Program (FFP). The FFP will divert sugar in
excess of domestic food consumption requirements to ethanol
production. The main challenge to the program comes from sugar
imports from Mexico that now enter duty-free under the terms of the
North American Free Trade Agreement (NAFTA).
Domestic Price Support
The 2008 Farm Act provides for USDA to make loans available to
processors of domestically grown sugarcane and to domestic
processors of sugar beets at set loan rate levels for fiscal years
(FY) 2009-13. Loans are taken for a maximum term of 9 months and
must be liquidated along with interest charges by the end of the
fiscal year in which the loan was made. Unlike most other commodity
programs, the sugar program makes loans to processors and not
directly to producers. The reason is that sugarcane and sugar
beets, being bulky and very perishable, must be processed into
sugar before they can be traded and stored. To qualify for loans,
processors must agree to provide payments to producers that are
proportional to the value of the loan received by the processor for
sugar beets and sugarcane delivered by producers. USDA has the
authority to establish minimum producer payment amounts.
The loans are nonrecourse. When a loan matures, USDA must accept
sugar pledged as collateral as payment in full, in lieu of cash
repayment of the loan, at the discretion of the processor.
"In-process" sugar and syrups must be converted into raw cane or
refined beet sugar at no cost to the CCC before being eligible for
forfeiture. The processor is not required to notify USDA of the
intention to forfeit the sugar under loan. The loan rates for raw
cane and beet sugar are set in the 2008 Farm Act.
The loan rate for raw cane sugar is:
- 18 cents per pound in FY 2009,
- 18.25 cents per pound in FY 2010,
- 18.50 cents per pound in FY 2011, and
- 18.75 cents per pound in FY 2012-13.
The loan rate for refined beet sugar is:
- 22.9 cents per pound in FY 2009 and
- 128.5 percent of the loan rate for raw cane sugar in FY
2010-13.
The 2008 Farm Act allows processors to obtain loans for
in-process sugar and syrups at 80 percent of the loan rate.
Flexible Marketing
Allotments
Sugar sold in the United States for domestic human consumption
by domestic sugar beet and sugarcane processors is subject to
marketing allotments, as a way to guarantee the sugar loan program
operates at no cost to the Federal Government. The overall
allotment quantity (OAQ) is determined subject to two conditions:
1) domestic sugar prices remain above forfeiture levels and 2) the
OAQ is at least 85 percent of estimated deliveries for domestic
human consumption for the marketing year (October to September).
Allotments are in effect the entire year; there are no criteria for
suspension. During the course of the marketing year, USDA is
required to adjust allotment quantities to avoid the forfeiture of
sugar to CCC.
OAQ allocations are divided between refined beet sugar at 54.35
percent of the overall quantity and raw cane sugar at 45.65 percent
of the overall quantity. For cane sugar, Hawaii is allotted 325,000
short tons, raw value (STRV). The allocations for the mainland cane
sugar-producing States (Florida, Louisiana, and Texas) are assigned
based on the States' and processors' production in crop years
1999-2003. Beet sugar processors are assigned allotments based on
their sugar production in crop years 1998-2000. The 2008 Farm Act
sets out allocation conditions for new entrants and for the effect
of sale of factories between processors.
The 2008 Farm Act provides for a number of contingencies that
could require reassignment of allotments during the crop year. If a
cane processor that has been allocated an OAQ share cannot market
the share, it is reassigned to the other processors within the same
State, taking into account their ability to make up the deficit and
also the interests of producers served by the processors. If the
deficit cannot be eliminated by this step, then the remainder is
allocated to the other cane-producing States, and then to the
processors in those States. If the deficit still is not eliminated,
it is assigned to the CCC for sale from CCC inventories. If CCC
inventories are insufficient to cover the deficit, then the deficit
is assigned to imports. The procedure for a beet sugar processor
deficit is similar, except there is no reassignment based on States
where processing takes place. There is no provision for cane sugar
OAQ deficits to be reassigned to beet sugar processors, or for beet
sugar OAQ deficits to be reassigned to cane sugar processors.
The 2008 Farm Act explicitly states that sugar forfeited to the
CCC counts against marketing allotments made in the year in which
the loan to the processor was made. This clarification reinforces
that sugar in excess of a processor's allotment at the end of the
marketing year cannot be forfeited. Other marketings counting
against allotments include a sale of sugar under the FFP; export of
sugar from the U.S. Customs Territory eligible to receive credits
under re-export programs for refined sugar or sugar-containing
products administered by USDA's Foreign Agricultural Service (FAS);
sale of sugar eligible to receive credit for the production of
polyhydric alcohol under the FAS-administered Polyhydric Alcohol
Program; and for any integrated processor and refiner, the movement
of raw cane sugar into the refining process.
Feedstock Flexibility
Program
The Feedstock Flexibility Program operates to avoid sugar loan
forfeitures to the CCC by requiring the diversion of sugar from
food use to ethanol production. On September 1 (1 month before the
end of the marketing year), the Secretary of Agriculture announces
the amount of sugar (if any) for the CCC to purchase and to be made
available for sale to ethanol producers. Raw, refined, and
in-process sugars are eligible for purchase. Such sugar can be
purchased from any marketer located in the United States. As
mentioned previously, sugar purchased from a sugarcane or sugar
beet processor is counted against that processor's marketing
allotment.
Disposition of Sugar Owned
by the CCC
The 2008 Farm Act provides for specific ways to dispose of sugar
owned by the CCC without increasing future forfeiture risk. Like
the Farm Security Act of 2002 (2002 Farm Act), the 2008 Farm Act
includes the payment-in-kind (PIK) authority to transfer ownership
of CCC sugar to processors in exchange for reductions in production
through reduced sugar crop planting. For area already planted, the
processor cannot commercially market the crop other than as a bioenergy feedstock.
The 2008 Farm Act explicitly authorizes the sale of CCC sugar
for the production of ethanol and for the buyback of certificates
of quota entry (also referred to as certificates for quota
eligibility, or CQEs) to reduce tariff-rate quota imports. To
comply with the goal of preventing sugar forfeitures, the 2008 Farm
Act prohibits the sale of CCC sugar for domestic human consumption.
(Such sales would seem to be permissible if they resulted from a
reassignment of OAQ from a sugar processor to the CCC, as provided
for under the 2002 and 2008 Farm Acts. In this instance, the
likelihood of sugar forfeiture would seem to be minimal.)
Sugar Tariff-Rate Quotas and
Other Trade Measures
The United States establishes separate tariff-rate quotas (TRQs)
for imports of raw cane sugar and refined sugar (also called
"certain other sugars, syrups, and molasses"). Prior to the start
of the fiscal year (October 1-September 30), the Secretary of
Agriculture announces the quantity of sugar that may be imported at
the preferential in-quota tariff rate during that fiscal year.
There is no limit to the quantity that may be imported at the
higher over-quota tariff rate.
Under the Uruguay Round Agreement on
Agriculture (AoA), the United States agreed to make available
for import a minimum quantity of raw and refined sugar each
marketing year. This amount is equal to 1.139 million metric tons,
raw value (MTRV), or 1.256 million STRV. Included in this amount is
a commitment to import at least 22,000 MTRV, or 24,251 STRV, of
refined sugar. The United States administers additional TRQs on
imports of various sugar-containing products that originally had
been subject to absolute quotas under Section 22 of the
Agricultural Adjustment Act of 1933. There are four of these
additional TRQs, none of which apply to Mexico under NAFTA.
According to the Harmonized Tariff Schedule of the United States
(Ch.17, Additional U.S. Note 5 (a) (ii)), whenever the Secretary of
Agriculture believes that domestic supplies of sugars may be
inadequate to meet domestic demand at reasonable prices, the
Secretary may modify any quantitative limitations that have
previously been established, but not below the minimum quantities
under the AoA.
The raw cane sugar TRQ is currently allocated by Office of the U.S.
Trade Representative (USTR) to 40 countries based on a
representative period (1975-81) when trade was relatively
unrestricted. The refined sugar tariff rate quota is currently
allocated to Canada and Mexico, and there is a quantity of refined
sugar that is available to all countries on a first-come,
first-served basis. Likewise, there is an allocation for specialty
sugars, which is also on a first-come, first-served basis.
The in-quota tariff for sugar is equal to 0.625 cents per pound.
Most countries have the low-tier tariff waived under either the
Generalized System of Preferences (see Agricultural Trade Preferences and the Developing
Countries, page 3, for more information), the Caribbean Basin
Initiative, or under U.S. free trade agreements. The over-quota
tariff is 15.36 cents per pound for raw sugar and 16.21 cents per
pound for refined sugar. In addition to the over-quota tariffs,
there are safeguard duties based on the value or quantity of the
imported sugar. Currently, these duties are based on value.
Re-Export Programs
The United States also operates two re-export programs, as well
as a sugar-for-polyhydric alcohol import program, to help U.S.
sugar refiners and manufacturers of sugar-containing products
compete in world markets. The Refined Sugar Re-Export Program
establishes a license against which a company can import sugar at
world prices for refining and sale to replace sugar in the market
that has been exported as refined sugar or as sugar in
sugar-containing products. The Sugar-Containing Products Re-Export
Program allows U.S. participants to buy sugar at world prices for
use in products that will be exported onto the world market. Raw
cane sugar imports under these programs are not subject to the
sugar TRQs. All refined sugars derived from either sugar beets or
sugarcane are substitutable under these programs.
Dominican Republic-Central American
Free Trade Agreement
Under the Dominican Republic-Central American Free Trade
Agreement (DR-CAFTA), there are specific provisions for trade in
sugar. The United States establishes country-specific TRQs for the
DR-CAFTA countries, starting at a total of 107,000 metric tons in
2006 (year 1) and growing to 151,140 metric tons in year 15,
thereafter growing by 2,640 metric tons per year, into perpetuity.
A 2,000-metric-ton TRQ, with no growth, is established for Costa
Rica for specialty sugar. Each country's duty-free access will be
the lesser of its trade surplus or its TRQ for that year.
Provisions have been agreed to allow alternative forms of
compensation to be established to facilitate sugar stock management
by the United States.