Changes made to the federal sugar program in the 2008 farm bill have caused sugar prices to spike to record levels, which hurts businesses, manufacturers and consumers, a new report from the food and agriculture consulting company Agralytica shows.
Extra consumer costs due to the 2008 farm bill have tallied about $3.7 billion each year, according to the report (PDF) released Monday. Currently, sugar prices in the United States are about 46 cents per pound, which is higher than 28 cents per pound under the 2002 farm bill.
Sugar producers in the United States and Mexico have responded to the high prices in the U.S. market by expanding sugar production by 20 percent to 25 percent, said Agralytica’s Vice President Tom Earley.
The 2008 changes have made “a bad program even worse and have destabilized the U.S. sugar market,” said Earley, who is also an agricultural economist and trade policy specialist.
“Now we have too much sugar that’s driving prices down that’s going to result in significant costs for the government,” he explained.
The 2008 farm bill increased price supports for sugar producers while also limiting the U.S. Department of Agriculture’s (USDA) ability to adjust import quotas, the report reads. Currently, the program puts a limit on the amount of sugar that can be imported to the United States.
Also, a feedstock flexibility program was first introduced under the 2008 farm bill. This program requires the government to buy surplus sugar, and then sell that sugar to ethanol companies at a loss, essentially putting the taxpayers on the hook for the subsidy.
The Congressional Budget Office expects the feedstock flexibility program will cost taxpayers $239 million over the next 10 years.
And the latest Congress Budget Office baseline for the current fiscal year shows a cost of $51 million for the program, according to the report, “Economic Effects of the Sugar Program Since the 2008 Farm Bill & Policy Implications for the 2013 Farm Bill.”
“That’s a direct cost to the taxpayer," said Bill Reinsch, president of the National Foreign Trade Council.
Earley said the USDA will likely have to divert a million tons of sugar to ethanol fuel plants in order to balance the market, which will cost about $250 million for this year and next.
"I think it’s a situation that’s going to loom over the House farm bill debate, because the producers have been able to argue for the last 10 years [there are] no budget costs to the sugar program, but this year and next we're going to have a significant cost," Earley said.
Monday's report comes as both the U.S. House and Senate discuss their versions of the 2013 farm bill. Both the U.S. Senate and House Agriculture Committees approved their chambers’ farm legislation last month.
Those opposed to the 2008 farm bill provisions say now is the time to reform the sugar program.
But an amendment to the 2013 farm bill in the Senate, S. 345, which aimed to roll back some of the 2008 changes to the sugar program, while also taking into account the interest of consumers and producers, was shot down in committee by a 45-54 vote May 22. Illinois Sens. Dick Durbin (D) and Mark Kirk (R) voted for the reform measure.
Sugar producers’ strategy has been to say if the sugar program ends, they will die off, Earley said.
But the amendment in the House, H.R. 693, and the one that failed in the Senate, does not look to eliminate the program, he explained.
U.S. Rep. Joseph Pitts (R-PA) introduced the amendment in the House. It currently has 49 Republicans and 24 Democrats signed on as cosponsors. Democratic Illinois U.S. Reps. Bobby Rush (1st), Dan Lipinski (3rd), Mike Quigley (5th), Danny Davis (7th), Brad Schneider (10th) and Bill Foster (11th) have signed onto the amendment so far. No Republican Illinois representatives have yet cosponsored the measure.
The amendment would essentially bring back what the sugar program looked like under the 2002 farm bill, which sugar producers supported at that time, Earley noted.
U.S. Sen. Jeanne Shaheen (D-NH), co-sponsor of the Senate amendment, has said the program offers a 'sweet deal' to a few sugar growers and processors in the country. But this sweet deal "comes at the expense of too many other American businesses and at the expense of American consumers,” she said during Senate floor discussion.
Sugar is produced in about a dozen states, so from the start, about 20 senators were already against the amendment, Earley explained.
But sugar program reform has a stronger chance of being adopted in the Republican-controlled House, he said. The House could take up the matter in the upcoming weeks, Earley said.
Reinsch added that lawmakers who represent areas with sugar producers and candy makers have a “pretty clear” view on reforming the program.
But a large number of representatives in the House have neither sugar growers nor candy makers in their districts, so they “could go either way,” he noted.
The House farm bill also proposes a nearly $21 billion cut the Supplemental Nutrition Assistance Program, or SNAP, over a 10-year period. Earley said that plan may work in favor of sugar program reformers.
“As the Republican-led (House) tries to whack ... the SNAP program, representatives whose constituents are affected by that are going to say, ‘Wow ... what happened to the old deal? We support your programs, you support ours,’” he said.
The new report reinforces reasons why the Coalition for Sugar Reform says changes to the sugar program are long overdue in order to protect the nation’s consumers, food manufacturers and small businesses.
“The coalition urges members of Congress to cosponsor this legislation and support efforts to reform the sugar program in the farm bill,” reads a statement Monday from the coalition.
High sugar prices have also played a part in the continued decline of employment within sugar-using industries, according to the report.
About 127,000 jobs in sugar-using food and beverage industries were been lost between 1997 to 2011, which is down 18 percent, Earley said.
Also, the surplus of sugar generated as a result of the higher production in the United States and Mexico now threatens to overwhelm the system, Earley noted. The United States and Mexico sugar markets are essentially unified under the North American Free Trade Agreement.
It is estimated that Mexico’s surplus sugar stock as a result of above average production this year is just shy of 7 million metric tons. That is about a million tons more than last year’s production, according to the report.
“That is a lot of sugar, and it is a problem for both the Mexicans and for the United States,” Earley warned.