Sugar Coalition Tells of Sugar Program Opposition

July 18, 2001

Art Jaeger of the Consumer Federation of America, testifying on behalf of the Coalition for Sugar Reform Tuesday told the Senate Agriculture Committee the coalition's 285 members oppose the federal sugar program because it harms not only the coalition organizations but producers as well.

"Instead of direct, transparent assistance to farmers, the sugar program distorts prices through import quotas and a price guarantee that is twice world levels," said Jaeger. When Congress approved the 1996 farm law, he added, advocates of the sugar program argued that the program was run at no net cost to taxpayers. They argued that it worked, and that it benefitted producers."

Since 1996 domestic production increased almost 25% in the subsequent three years and will still be 15% higher than 1996 this year despite lower prices, he said. "By contrast, imports have fallen 40%. Imports are not the problem. The problem is that our high sugar price supports have led to a surplus of sugar."

The sugar program's effect on employment "is more evident than was the case in 1996." The problems of the cane refining industry "are stark," Jaeger said. Of the refineries that were operating when the current program began in the early 1980s, about half have closed, taking more than 3,000 good manufacturing jobs with them. "The refining industry has been devastated in the past year by the collapse of refining margins, so that the largest refiner is now in bankruptcy."

Processors and growers want to increase the sugar price support both directly and indirectly, he continued. The direct increase would be achieved through a "rebalancing" of the sugar loan rate. The indirect increase would be achieved by getting rid of the forfeiture penalty.

"This penalty, now assessed on processors who forfeit sugar, operates to reduce government costs and to reduce - by one cent per pound - the price at which a rational processor would forfeit sugar. Abolishing it would have the opposite effect, and would be tantamount to raising the support price by one cent," Jaeger argued.

The farm bill being written now "should reform the sugar program. It should not tinker around the edges but make genuine change. Reform can take a variety of forms. We believe certain principles should govern our sugar policies. We also believe these principles should be used to evaluate any legislation considered by the committee. All the principles have one overriding theme: We should give greater sway to market forces than current policy allows," Jaeger said.

Policies "should allow the market to operate in such a manner that supplies are adequate and balanced. This means that shorting the market through production controls should be off the table, and market signals should be transmitted to all producing regions so that an imbalance of beet sugar relative to cane sugar can be avoided. In turn, market balance will allow a return to viability for the cane refining industry."

The U.S. market "needs to become more open to world supplies. In recent years, as I have already pointed out, we have gone in the other direction, cutting imports by 40%. Reversing this trend is vital to accommodating our present and future trade obligations, and to encouraging expanded market access worldwide for our competitive export commodities, whether pork, soybeans, corn or beef," he said.

Policies should not provide incentives for overproduction. "The current support system has clearly encouraged more domestic production than the market needed. We must change that. The operation and role of the support price, the loan program, the tariff rate quota and the forfeiture penalty all need to be analyzed in this context."