USDA Will Buy Sugar

May 12, 2000

Making official a decision that had been widely rumored for weeks, Secretary of Agriculture Dan Glickman announced that the government will buy surplus sugar in an effort to strengthen domestic prices that have fallen 25 percent. However, the amount was less than expected and Glickman’s statement suggested that contrary to earlier hopes, the purchase was unlikely to avoid government takeovers of sugar under the price support program.

In a statement late Thursday, Glickman said USDA will purchase the sugar "to reduce the cost of expected sugar program loan forfeitures, support sugar growers, and help stabilize low market prices."

The CCC will seek to buy approximately 150,000 tons of sugar, at least 75 percent of which will be refined sugar, a USDA press release said. Earlier rumors had involved a purchase of 300,000 tons. The statement held out the possibility of additional buys, saying, "Additional purchases may occur in the future, depending on price and market conditions."

The purchases will be made under a 1985 law called "cost reduction options," Glickman said. That law allows purchases and some other activities if they will reduce federal costs compared to the alternatives.

Reflecting intense controversy that surrounded earlier plans to convert sugar into ethanol, the USDA press release said the government will simply store the sugar "and will not sell it back into a depressed U.S. sugar market."

Market reaction may not be all the Administration had hoped for. Not only was today’s quantity only half of earlier rumors, but the statement that USDA would not sell the sugar into a "depressed" market implies that the Department will, in fact, sell it when the market is not depressed. So the purchases may simply overhang the market until they are disposed of.

In an unusual warning to the politically powerful sugar industry, Glickman also called for reform of the program, saying the industry should "develop conservation and production options that can form the basis of a sustainable sugar policy." Sugar prices have fallen 25% from their peak last year, leading to calls for assistance. Despite burdensome stocks, sugar beet growers this spring signaled they will increase their planted acres a further 1% this year, and cane acreage -- which USDA does not survey in the same way -- may also increase.

Glickman’s statement about program changes may ring hollow for opponents of the sugar program, but it is an implicit acknowledgment that the program may not be sustainable without some change. USDA officials say privately that some government takeovers of sugar under the loan program are inevitable this year, even with today’s purchase announcement. For a program whose proudest boast has always been that it is cost-free, that could mean trouble.