International Sweetener ColloquiumOrlando, FloridaFebruary 9, 2009

U.S. Sugar Policy in the 2008 Farm Bill:

Why Congress Made Some Changes

Jack Roney

Director of Economics and Policy Analysis

American Sugar Alliance

U.S. Sugar Policy in the 2008 Farm Bill

Key Changes

1.Loan rate increase

2.Minimum share of U.S. consumption

3.Sugar-to-ethanol mechanism to balance market

4.Restraint on timing for import quota (TRQ) increases

U.S. Sugar Policy in the 2008 Farm Bill

Key Changes

1.Loan rate increase:– 4.2% increase, phased in over next three years

– First increase since 1985

– General inflation since 1985: 104%

– Key input cost increases even greater

– Sugar losing out to higher-priced competing crops

– Beet and cane acreage on steady decline

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15

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1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

U.S. Raw Sugar Loan Rate, Nominal and Real, 1985-2008

Nominal Loan Rate: 18 cents

Real Loan Rate --Corrected for Inflation

9.00

Data Source: Bureau of Labor Statistics --CPI-U. Annual averages, 1985-2008.

Ce

nts

pe

r p

ou

nd

6d

Last sugar loan rate increase: 1985Inflation since 1985: 104%

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Cen

ts p

er p

ound

, raw

val

ue

Real Price --Corrected for Inflation

Trendline

Trendline

Data Sources: BLS--CPI-U. USDA: Price delivered New York, duty-fee paid; annual averages 1985-2008.

Nominal Price

U.S. Raw Sugar Prices, Nominal and Real, 1985-2008

6e

Last sugar loan rate increase: 1985Inflation since 1985: 104%

10.65

21.30

0%

77%

104%112%

188%

251%

0%

50%

100%

150%

200%

250%

300%

Sugar Support Price Machinery and Equipment

General Inflation (CPI)

Wages Agricultural Chemicals and Products

Gas Fuels

Since 1985: Farm Input Costs -- Huge Increases Sugar Price Support -- No Change

U.S. raw sugar loan rate: 18 cents/lb since 1985. Input cost data source: U.S. Bureau of Labor Statistics, Producer Price Index and Empoyment Cost Index, 1985-2008; "Wages"= preliminary, through November 2008.) 6

Prices for some key beet and cane fertlizers have doubled or tripled just in the past year

50%

75%

100%

125%

150%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Sugar

Soybeans

Corn

Wheat

Changes in U.S. Commodity Prices Since 1996:Other Crops Up Sharply Since 2005; Sugar Flat

(1996=100)

Sources: ERS, USDA; Annual averages prices received by farm, No. 2 yellow corn, all wheat, soybeans, raw cane sugar (#14 futures contract). 135

2008 avg raw price of 21.30 cents = 94.7% of 1996

2008 avg refined price of 32.54 cents = 111.4% of 1996

600

800

1,000

1,200

1,400

1,600

U.S. Harvested Area of Sugarbeets and Sugarcane-- Thousand acres --

Beet Acres

Cane Acres

Data source: ERS, USDA. January 2009. 21

:Beet acreageDown 7 of past 9 years;Down 15% in 2008/09

:Cane acreageDown 7 years in a row;Down 1% in 2008/09

50%

75%

100%

125%

150%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Changes in U.S. Commodity Prices and Retail Food Prices Since 1996: No Passthrough to Consumers --

Food Manufacturers Absorb Savings when Producer Prices Fall(1996=100)

Sources: ERS, USDA: Annual averages prices received by farm, No. 2 yellow corn, all wheat, soybeans, raw cane sugar (#14 futures contract). BLS: Food and beverage consumer price index. 135b

Sugar

Retail Food & Beverage Soybeans

WheatCorn

CropYear

Increase Loan rate Increase Loan rate2008 0.00 18.00 0.00 22.902009 0.25 18.25 0.55 23.452010 0.50 18.50 0.87 23.772011 0.75 18.75 1.19 24.092012 0.75 18.75 1.19 24.09

210f

Refined Beet LoanRaw Cane Loan @128.5% of cane

2008 Farm Bill: Sugar Loan Rates

U.S. Sugar Policy in the 2008 Farm Bill

Key Changes2.Minimum share of U.S. consumption

– WTO, FTA concessions had claimed about 15% of U.S. market; minimum amounts guaranteed whether U.S. needs the imports or not

– U.S. producers: Residual suppliers to own market– NAFTA: Mexico’s unlimited access as of 1/1/08– More concessions in new FTAs, Doha Round?– Congress: Enough is enough. Honor all trade

agreements, but preserve some share of U.S. market for competitive, efficient, responsible U.S. producers– 85% share: If production less, increase imports

CommentWTO FTAs Total

-Metric tons-In PlaceWTO (40 countries) 1,139,175 -- 1,139,175 Uruguay Round commitment

NAFTA - Mexico1 10,212 Unlimited Unlimited Unlimited access began January 1, 2008CAFTA/DR2 311,700 119,060 430,760 Grows, on average, by 3,153 mt/yr years 2-15;

by 2,640 mt/yr thereafter

Approved, not yet implementedPeru 43,175 11,000 54,175 Grows by 180 mt/yr forever

Not yet approvedColombia 25,273 50,000 75,273 Grows by 750 mt/yr foreverPanama 30,538 7,000 37,538 Grows by 60mt/yr for 10 years

Being, or to be, negotiatedEcuador 11,583 ? -- Exports 25,000 mt/yr, half to U.S. duty free

Thailand 14,743 ? -- World's 3rd largest exporter

South Africa/Swaziland 41,071 ? -- Exports 1.5 mmt/yr

FTAA3 715,499 ? -- Exports 25 mmt/yr

Doha Round of WTO 1,139,175 ? -- Large TRQ increase, tariff drop possible

1 Canada excluded from the sugar provisions of the NAFTA.2 CAFTA/DR access for CY 2009; includes 2,000 tons of specialty sugars for Costa Rica. CAFTA countries' WTO access included in WTO total.3 Peru FTA includes 2,000 tons of specialty sugars not subject to net exporter status.4 Free Trade Area of the Americas -- 24 sugar exporting countries.

73ff

U.S. Sugar Import Concessions:In Place, Proposed, or Being Negotiated

Minimum Import Amount

Note: CAFTA/DR and Peru FTA net-exporter provisions could limit the access of the Dominican Republic some years and Peru in most years.

Prior to 2008 Farm Bill Since 2008 Farm Bill

U.S. Producers NONO, but minimum share of

consumption

40 WTO Quotaholders YES YES

6 CAFTA/DR CountriesYES + Guaranteed annual

growth foreverYES + Guaranteed annual

growth forever

MexicoYES -- If surplus

producerUnlimited access -- since

1/1/08, under NAFTA

Guaranteed Minimum Access to U.S. Sugar Market?

U.S. Sugar Policy in the 2008 Farm Bill

Key Changes3.Sugar-to-ethanol program to balance market

– Pre-Farm Bill USDA projections of massive oversupplies of sugar from Mexico; CBO projections of high loan forfeitures, government costs

– Congress’ aims:– Avoid sugar loan forfeitures– Minimize government costs– Contribute to effort to reduce dependence on foreign oil

– Standby program: Only when imports cause oversupply– Buy surplus sugar from lowest bidding sugar producer;

sell to highest bidding ethanol producer

130

214

259

294305

2

37

73

103112

2009 2010 2011 2012 2013

March 2006

January 2009

CBO Projections of CCC Outlays for U.S. Sugar Policy:Before 2008 Farm Bill (March 2006) and After (January 2009)

2008 Farm Bill: Sugar ethanol program = Savings relative to massive forfeitures of surplus sugar caused by excessive imports

Source: Congressional Budget Office. January 2009 sugar outlays = sugar program + feedstock flexibility program outlays.Note: Actual CCC estimate for sugar policy outlays in fiscal 2009: Zero. 15

-- FY 2009-2013, Million dollars --

U.S. Sugar Policy in the 2008 Farm Bill

Key Changes4. Restraint on timing for import quota (TRQ)

increases– Avoid repetition of past disasters: Raising TRQ too early,

oversupplying market, depressing price– July 2006: Excessive TRQ of 564,000 short tons – depressed

market prices for two years– August 2008: TRQ increase of 300,000 tons – U.S. raw price

plunged below loan forfeiture levels, remains there now

– Waiting until April 1, unless emergency– Still ample time (half year) for additional imports to enter– By then, vastly more information on U.S. and Mexican sugar

production and consumption and Mexican exports– This year as example: Just between September 2008 and January

2009 WASDEs, USDA has found 576,000 more tons of sugar, doubling its 2008/09 ending-stock and stock/use-ratio forecasts

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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U.S. Raw Cane Sugar Prices, 1997-2009: Prices Generally at or Below Loan Forfeiture Levels

Source: USDA. Raw cane sugar, nearby #14 contract, delivered New York. Monthly average prices January 1997 - January 2009

2008-Crop Forfeiture Range

20.80

19.99

10a

Price drop: Excessive import access

granted, July 27, 2006

Early Feb: 19.50

Price drop: Excessive import access

granted, Aug. 6, 2009

U.S. Sugar Policy in the 2008 Farm Bill

Key Goals Achieved1. Help ensure American sugar Users and consumers of

reliable supplies of nearby, safe, high-quality domestic sugar at reasonable prices– Mitigate dangers of imported sugar: Reliability, safety,

quality, timing, practicality2. Provide American sugar producers opportunity to survive

– Cope with pressures of high input costs and competing crop prices, potential further loss of market share to subsidized imports via trade agreements

3. Avoid or minimize taxpayer costs4. Small step toward reducing American dependence on

foreign oil