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Q&A: The Impact Of U.S. Sugar On The Food Industry

Food prices are reaching all-time highs, and sugar costs have been especially affected. Food Manufacturing spoke with Larry Graham of the Coalition for Sugar Reform about the current U.S. sugar policy and its effects on food manufacturers. Q: Provide a brief overview of the history of the U.

Food prices are reaching all-time highs, and sugar costs have been especially affected. Food Manufacturing spoke with Larry Graham of the Coalition for Sugar Reform about the current U.S. sugar policy and its effects on food manufacturers.

Q: Provide a brief overview of the history of the U.S. sugar program.

A: The U.S. sugar program is a subsidy that dates back to 1934. It has survived in part because it has always been considered by Congress as part of larger farm and nutrition legislation, never on its own. Additionally, because sugar policy works by driving up market prices rather than issuing federal checks, supporters of this subsidy have often referred to the program as “no-net-cost.” However, this is simply not true. In fact, the Congressional Budget Office states that U.S. sugar policy will cost taxpayers $374 million over the next ten years. Even more, this number is dwarfed by the $4 billion extra that consumers spend every year merely because of the sugar program’s market-distorting effects. This subsidy costs both consumers and taxpayers by driving up food costs, making federal nutrition assistance programs more expensive and soaking up scarce government resources to administer the program.

Q: What is the current state of the U.S. sugar industry?

A; U.S. sugar prices are at an all-time high, and continue to average nearly twice the world price. In 2010, world refined sugar prices averaged less than 28 cents per pound, but U.S. sugar prices were nearly double at more than 53 cents a pound. Unlike other farm programs, current U.S. sugar policy keeps domestic prices artificially higher than world sugar prices and imposes a cost on U.S. consumers, making it, in essence, a hidden tax on food and beverages. Last year, the additional cost to consumers was $4 billion.

Q: What is the current U.S. sugar policy?

A: The current U.S. sugar program consists of four basic components, each with their own obstacles:

  1. Price supports, which enforce a minimum price for sugar in the U.S. domestic market. This feature has made the domestic price substantially higher than the world market price.
  2. Marketing allotments, which are aimed at preventing surplus supplies in the domestic market. Each beet processor and cane mill is under a government-imposed and legally-binding limit on the amount of sugar it is permitted to sell each year.
  3. Import quotas (also called Tariff-Rate Quotas or TRQs) set limits on how much sugar can be shipped to the U.S. every year from each of 40 countries. Imports above this level are subject to an extremely high tariff.
  4. The Feedstock Flexibility Program, established in 2008, mandates that in times of surplus, the federal government must buy sugar and re-sell it to ethanol plants at a loss. While unused so far, this new subsidy would come at the expense of taxpayers, who as consumers are already paying far more for sugar than they should.

Q: An estimated 112,000 jobs were lost in U.S. sugar-using industries between 1997 and 2009. What do you think are the main reasons for this?

A: Current U.S. sugar policy has contributed to the loss of thousands of jobs in American sugar-using industries. Because U.S. sugar prices are much higher than world prices, there is an incentive for small businesses and food manufacturers to import sugar-containing products or move plants and factories offshore, thus eliminating thousands of American jobs. The U.S. Department of Commerce estimates that for every sugar growing job saved through high U.S. sugar prices, approximately three manufacturing jobs are lost. Only 4,700 sugar farms benefit from the federal sugar program, and they are supported at the expense of thousands of lost manufacturing jobs. In contrast, there are more than 600,000 U.S. jobs within the food industries that use sugar.

Q: What is the purpose of the Free Sugar Act?

A: U.S. Senator Richard Lugar (R-IN) introduced the Free Sugar Act (S.  685) in March of this year, and U.S. Representative Robert Dold (R-IL) introduced a companion bill (H.R. 1739) in the House in May. These bills call for comprehensive reform by discontinuing the loan program for sugar processors, eliminating tariffs on sugar imports and putting an end to federal quota controls on domestic sugar production. These mandates together have sent sugar prices in the United States to historical highs.

In addition to Senator Lugar and Congressman Dold, a growing number of lawmakers — including Democrats and Republicans from both the House and Senate — are working to enact a bipartisan, comprehensive reform of U.S. sugar policy that will allow buyers and sellers to conduct business in a competitive marketplace, without unnecessary and costly government intrusion that keeps domestic prices artificially higher than world sugar prices.

Q: What will the Free Sugar Act mean for sugar processors and food manufacturers if passed?

A: Currently, domestic users of sugar, such as confectioners and bakers, operate in a market where one of their primary ingredients is artificially regulated by the federal government. In other words, for the primary users and consumers of sugar in the U.S. there is not a free market. This situation creates an artificial domestic market for sugar which results in increased costs for those who depend on sugar as an ingredient in their food products. Unfortunately, this increased financial burden to food manufactures results in significant job loss and higher prices for consumers.

Interview By Lindsey Coblentz, Associate Editor