World Sugar Markets and U.S. Sugar Policy

At a time when the sugar market in the United States is becoming even more competitive (under the 1996 Farm Bill), the European Union continues to maintain a high level of protectionism. Europe's sugar policies contain a complicated set of variable import duties, variable export subsidies, intervention prices, and threshold prices, plus type A quotas and type B quotas. Although historically the European union nations were net importers of sugar, they now export 3 tons of sugar for every 1 ton imported. This heavy level of subsidy of Europe distorts world market prices for sugar. It has been estimated that if Europe were to unilaterally liberalize its sugar policies, world raw sugar prices would increase to levels near or above current U.S. levels. Thus, all the rhetoric about the cost of the U.S. sugar program to American consumers would disappear. American consumers have a good deal in their sugar supply. In June of 1996, the U.S. House of Representatives passed an Agricultural Appropriations Bill that would impose price controls on raw sugar at 117.5 per cent of the loan rate, or a price cap of 21.15 cents per pound. Apparently, this legislation was intended to guarantee sugar refiners profitable operating margins and full capacity operations. While gross refiner margins were below normal in mid 1995, they are in mid 1996 over twice the level of normal profits. More importantly, imposing price controls raises the ugly head of government intervention in resource allocation and inevitably leads to inequities among market participants. It is also contrary to the general direction of U.S. farm policies that had been moving toward freer markets. In terms of likely impacts, the 1996 Farm Bill is expected to eliminate the incentives for expansion of beet sugar processing capacity simply to establish historic production bases. This legislation will also increase price risk and possibly limit borrowing by growers. The "safety net" of non-recourse loans disappears for U.S. sugar growers if foreign sugar imports fall below 1.5 million tons. This situation would result in "recourse" loans or no safety net at all. Given a larger than expected domestic sugar crop, prices and returns to growers would be disastrously low. Environmental issues are not uniquely a Florida problem. Rational thinking and science need to be a cornerstone of solving problems in this area.