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Summary:
Congress is expected to decide the future of the U.S. sugar program in the omnibus farm bill this year. Growers of sugar beets and sugarcane, and processors of these crops, favor continuing the structure of the current sugar price support program but seek changes. Food and beverage manufacturers that use sugar want Congress to address their concerns about the impact of sugar prices and those program features that restrict supplies. To meet the current statutory directive that the sugar program operate at no cost, the U.S. Department of Agriculture (USDA) makes loans available to processors at mandated price support levels, limits the amount of sugar that processors can sell domestically under "marketing allotments," and restricts imports. USDA also seeks to ensure that supplies of sugar are adequate to meet domestic demand. "No cost" is achieved if USDA applies all these tools in a way that maintains market prices above support levels. Should prices fall, processors that took out loans have the right to hand over as payment sugar that has been pledged as collateral, which USDA treats as a cost. With free trade in sugar with Mexico set to take effect in 2008, and the prospect of additional sugar imports under four other negotiated free trade agreements, both sugar producers and users agree that the program cannot be sustained without change. If the sugar program were to be continued without change, USDA and the Congressional Budget Office (CBO) project that prices below support levels because of imports would result in program costs of up to $1.4 billion over the next 10 years. This contrasts with USDA's success in recent years in operating the program at no cost, and even generating revenue. The House-reported farm bill (H.R. 2419) would mandate a sugar-for-ethanol provision intended to address any sugar surplus. USDA would be required to purchase as much U.S.-produced sugar as necessary to maintain market prices above support levels. Purchased sugar would be sold to bioenergy producers for processing into ethanol. USDA funding would be open-ended. The bill also would increase minimum guaranteed prices for raw sugar and refined beet sugar by almost 3%, and tighten the rules (i.e., remove discretionary authority) that USDA must follow to implement marketing allotments and administer import quotas. These provisions reflect the recommendations made by sugar crop producers and processors. CBO projects that this bill's sugar-related provisions would cost about $660 million over the five-year farm bill period and $1.2 billion over 10 years. Food and beverage manufacturers that use sugar oppose the House Agriculture Committee-reported provisions, arguing that costs to consumers would increase by $100 million annually and that the availability of sugar for food use in the domestic market would be further restricted. Their advocates in the House have signaled they will offer amendments to strike certain Committee-reported provisions and/or simply extend the current program without change. This report will be updated to reflect key developments. For additional information, see CRS Report RL33541, Background on Sugar Policy Issues, by Remy Jurenas.
