Fundamentals of the U.S. Sugar Program Page: 1 of 2
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. Congressional Research Service
Informing the legislative debate since 1914
Fundamentals of the U.S. Sugar Program
The U.S. sugar program is singular among major farm
commodity programs in that it combines a floor price
guarantee with a supply management structure that
encompasses both domestic production for human use and
sugar imports. Historically, the U.S. sugar market has been
managed to help stabilize supplies and support prices. The
current sugar program provides a price guarantee to the
processors of sugarcane and sugar beets and, by extension,
to the producers of both crops. The 2014 farm bill (P.L.
113-79) reauthorized the sugar program that expired with
the 2013 crop year through crop year 2018 with no changes.
As before, it directs the U.S. Department of Agriculture
(USDA) to administer the program at no budgetary cost to
the federal government by limiting the amount of sugar
supplied for food use in the U.S. market (see CRS Report
R43998, U.S. Sugar Program Fundamentals, by Mark A.
McMinimy). To achieve the dual objectives of providing a
price guarantee to producers while avoiding program costs,
USDA uses four tools to keep domestic market prices
above guaranteed levels. These are:
" Price support loans-the basis for the price guarantee;
" Marketing allotments to limit the amount of sugar that
each processor can sell for domestic human use;
" Import quotas to control imports of foreign sugar; and
" A sugar-to-ethanol backstop (Feedstock Flexibility
Program)-to remove sugar from food channels to help
keep market prices above loan forfeiture levels.
In addition, agreements with Mexico that were finalized in
late 2014 impose important limits on a hitherto substantial
and unrestricted supply of sugar to the U.S. market.
Key Program Element: Price Support Loans
Nonrecourse loans taken out by a processor of a sugar crop,
not producers themselves, provide a source of short-term,
low-cost financing until a raw cane sugar mill or beet sugar
refiner sells sugar. The "nonrecourse" feature means that
processors-to meet their loan repayment obligation-can
forfeit sugar offered as collateral to USDA to secure the
loan, if the market price is below the effective support level
when the loan comes due. The "loan rate" is the amount
processors receive for placing sugar under loan. For 2014
crops (FY2015), the national average raw cane sugar loan
rate is 18.75#/lb; that of refined beet sugar is higher at
24.09#/lb. The loan rate for raw cane sugar is lower because
raw cane must be further processed to have the same value
and characteristics as refined beet sugar for food use.
The minimum market price that a processor requires to
repay the loan instead of forfeiting sugar is higher than the
loan rate. This "effective support level," also called the
"loan forfeiture level," represents all of the costs that
processors need to offset to make it economically viable to
repay the loan. These costs equal the loan rate, plus interest
accrued over the nine-month term of the loan, plus certain
marketing costs. The effective support level for 2014-crop
raw cane sugar is 20.95 /lb, and from 24.4# to 26.1 /lb for
refined beet sugar, depending on the region.
If market prices are below these loan forfeiture levels when
a price support loan usually comes due (i.e., from July to
September), and a processor hands over sugar pledged as
collateral rather than repaying the loan, USDA records a
budgetary expense (i.e., an outlay). USDA then gains title
to the sugar and is responsible for disposing of it. To avoid
loan forfeitures that could result in costly government
outlays, USDA sets annual limits on the quantity of
domestically produced sugar that can be sold for human
use. It also restricts the level of imports that may enter the
domestic market through tariff-rate quotas and via an
import limitation agreement with Mexico.
. U.S. Supply and Overall Allotment Quantity
10.0 * * - Imports
2012 2013 2014 2015 Proj
-Overall Allotment Quantity
Source: Derived by CRS from USDA sugar program announcements
and USDA's World Agricultural Supply and Demand Estimates.
Key Program Element: Marketing Allotments
Sugar marketing allotments limit the amount of
domestically produced sugar that processors can sell each
year. They do not limit how much beet and cane farmers
can produce, nor do they limit how much sugar beets and
sugarcane that beet refiners and raw sugar mills can
process. The farm bill requires USDA each year to set the
overall allotment quantity (OAQ) at not less than 85% of
estimated U.S. human consumption of sugar for food as
illustrated in Figure 1. Sugar production in excess of a
processors' allotment may only be sold for human use to
allow another processor to meet its allocation or for export.
www.crs.gov I 7-5700
May 8, 2015
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Fundamentals of the U.S. Sugar Program, report, May 8, 2015; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc812236/m1/1/: accessed February 23, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.