A story earlier this week in the Wall Street Journal stating that the U.S. Department of Agriculture was considering implementing the feedstock flexibility program at a potential loss of $80 million to remove excess sugar from the U.S. market prompted four senators to ask the department for details about loans to sugar processors.
The U.S.D.A. is considering buying 400,000 tons of excess sugar to prevent sugar processors from defaulting on government loans of $862 million, according to the story. Such loans are generally normal operating procedure under the farm bill’s sugar program and are repaid when processors sell sugar as the year progresses, or if sugar prices drop below specified loan rates they may use the actual sugar as repayment. Bulk refined sugar prices have declined by 45% or more from a year earlier.
Republican Senators John McCain of Arizona, Pat Toomey of Pennsylvania and Mark Kirk of Illinois and Democrat Senator Jeanne Shaheen of New Hampshire signed the letter asking the U.S.D.A. to “explain and justify the potential $80 million cost to the American taxpayer,” and to “identify each corporation or other entity currently receiving operating loans under the sugar program, and of those entities, which have outstanding loan balances . . . at risk for defaulting.”
Senators Toomey, Kirk and Shaheen were part of a larger bipartisan group that introduced the Sugar Reform Act in both houses of Congress on Feb. 14 seeking to make changes to the long-standing sugar program.
The American Sugar Alliance in a response to the Wall Street Journal story noted use of the feedstock flexibility program, first introduced in the 2008 farm bill but never yet implemented, would be less costly than loan forfeitures. Under the feedstock program the U.S.D.A. buys sugar and sells it to ethanol producers “for what they can get,” which in this case may result in an estimated $80 million loss. The A.S.A. also noted that the current record oversupply was “caused largely by unneeded subsidized imports and a loophole in NAFTA.”
Mexico can export an unlimited amount of sugar to the United States under the North American Free Trade Agreement. The U.S.D.A. estimated 2012-13 (October-September) imports of Mexican sugar at nearly 1.6 million tons, up 48% from 2011-12 imports and equal to more than 11% of total U.S. supply.
Sugar users contend U.S. sugar program restrictions on U.S. sugar production and imports (other than those prescribed in free trade agreements) result in artificially high sugar prices and cost U.S. consumers millions of dollars annually even if the U.S.D.A. runs the sugar program at no cost.
The U.S.D.A. has administered the program at no cost since 2002.
