Sugar glut inspires export subsidies

WASHINGTON, March 25, 2015 – The world’s top sugar exporters are essentially forming a “circular firing squad,” aiming trade distortion accusations at one another, so Phillip Hayes of the American Sugar Alliance argues there is no better time for attempting to eliminate subsidies worldwide.

“There’s been a rapid increase in subsidization over past 12 months,” Hayes said, particularly in India, which he said is the most “significant player” in subsidy talks and is “in direct violation” of World Trade Organization rules.  

Thailand’s sugar producers have lobbied their government to challenge India at the WTO. Meanwhile, USDA in November forecast sugar exports from Thailand, the second-biggest exporter, to surge to a record 8.5 million metric tons this year as stocks are drawn down to meet high demand from Indonesia and Cambodia.

Brazil, the world’s largest producer, has complained about Thailand’s sugar subsidies, but the South American nation attracts its own share of scrutiny from U.S. sugar producers. Brazil subsidizes its sugar industry at the tune of about $2.5 billion per year, according to a report by Patrick Chatenay of the UK-based company ProSunergy. The country has also increased its cane ethanol blending requirements.

The export subsidies are being implemented in a period of high global production. USDA’s Foreign Agricultural Service estimates global sugar output at 172.5 million metric tons (mmt) for the 2014-2015 marketing year. This is down 2.6 mmt from the previous year, but well above 2009-2010, when the figure was approximately 153.4 mmt.

Brazil’s currency fell this month to a 12-year low, pushing international sugar prices down and boosting Brazil’s profit margin on the world market. World prices have fallen 50 percent in three years, with sugar trading around 13 cents a pound earlier this month. Meanwhile, U.S. raw sugar is between 24 and 25 cents a pound, thanks to a supportive U.S. sugar policy.

The Coalition for Sugar Reform, which includes food and beverage manufacturers, advocates a bill, regularly introduced in Congress, which would remove what it sees as artificial barriers in the U.S. sugar program and bring U.S. prices more in line with world prices. The Sugar Reform Act of 2015 was introduced in the Senate last month.

Price supports, marketing allotments and tariff-rate quotas in the U.S. sugar programs limit the amount of sugar imports while also guaranteeing a minimum price for sugar. The measures “prop up the already profitable U.S. sugar producers,” according to the coalition. Arguing that the program is costly for consumers, the lawmakers supporting the legislation cite the Congressional Budget Office’s January 2015 Baseline for Farm Programs, which forecast the sugar program will cost taxpayers an additional $163 million over the next 10 years.

However, Hayes, with the American Sugar Alliance, says the increasing global sugar subsidies show that U.S. sugar policy is necessary for American sugar producers to survive on the world market.

“Expecting any product to survive on this grossly distorted world market is simply not fair,” he said. Although world prices are well below the average cost of production, sugar producing countries are boosting exports, and they do so “with the aid of subsidies.”

Hayes credits Rep. Ted Yoho, R-Fla., for introducing a “viable alternative” to the annual attempts to do away with U.S. sugar subsidies. His bill, H.Con.Res. 20., encourages the administration to target foreign sugar subsidies. Under the “Zero-for-Zero” plan, U.S. sugar support would be rolled back in exchange for the elimination of foreign programs, which Yoho says are distorting world prices and inhibiting a free market. The resolution specifically mentions subsidies in Brazil, Thailand, India and Mexico.

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