Consumers pay extra $1 billion per year because of government price supports for sugar, economists say.
EUCLID, MINN. - Paul Rutherford stared over his tilled fields of sugar beets, his gaze focused on hundreds of acres in the midst of harvest.
As heavy machinery plucked beets from the ground, they emerged a dull shade of tan. In Rutherford's eyes, they looked as good as gold.
Across this stretch of the Red River Valley, sugar beets have become an almost can't-miss money maker because of federal price protections that go back decades.
"These babies have always shown some type of profit," said Rutherford, one of about 2,800 farmers who make up the American Crystal Sugar cooperative, based in Moorhead. "If it wasn't for sugar beets, I wouldn't be farming."
With roughly 500,000 acres of sugar beets planted across Minnesota and North Dakota, American Crystal Sugar is the nation's largest producer of refined sugar through beet farming. It generates 15 percent of the country's sugar supply.
But much of the cooperative's financial success is cultivated in Washington D.C.
American Crystal Sugar has become one of the country's most powerful lobbying groups, doling out cash contributions to lawmakers at levels approaching big-business groups like the American Bankers Association. And it's all for a single objective: To guarantee tariffs and price supports allow sugar beet farmers to make money, even if it drives the cost of sugar above the global market.
"They're considered one of the strongest lobbies there is," said Larry Graham, president of the National Confectioners Association, a candy-makers group which has fought in vain against the sugar program.
Price supports for beet sugar inflate sugar prices for food makers and restaurants, costs the food industry often passes on to consumers in everything from candy and cakes to cereal and soda pop. Some economists estimate that Americans pay at least $1 billion more for sugar a year than they would in an open market.
"There is no justifiable public good being served by the sugar program," said David Orden, an economist at the International Food Policy Research Center. "It's a distortion that helps producers at the cost of consumers."
The sugar industry and its supporters, though, say the sugar program -- unlike most farm subsidies -- involves no government payments and keeps consumer prices stable. "It's a stable industry, and that's what's needed in this country, something stable," Rutherford said.
To protect sugar subsidies, American Crystal's political arm gave $1.16 million to 177 House and Senate candidates in 2011, and spent more than $1 million for lobbying. Republican presidential candidate Newt Gingrich alluded to the sugar industry's power in a debate last week in Florida.
“In an ideal world, you would have an open market …," Gingrich said. "But it`s very hard to imagine how you`re going to get there … The capacity of the agricultural groups to defend themselves is pretty amazing.”
For many politicians, the co-op makes a persuasive argument, particularly in Minnesota where more than 30,000 residents owe their livelihoods to sugar beet farming.
"I believe in the sugar program; it works," said Minnesota Rep. Collin Peterson, who received $10,000 last year from American Crystal Sugar and whose district includes the Red River Valley. He is expected to lead the effort to protect the sugar program in the 2012 farm bill. "I'm going to support the sugar program whether they give me money or not."
Last year, American Crystal Sugar's political arm contributed $5,000 to $10,000 to Minnesota Reps. Tim Walz, Erik Paulsen, Chip Cravaack and John Kline. Co-op officials gave individual contributions to Sen. Amy Klobuchar totalling $10,100. Only Sen. Al Franken and Rep. Michele Bachmann missed out.
Rutherford has served as volunteer chairman of American Crystal Sugar's political action committee (PAC) for a decade. He believes in a simple strategy: No donations, no access to Congress. No access to Congress, no sugar price supports and tariff protection.
Kevin Price, American Crystal's principal lobbyist, belies Washington's well-heeled "influence industry."
A graduate of North Dakota State University, Price doesn't have his own suite. He has an office in the National Council of Farm Cooperatives' space. There's just enough room for a desk, shelves for books and mementos and a few prints of farm scenes on the walls.
Washington insiders know Price as a man of few words. He's a lobbyist who "doesn't lobby directly very often," as Peterson describes him. "Like a lot of people in northwest Minnesota, he doesn't say anything unless he has to."
Two or three times a year, Price leads a group of American Crystal Sugar farmers who blitz Capitol Hill. They try to meet face-to-face with dozens of members of Congress or their staffs in the course of a week. "We just try to make friends," Price said.
American Crystal Sugar is especially generous with members of the House Agriculture Committee, which plays a key role in food policy and the five-year farm bills that set out subsidies. In 2011, the cooperative contributed to 37 of the committee's 46 members. More than half of the committee, including chairman Frank Lucas, R-Okla., and Peterson, the ranking minority member, received $10,000, the maximum donation allowed in an election cycle.
The co-op's political spending dwarfs friends and foes alike. In 2011, American Crystal Sugar gave seven times more to candidates and political action committees than its ally, the American Sugar Cane League of the USA. The co-op also spent about seven times more than Kraft Foods Inc., a major cookie maker that would benefit from lower sugar prices.
Opponents of the sugar program acknowledge American Crystal succeeds because of its singular focus, deep pockets and hard work. Graham, who heads the confectioners association, said he has rushed to introduce himself to new representatives and senators, only to discover that officials from the co-op have been there first.
Since 1995, a dozen bills to kill or reform the federal sugar program have died from inaction in the agriculture committees of the House and the Senate. When the program was reconsidered in 2008, more than 280 House members supported it, Price said.
Currently, four new bills to end the sugar program linger in legislative limbo. Officials at American Crystal Sugar don't expect any of them to pass.
"We've enjoyed pretty broad support," Price said.
Even as members of Congress from both parties hail opening markets to foreign trade, recent trade deals that killed many tariffs with Panama and Colombia still allow the American government to pay those countries not to ship their sugar here untaxed.
When it comes to free trade, sugar is always the exception, said George Washington University economist Steve Suranovic. "The sugar lobby has a real stranglehold," he said.
The U.S. sugar program -- a combination of loan programs, tariffs, quotas and other price supports -- almost guarantees American sugar producers can sell their entire yield at a profitable price. Tariffs, for example, require food makers to pay higher taxes for imported sugar, ensuring that the world's 40 major sugar-exporting countries can't sell as much in the United States as they would like.
As a result, American consumers and companies generally pay more for sugar than they would in a more open market. The average wholesale price for a pound of refined sugar in the U.S. (36 cents) was almost double the average worldwide price (19 cents) from 2006 through 2010.
Liam Killeen, CEO of Farley & Sathers, knows the cost of sugar subsidies all too well. Sugar is the largest expense for Farley & Sathers, one of the nation's largest makers of non-chocolate candy. The company, based in Round Lake, Minn., buys about 50 million pounds of U.S. sugar annually, which cost it roughly $28 million last year.
"If we were free to purchase sugar on the market openly, I think we'd be purchasing it at about 60 percent of the price we're forced to [pay] in the U.S.," Killeen said.
The federal government supports domestic sugar producers in other ways, too. The U.S. guarantees loans by allowing producers to borrow money from the government that can be repaid in sugar instead of cash, if the market crashes.
Supporters of the U.S. sugar program say the outcome is predictable and positive -- stable prices for consumers. "You know the price of gas because it's volatile and high, you don't know the price of sugar because it's not volatile and high," said David Berg, CEO of American Crystal Sugar.
"Unilateral disarmament" of sugar protections, as Berg put it, would lead to a "whipsaw" effect for consumers that won't guarantee lower sugar prices. Peterson agreed, noting that numerous countries protect their own sugar producers.
"The world sugar market is distorted by government involvement in almost every country," he said. "It's not realistic to pretend there is a free market out there."
Some of the largest U.S. food companies are content to let other critics of U.S. sugar policy speak for them. Officials at General Mills, based in Golden Valley, said they won't comment publicly on the cost of sugar or any other commodity. Kellogg, another major food producer, said the same. Kraft Foods deferred questions to the National Confectioners Association, while chocolate candy producers Hershey and Mars didn't respond to requests for comment.
Much of the food industry's efforts in battling the sugar program is channeled through the Coalition for Sugar Reform. In addition to his job at the confectioners association, Graham chairs the coalition, which includes consumer groups, candy companies, bakers and ice cream makers.
The coalition gears up each time the farm bill comes up for renewal every five years. Their pitch to lawmakers is as direct as the sugar lobby's: Protecting one industry at the expense of other businesses and consumers, they say, is unfair. Several members of the House and Senate have been persuaded and are pushing legislation to kill or gut the sugar program. "It just does not make sense and puts U.S. manufacturers at a tremendous disadvantage," said Sen. Jeanne Sheehan, D-N.H.
But beet farmers are a tough political opponent. Many Congressional leaders will say the sugar program "doesn't make sense," Graham said. But they vote for it anyway to win support for their own initiatives.
"The merits of the argument are on our side," Graham said, "But the votes are not."
In the Red River Valley, a different sort of lobbying plays out every year -- beet farmers raising political funds from other beet farmers.
Almost all of American Crystal Sugar's PAC funding comes from cooperative farmers and their families. In 2011, more than 1,000 farmers and family members contributed.
Fund raising is carried out primarily in the winter, starting in January. Co-op officials hold education sessions to remind members that the sugar program is paramount on the co-op's political agenda. It doesn't distinguish by party, just those who support the sugar program and those who don't. Politically active farmers then solicit PAC contributions from other farmers. Many make personal visits.
"It's always better to have your peers out when you are asking for money," said Berg, the co-op's CEO. He likened it to a church fund-raiser: It's more effective if parishioners drive it instead of the pastor.
Still, Berg meets personally with growers, particularly owners of larger beet operations who have not recently donated to the PAC. Berg doesn't use the term free-riders, but he has noticed that sentiment from some growers. "Geez, he's one of the biggest growers and he's not giving anything," is a phrase Berg says he has heard before.
Overall, the co-op's political arm is as persuasive on the farm as it is on Capitol Hill. Some farmers and their families have donated tens of thousands of dollars over the past 10 years. At least one family gave more than $100,000 since 2002. Co-op officials say they need the funding more than ever to fend off attacks from the food industry.
"We contribute because it's in our best interest to do so," said Paul Brogen, a farmer in Dilworth, Minn. "We need to watch [sugar policy] pretty closely so we don't get sold out."
PAC director Rutherford believes such sentiments are on the rise among farmers. "[They] are starting to realize politics are a major part of agriculture, so they are getting more involved."
Farm bill looms
Congress is scheduled to negotiate a new farm bill this year. Some in Washington suspect that partisan fights surrounding the presidential election could delay passage until 2013. Whenever the new five-year farm bill becomes law, those in the know expect sugar subsidies to be included.
"Nobody wants to be perceived as voting against farmers -- Republicans or Democrats," Graham said.
Rutherford has a different view. As he watched his sugar beets being harvested, he discussed why farmers in his region need a Midas touch in Washington.
He makes no apologies for the sugar program. Consumers pay less for sugar in this country than in most developed nations, he says, and beet farmers in the Red River Valley do their part to support the state and national economy.
With the 2011 harvest over, Rutherford now travels the icy roads of rural Minnesota. He sits at the tables of dozens of beet farmers in an endless hunt for political funding. His message remains the same.
"You can do everything right out here," Rutherford says. "But if farming policy changes in Washington, D.C., you might be done."
Jim Spencer • 202-408-2752 Mike Hughlett • 612-673-7003