WASHINGTON – Supporters regularly defend the nation's sugar price-support program that props up Minnesota's sugar beet industry, saying that it operates at no cost to the taxpayers. But with sugar prices falling 38 percent in the past year, government officials are now scrambling to minimize a potential hit to taxpayers.
U.S. sugar policies, which date to the 1930s, allow producers to "forfeit" their crop to the government rather than repay federal loans when sugar prices drop below certain levels. With some sugar prices recently dipping below those levels, the U.S. Department of Agriculture is now at risk of becoming the owner of millions of pounds of sugar.
"We are hovering around forfeiture levels," Phillip Hayes, a spokesman for the American Sugar Alliance, a U.S. sugar producers trade association, said Wednesday. "The USDA is trying to avoid that because it is costly to the taxpayers."
Minnesota is the nation's leading sugar beet producer, with twice the acres planted as its main rival, North Dakota. The industry is a major part of the Red River Valley's economy, and Moorhead-based American Crystal Sugar Co., the largest U.S. beet sugar operator, alone accounts for 13 percent of the nation's refined sugar output.
Kevin Price, a lobbyist for American Crystal, said the farmers' cooperative currently has no outstanding loans under the U.S. sugar program. As the market has soured, a loan is becoming more of a possibility. "It's certainly risen on the list of options we are looking at, and we might," he said. "But that decision has yet to be determined."
A spokesman for Minn-Dak, a Wahpeton, N.D.-based farmers cooperative, said its CEO was not available to speak Wednesday, and therefore had no comment. Renville-based Southern Minnesota Beet Sugar Cooperative did not return calls.
Experts say the government has a couple of options if sugar prices continue to fall. The least costly could be buying excess sugar to sell to ethanol makers. Taxpayers would still be on the hook for any losses on the government sales.
That hit would likely be much less than the cost to taxpayers if the government takes ownership of millions of pounds of sugar that it must then dispose of.
The Wall Street Journal reported Wednesday that the USDA is considering buying 400,000 tons (800 million pounds) of sugar from beet and cane producers that could lead to an $80 million loss. But the agency's deputy communications director, Justin DeLong, said the USDA "has not made a determination as to the methods of reducing a sugar surplus."
Still, USDA is in the process of figuring out the amount of sugar that must be removed from the domestic market to avoid forfeitures. "Forfeiture doesn't take sugar off the market," the Sugar Alliance's Hayes explained.
Sugar producers may forfeit their product to the government if prices fall below 25.57 cents per pound for refined beet sugar or 20.94 cents per pound for raw cane sugar.
Refined beet sugar sold for 28.50 cents per pound in February, according to USDA data. That was down from 51 cents a pound in February 2012. Raw cane went for 20.72 cents per pound in February, down from 33.57 cents in February 2012.
Hayes blamed the U.S. sugar surplus on cheap Mexican imports allowed under the North American Free Trade Agreement. But banner harvests in the U.S. beet and cane sugar fields last year have also pushed prices down. Minnesota had a record sugar beet crop last year, up 38 percent over 2011, the USDA said.
The U.S. sugar program significantly restricts imports while offering loan guarantees to U.S. producers. The short-term loans mature in nine months or less.
Producers like Crystal Sugar would typically take loans in a "really weak sugar market," Price said. The loan program "is there to act as a safety net."
The chance of a taxpayer bailout comes at a critical time for renewal of the sugar program. A new five-year farm bill that includes the sugar program has not been approved by the U.S. House. A Senate farm bill passed in 2012 must be reapproved this year because the House never acted last year.
Supporters in the Senate, including Minnesota Democrats Amy Klobuchar and Al Franken, have thus far fought off attempts to kill the program. Rep. Collin Peterson, D-Minn., whose district includes most of the state's sugar beet producers, successfully protected the sugar program from attack as ranking minority member of the House Agriculture Committee.
But opponents of the U.S. sugar program say import limits and loan guarantees have cost sugar users billions of dollars in artificially inflated prices over the years. One of those opponents is the Coalition for Sugar Reform, a group of candy and food producers and free market advocates.
In a statement Wednesday, the group said, "A Depression-era government loan program may force the U.S. Department of Agriculture — and ultimately, American taxpayers — to purchase excess U.S. sugar to keep prices high."