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THE
FUTURE OF U.S. SUGAR POLICY Event: U.S. House
of Representatives Committee on Agriculture Mr. Chairman, Mr. Stenholm, and Members of the Committee: On behalf of the industry representatives gathered here today and for the thousands of family farmers, factory workers, employees, and small businesses that depend on this industry for their livelihood, we thank you for this opportunity to testify before you today. I am Ray VanDriessche, a farmer from Bay City, Michigan, and current President of the American Sugarbeet Growers Association, representing 12,000 beet growers nationwide. I am accompanied by Jack Nelson, President of Rio Grande Valley Sugar Growers, a sugar cane growing and processing company in Santa Rosa, Texas; Jim Horvath, President of American Crystal Sugar Company, a beet processing cooperative in Moorhead, Minnesota; Jack Lay, President of Refined Sugars, Inc., a sugar cane refinery in Yonkers, New York; and Jack Roney, staff economist for the American Sugar Alliance, located here in Washington. These gentlemen will assist me in answering your questions in their areas of expertise. The distinguished industry leaders joining me today represent beet and cane growers, processors, sugarcane refiners, and their employees. We are a uniquely structured, extremely diverse, and fiercely competitive industry. From two completely different crops, a perishable vegetable and a perishable grass, we produce the same end product – sugar. There is no other commodity whose industry structure or domestic and foreign markets are like ours. We are two distinctly different crops, with distinctly different markets, and yet we share one farm policy. Therefore, the policy that will guide us successfully into the future must be designed for the unique needs of our industry. Even though we are an extremely diverse industry, we come to you today with a unified message and a unified position on U.S. sugar policy. During the past year and a half, our industry suffered immensely when prices collapsed as a result of an oversupply of sugar in the market. This collapse in price occurred for a number of reasons, which include: our large import obligations under the World Trade Organization; import quota circumvention by stuffed molasses and cane syrups; an increase in sugar-containing products; the uncertainty of imports from Mexico; excellent crop yields; the lack of other profitable cropping alternatives; and the need to increase our efficiencies in response to rising costs on the farm and in the factory. We estimate that revenues to producers under the current farm bill have been reduced by $2.2 billion since 1996. This has led to the permanent closure of 17 beet and cane mills, and is forcing many producers to either buy their processing factories or exit the business. We were just informed last week that another beet factory will not plant or process a crop this year. The largest refined sugar marketer in the U.S. today is in bankruptcy. Today, the U.S. sugar industry is in the worst economic condition in decades, and without prompt action by our government on several fronts, this nation's sugar industry will be devastated. It is clear that our current sugar policy is being undermined by severe breaches in our trade agreements. Mexico wishes to ignore its NAFTA commitments, and international trade houses and U.S. food manufacturers employ what amounts to smuggling or laundering schemes to circumvent our import tariffs and undermine our domestic policy. As a result, the current sugar policy is failing our farmers and has put this industry in serious financial trouble. At a time when the President and the Congress want to forge ahead with new trade initiatives, our producers are reeling from the unresolved problems of current agreements. Until and unless these trade problems are resolved, no sugar program can work effectively. As we discuss our proposed policy today, we would like the Committee to keep five basic points in mind. First, sugar is an essential ingredient in the nation’s food chain. The U.S. market requires 45 different high quality sugars and syrups, delivered just in time in thousands of customized packages. In order to meet these needs, we are the fifth-largest producer and the fourth-largest importer of sugar in the world, and the vast majority of imports enter the U.S. duty free. Historically, we provide sugar to consumers at prices 20 to 30 percent below the average prices consumers pay for comparable products in other developed countries. Second, most sugar is purchased by industrial users for food manufacturing or distributed by retailers. The evidence overwhelmingly shows that low sugar prices for producers do not translate to savings to individual consumers, but rather to the profitability of the industrial users. Third, we are an efficient and globally competitive industry, with costs of production below the world average. Our industry is ready, willing, and able to compete with foreign countries on a genuinely level playing field, free of government programs that distort the terms of trade. However, we face a multitude of unfair foreign trade practices. The U.S. sugar policy must respond to these predatory foreign trade practices. Every country that produces sugar intervenes in its domestic sugar market or industry in some manner. Those countries that produce sugar in surplus of their domestic needs and bilateral trade agreements use export subsidies, or simply dump their surpluses onto the world market, thereby shifting the threat of the surplus from their domestic market to a foreign market. The WTO has been unable to come to grips with this basic problem. These predatory trade practices of less efficient producers pose a continual threat to those of us who are more efficient producers. Fourth, the U.S. sweetener industry is critically important to our nation’s struggling rural economy. Sweetener production provides 420,000 jobs in 42 states and contributes $26.2 billion to the U.S. economy. Fifth, the structure of our industry requires long-term stability in the marketplace. The current Freedom to Farm policy for other major commodities has two fundamental elements. The first is to provide farmers with the flexibility to make planting decisions based on short-term market signals. This does not work for sugar because all of our production is tied to a specific processor who must have sufficient beets and cane every year to survive. The processor is often a farmer-owned cooperative, which would require the sale or purchase of shares in the cooperative. Additionally, we use highly specialized farm equipment that cannot be used for other crops. Our investment/return cycle is a minimum of two years, which does not allow for flexibility. Sugar cane is usually a monoculture with several annual crops harvested from a single planting. Therefore, the flexibility element for producers under the Freedom to Farm bill simply does not work in sugar production, here or anywhere else in the world. The second element of the Freedom to Farm policy is for farmers to generate a substantial portion of their income from the marketplace. While AMTA, loan deficiency, and other payments totaled a badly needed $74 billion to other farmers during 1996-2000, sugar producers received no income-support payments, and, in fact, paid $178 million in marketing assessments to the Treasury during that period. Historically, our producers received all of their income from the marketplace. This past year, however—for the first time in 15 years—there were significant forfeitures of sugar to the government because of deplorable market conditions. Additionally, substantial imports required under our trade agreements, the failure of government to address the blatant circumvention of our import quota, and the lack of administrative tools to balance domestic production led to these forfeitures. It has always been, and continues to be, the desire and intent of this industry to get all of its income from the marketplace. As we look to the future, the basic challenge before our industry and this Committee is to write a policy that:
Our industry has worked very hard to review many options to achieve these objectives, and we strongly support the following basic elements:
This is a key component to our proposal in seeking to balance supply and demand in the marketplace. While it is a policy that may not work for other commodities, it can and it has successfully worked for sugar. To achieve a proper supply and demand balance in the market, the government must not oversupply the market by granting access beyond our needs, either through annual import allocations or commitments in future negotiated trade agreements. As long as the government delays in addressing the import circumvention schemes and trade dispute with Mexico, it should and it must bear the economic exposure to future domestic sugar forfeitures. We want to emphasize the industry’s support for inventory management. However, the industry strongly opposes the implementation of the inventory management program as long as our market is being ravaged by those who deceive and evade our trade commitments and import rules. Our producers’ trust in trade agreements has been betrayed by these problems that have also undermined confidence in and the integrity of future agreements. When these trade issues are properly resolved, our industry strongly believes that the government will have the tools to balance domestic production and imports with consumption. Mr. Chairman, we have included other related recommendations in our written testimony. We look forward to working with you and the Committee to address our immediate problems and incorporate these recommendations into the next farm bill. Again, we thank you for this opportunity to appear before you, and we look forward to answering your questions. |