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Sugar industry faces big test with free trade

©New York Times

© St. Petersburg Times, published May 6, 2001

SUGAR LAND, Texas -- For anyone who thinks of the United States as a free-trade nation, the 10-story brick sugar refinery on Highway 90A on the outskirts of Houston is startling.

The plant can produce up to 500,000 tons of sugar a year, enough to sweeten about 90-billion doughnuts. But while America has a sweet tooth, it does not need all that sugar. Indeed, America is swimming in sugar, largely because the sugar business is one of the economy's most protectionist niches.

Sugar programs that protect growers from foreign competition cost U.S. consumers almost $2-billion a year in higher prices for everything from candy bars to cold cereal, government studies show. Artificially high prices have led to overproduction, leaving taxpayers the owners of 1-million tons of sugar that they pay $1.4-million a month just to store, some of it in Sugar Land.

Yet earlier this year the owner of the plant here -- Imperial Sugar Co., the nation's biggest sugar refiner -- was forced to file for Chapter 11 bankruptcy protection because it had lost so much money lately turning relatively high-priced raw sugar into the refined sugar that it sells into a depressed, glutted market.

Refiners are demanding an overhaul of the sugar program. Consumer groups want it abolished. And even its backers and beneficiaries -- big growers that are major donors to both political parties -- are dissatisfied. They want more protection, complaining that new trade initiatives like the North American Free Trade Agreement threaten to undermine the industry and further depress the price of sugar.

Congress is hearing testimony on these matters as it takes up a farm bill, debate on which is expected to continue into next year. The conventional wisdom is that Washington -- for all its talk of free trade -- is unlikely to scrap a program that has bipartisan support any more than it has been prone to eliminate supports for other farmers.

But some lawmakers say that sugar policy is ripe for revision.

"Events of the past year indicate that the sugar program is becoming increasingly unmanageable and that radical reforms are needed urgently," said Richard Lugar, chairman of the Senate Agriculture Committee and a longtime opponent of the program.

At the heart of the debate is a sugar policy that since the New Deal has held that domestic growers ought to be shielded from the vagaries of the commodity markets. The program, started in 1981, promised stability by limiting imports and making loans to growers.

But in recent years, helped by new technology and favorable weather, production has risen sharply. And government policies and price supports, on balance, encouraged farmers to abandon more seriously depressed crops in favor of sugar beets and cane.

Overproduction sent prices tumbling, and the lower prices hurt growers. But hardest hit were cane refiners. At times, the prices they paid for raw sugar were higher than those at which they could sell refined sugar.

If nothing changes, industry officials fear a ferocious one-two punch: the possible loss of cane-refining capacity at home, which could hurt food producers, and a steady rise in imports, which could wipe out domestic growers and refiners.

Free-market economists say that might be the most efficient outcome, but no industry disappears without a fight. The refiners are just one of the interest groups that have stormed Capitol Hill, trying to influence the shape of sugar policy.

None is so powerful as the nation's largest producer of raw sugar, Flo-Sun Corp. of Palm Beach, run by Jose Pepe Fanjul and Alfonso Fanjul, Cuban exiles who created a sugar empire in the Florida Everglades and who are big donors to Republicans and Democrats.

Flo-Sun and other giant producers want to strengthen the program by putting new restrictions on domestic production of sugar beets and cane. They also want to limit the scope of any future trade deal that might lead to what they consider unfair competition.

"We don't believe we ought to sacrifice the American farmer to bring in sugar that is subsidized by other governments," said Judy Sanchez, a spokeswoman at U.S. Sugar, one of Florida's biggest cane producers.

Critics of the program -- from food producers to refiners to consumer groups -- would like the program discarded or significantly weakened.

"We want the program phased out," said Jeff Nedelman, a spokesman for the Coalition for Sugar Reform, a trade group that represents food and consumer groups, taxpayer watchdogs and environmental organizations. "This is corporate welfare for the very rich. The program results in higher prices for consumers, direct payments by U.S. taxpayers to sugar growers and it's the Achilles' heel of U.S. trade policy."

Chicago, home of Sara Lee cakes and Brach's Starlight Mints candies, has aligned itself with the critics. A few weeks ago, Mayor Richard Daley and other city leaders announced that they would lobby Congress to end the sugar program, which they said was hurting the city's makers of candy and food by inflating costs.

Indeed, the General Accounting Office says the sugar program cost consumers about $1.9-billion in 1998, with the chief beneficiaries being beet and cane growers.

Sen. Byron Dorgan, D-N.D., who is a strong backer of the sugar program, says Americans are not being overcharged. Rather, prices on the world market are artificially depressed by surplus sugar from countries that subsidize production.

"The world price has nothing to do with the cost of sugar," he said. "And my contention is that the program causes stable prices."

Americans' appetite for sugar is measured in pounds. The average person in this sugar-saturated country consumes more than 70 pounds of refined sugar a year, and that does not include most soft drinks, sauces and syrups, which are sweetened with high-fructose corn syrup.

But even that appetite is no match for current levels of sugar production. A record 8.5-million tons of sugar was produced in the United States in 1999, and that sent raw sugar prices tumbling to 18 cents a pound, the lowest level in 20 years. The Agriculture Department stepped in last June to buy 132,000 tons for $54-million, or 20 cents a pound.

For growers, the biggest threat is the political tide favoring free trade. Under NAFTA, Mexico is getting greater access to the U.S. sugar market. And in 2008, the agreement will give Mexico unlimited access to the U.S. market.

How much Mexican sugar can enter the U.S. market this year is in dispute. U.S. trade officials say about 100,000 tons of surplus sugar is allowed in, while Mexican officials say 500,000 tons.

Under an agreement at the Uruguay Round of global trade talks in 1994, the United States is required to import about 1.1-million tons of sugar a year. That has reduced Washington's flexibility in controlling the price of sugar.

The solution, growers say, is more protection. Two weeks ago, the House Agriculture Committee heard testimony from the major sugar producers, who proposed stricter marketing and production controls at home and more restrictive trade policies.

"You have to fix the big trade problems," said Luther Markwart, chairman of the American Sugar Alliance, which represents the major growers.

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