Foreign Sugar Subsidies Take Center Stage

August 13, 2013
Global sugar industry leaders and U.S. government officials met in California last week at the 30th International Sweetener Symposium to discuss depressed sugar prices and recent foreign subsidy run-ups.
“The accumulated world sugar surplus over the past three seasons has taken the global stocks-to-consumption ratio to above 40 percent for the first time since 2007/08,” said Peter Baron, executive director of the London-based International Sugar Organization.
The stocks-to-consumption ratio measures surpluses, and low sugar prices will continue for the foreseeable future because of oversupplies, according to Baron.   He also noted that such price volatility makes the global sugar market unreliable and said worldwide subsidies are a major factor in market distortions.
Jack Roney, an economist with the American Sugar Alliance, said that a flood of subsidized Mexican imports and plummeting world prices caused by Brazilian sugar subsidies helped send U.S. prices tumbling 50 percent in two years.
“Surpluses in the U.S. are near all-time highs and Mexico keeps dumping more unneeded sugar onto our market,” he said.  “The Mexican government actually owns and controls 20 percent of the country’s sugar industry, making the Mexican government Mexico’s biggest sugar producer and exporter.”
Roney and other Symposium presenters also addressed Brazil, which has been called the “OPEC of sugar” because of the stranglehold it has on global supplies.
“Brazil controls roughly half of all global sugar exports, and this dominance was made possible by three decades of massive government support,” explained Patrick Chatenay, a former French sugar industry executive who spent considerable time in Brazil.
In April, Chatenay published a study that quantified at least $2.5 billion a year in hidden Brazilian sugar subsidies.  But, he noted, things have changed since he completed the study.
“There is a clear acceleration in Brazilian subsidization,” Chatenay said.  “The sugarcane ethanol usage mandate was recently increased, $450 million a year in new tax rebates were just announced, and the country also will make available $3 billion in new soft loans for 2013.”
These “soft loans” are a popular way for Brazil to subsidize its sugar sector, according to Chatenay.  Such low interest loans are often coupled with future debt forgiveness to have the same effect as a direct subsidy.
He estimates that without its subsidies, Brazilian producers would need a 15 percent rise in sugar prices to achieve the same financial returns.
U.S. producers used the industry meeting to draw attention to a new proposal pending Congress to help improve global market conditions.  Under a “zero-for-zero” sugar policy, which was introduced by Rep. Ted Yoho (R-FL) in June, there would be a global subsidy ceasefire where all countries, including America, would halt government sugar policies and compete on a true free market.
That proposal has been gaining momentum lately, picking up bipartisan cosponsors and endorsements from free-market advocates.
However, large food manufacturers and other opponents of U.S. sugar policy have opposed the idea and are instead lobbying for the unilateral disarmament of U.S. policy without any reforms to the world’s most heavily subsidized producers.
Both the House and the Senate rejected unilateral disarmament and voted to maintain U.S. sugar policy in the versions of the Farm Bills passed by the chambers.
Interviews with leading Symposium participants, including USDA Acting Deputy Secretary Michael Scuse, Congressman Mike Conaway (R-TX), and Congressman Ted Yoho (R-FL), can be heard at www.ASAradio.org.