Sugar Policy and the 2008 Farm Bill

Sugar Policy and the 2008 Farm Bill
Updated September 12, 2008
Remy Jurenas
Specialist in Agricultural Policy
Resources, Science, and Industry Division

Sugar Policy and the 2008 Farm Bill
Congress reauthorized the sugar price support program with some changes in
the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill).
The sugar program is designed to guarantee the price received by sugar crop growers
and processors and intended to operate at “no cost” to the U.S. Treasury. To
accomplish this, the U.S. Department of Agriculture (USDA) limits the amount of
sugar that processors can sell domestically under “marketing allotments” and restricts
imports. At the same time, USDA seeks to ensure that supplies of sugar are adequate
to meet domestic demand. “No cost” is achieved if USDA applies these tools in a
way that maintains market prices above minimum price support levels.
As of January 1, 2008, sugar imports from Mexico no longer are restricted under
the rules of the North American Free Trade Agreement. Other imports are allowed
entry under other free trade agreements (FTAs). The Congressional Budget Office
and USDA projected that, if the sugar program continued without change, additional
imports would bring prices down below support levels, make it more attractive for
processors to default on price support loans, and result in program costs.
To address the potential for a U.S. sugar surplus caused by additional imports,
the 2008 farm bill mandates a sugar-for-ethanol program. USDA is now required to
purchase as much U.S.-produced sugar as necessary to maintain market prices above
support levels, to be sold to bioenergy producers for processing into ethanol.
Funding is open-ended for this program. Other provisions increase the minimum
guaranteed prices for raw sugar and refined beet sugar by 4% to 5%, mandate an 85%
market share for the U.S. sugar production sector, and remove certain discretionary
authority that USDA exercises to administer import quotas.
The enacted final sugar provisions reflect the proposals presented to the House
and Senate Agriculture Committees by producers of sugar beets and sugarcane and
the processors of these crops. They favored continuing the structure of the current
sugar price support program but sought changes to enhance their position in the U.S.
marketplace. Their sugar-for-ethanol provisions ensure that the prospect of imports
adding to U.S. sugar supplies under any future trade agreements will not undermine
the program’s price guarantee and the sugar industry’s market share. Food and
beverage manufacturers that use sugar opposed the new program’s provisions,
arguing that costs to consumers will increase and that new requirements will restrict
the flow of sugar for food use in the domestic market. The Bush Administration
opposed these provisions, with the President identifying them as one reason why he
vetoed the farm bill.
USDA estimates a tight domestic sugar supply in FY2009 due to reduced
production. Current import projections based on import quota decisions made to date
and on the amounts estimated to enter from Mexico and other FTA partners do not
point to a sugar surplus in the near term. Accordingly, attention will focus on how
USDA implements the newly enacted rules on the timing of additional raw cane
versus refined sugar imports. This report will be updated to reflect key

Recent Developments..............................................1
Overview of Sugar Program.........................................1
Issues in 2008 Farm Bill Debate......................................1
Level of Sugar Price Support.....................................2
Controlling Sugar Supply to Protect Sugar Prices.....................3
Import Quotas............................................3
Legislation ...........................................4
Implementation .......................................5
Marketing Allotments......................................6
Legislation ...........................................7
Implementation .......................................7
Sugar for Ethanol..............................................8
Background ..........................................8
Legislation ...........................................9
Outlook ............................................10
Sugar Program Costs..........................................11
Outlook ............................................11
Appendix A. Comparison of 2008 Farm Bill Sugar Program Provisions with
Previous Law and House and Senate Bills..........................12
List of Tables
Table 1. Annual U.S. Sugar Import Commitments When the 2002 Farm Bill Was
Enacted ......................................................3
Table 2. Comparison of National Sugar Allotment to
USDA-Projected Sugar Production, FY2009........................8
For background information, please see the following CRS product:
CRS Report RL33541, Background on Sugar Policy Issues, by Remy Jurenas.

Sugar Policy and the 2008 Farm Bill
Recent Developments
On September 9, 2008, the U.S. Department of Agriculture (USDA) announced
key provisions for the FY2009 sugar program to reflect the changes made by the
2008 farm bill. USDA set the FY2009 overall allotment quantity (OAQ) — the
amount that sugar processors can sell domestically — and announced the FY2009
raw sugar and refined sugar import quotas. USDA’s statement acknowledged that
it expects the domestic market will require additional supplies of sugar during
FY2009, and indicated that appropriate adjustments will be made to these two key
parameters to ensure the availability of adequate supplies of sugar. See
“Implementation” under “Controlling Sugar Supply to Protect Sugar Prices,” below,
for details on both decisions.
Overview of Sugar Program
The sugar program is designed to guarantee the minimum price received by
growers of sugarcane and sugar beets, and by the firms (raw sugar mills and beet
refiners) that process these crops into sugar. To accomplish this, the USDA limits
the amount of sugar that processors can sell domestically under “marketing
allotments” and restricts imports. USDA is required to operate the sugar program on
a “no-cost” basis. This means USDA must regulate the U.S. sugar supply using
allotments, import quotas, and related authorities so that domestic market prices do
not fall below guaranteed minimum price levels. These are set out in law as specified
loan rates, which serve as the basis from which USDA derives effective support
levels. If the market price is below the support level when a sugar price support loan
comes due, its “non-recourse” feature means a processor can exercise the legal right
to forfeit, or hand over, sugar offered to USDA as collateral for the loan in fulfillment
of its repayment obligation. This report focuses on the issues raised by the sugar
program provisions in the House and Senate farm bills.
See Appendix A for a side-by-side comparison of the sugar provisions in the
enacted 2008 farm bill with previous law and the House and Senate farm bill
provisions. For background information, see CRS Report RL33541, Background on
Sugar Policy Issues.
Issues in 2008 Farm Bill Debate
Consideration of future U.S. sugar policy revolved primarily around four issues.
These were where to set the level of minimum price guarantees to be made available

to processors, how to use two tools to manage U.S. sugar supply, authorizing any
sugar surplus to be used as a feedstock for ethanol, and accounting for projected
program costs. Though industrial users of sugar in food and beverage products
initially explored converting the sugar program to operate similar to the programs in
place for the major grains, oilseeds and cotton, this policy option did not receive
further attention.
Level of Sugar Price Support
USDA is required to extend price support loans to sugar processors that meet
certain conditions on passing program benefits to the farmers that supply them with
sugar beets or sugarcane. These loans are made at statutorily set loan rates,1 and
account for most of the effective support level made available to producers and
processors. USDA is required to use its other tools to protect this price guarantee.2
Loan rates for raw cane sugar have not changed since 1985; for refined beet sugar,
since 1992. These minimum prices have guaranteed producers of sugar crops and the
processors that convert these crops into sugar, a U.S. price that since the early 1980s
has ranged from two to four times the price of sugar traded in the world marketplace.
The farm bill conference agreement will increase sugar loan rates by 4% to 5%
by FY2012. Conferees split the difference between the House- and Senate-proposed
rate increases and adopted the Senate approach that proposed to increase rates in
stages each year. The loan rate for raw cane sugar would rise in quarter-cent
increments from the current 18.0¢ per pound to 18.75¢/lb., beginning with the 2009
sugarcane crop. The refined beet sugar loan rate, beginning with the 2009 sugar beet
crop, would similarly increase in stages, from the current 22.9¢ per pound to 24.1¢/lb
in FY2012.3 Appendix A provides loan rates for each of the fiscal years covered by

2008 farm bill authority.

Growers and processors had initially sought a one cent increase in the raw cane
sugar loan rate (with a corresponding increase in the refined beet sugar rate), and had
acknowledged their satisfaction with receiving half of their request in the House-
passed farm bill. They argued that the increase in the loan rate is needed to cover
increased production costs, particularly energy inputs. Sugar users countered that the
House-proposed higher loan rates would increase costs to taxpayers by an additional
$100 million annually. They also noted that while the bill’s ethanol provisions (see

1 For sugar, the loan rate is the price per pound at which the Commodity Credit Corporation
(CCC) — USDA’s financing arm — extends nonrecourse loans to processors. This short-
term financing at below market interest rates enables processors to hold their commodities
for later sale.
2 The loan rates alone do not serve as the intended price guarantee, or floor price, for sugar.
In practice, USDA sets marketing allotments and import quota levels in order to support raw
cane sugar and refined beet sugar at slightly higher price levels. Each price level takes into
account the loan rate, interest paid on a price support loan, transportation costs (for raw
sugar), certain marketing costs (for beet sugar), and discounts. These are frequently referred
to as “loan forfeiture levels” or the level of “effective” price support.
3 The loan rate for refined beet sugar reflects the requirement that it be set each year equal
to 128.5% of that year’s raw cane sugar’s loan rate, beginning in FY2010.

“Sugar for Ethanol” below) “are supposedly designed to deal with surpluses,” the
loan rate increase “can only encourage higher surplus production.”4 The Bush
Administration, in its statement of administration policy on the House and Senate
farm bills, opposed the increase in the loan rates for sugar.
Controlling Sugar Supply to Protect Sugar Prices
The sugar program uses two tools — import quotas and marketing allotments
— to ensure that producers and processors receive price support benefits. By
regulating the amount of foreign sugar allowed to enter and the quantity of sugar that
processors can sell, USDA can for the most part keep market prices above effective
support levels, meet the no-cost objective, and ensure that domestic sugar demand
is met. If these tools are implemented as intended, the likelihood that USDA
acquires sugar due to loan forfeitures is remote.
Import Quotas. The United States must import sugar to cover demand that
the U.S. sugar production sector cannot supply. However, USDA restricts the
quantity of foreign sugar allowed to enter for refining and/or sale to manufacturers
for domestic food and beverage use. Quotas are used to ensure that the quantity that
enters does not depress the domestic market price to below support levels. Quota
amounts are laid out in U.S. market access commitments made under World Trade
Organization (WTO) rules and under bilateral free trade agreements (FTAs).
The sugar program authorized by the 2002 farm bill accommodated, or made
room for, imports of up to 1.532 million tons each year. This import level is one of
the four factors that USDA used to establish the national sugar allotment (called the
“overall allotment quantity”), and reflected U.S. trade commitments under two trade
agreements in effect when the 2002 program was authorized (Table 1).
Table 1. Annual U.S. Sugar Import Commitments
When the 2002 Farm Bill Was Enacted
short tons
World Trade Organization Quota (minimum)a1,256,000
North American Free Trade Agreement (NAFTA) b 276,000
— Mexico Quota (maximum)
Total 1,532,000
a. Covers both raw sugar and refined sugar
b. Applied only through the end of calendar year 2007.
Since January 1, 2008, however, U.S. sugar imports from Mexico are no longer
restricted. Under NAFTA, Mexico no longer faces any tariff or quantitative limit on
the amount of sugar exported to the U.S. market. With this opening, though, imports

4 Letter to Members of Congress, from food and beverage companies and trade associations,
and public interest groups, July 13, 2007.

could fluctuate from year to year for various reasons. First, the amount of Mexican
sugar exported to the U.S. market will depend largely upon the extent that U.S.
exports of historically cheaper high-fructose corn syrup (HFCS) displace Mexican
consumption of Mexican-produced sugar. Surplus Mexican sugar, in turn, would
then likely move north to the United States.5 Second, Mexico’s sugar output, though
trending upward, does vary from year to year, depending upon weather and growing
conditions. Mexican government policy also is to hold three months worth of sugar
stocks in reserve and to allow sugar imports when needed to meet demand and lower
prices.6 Third, Mexican sugar prices in recent years have for the most part been
higher than U.S. sugar prices. To the extent that this occurs, the incentive for a
Mexican sugar mill to export sugar north in search of a better price is reduced.
Fourth, U.S. buyers’ concerns about the quality of Mexican sugar may limit the
amount that actually flows north in the next few years.
Also, the United States has committed under other existing and pending bilateral
FTAs to allow for additional sugar imports.7 Such imports in 2013, the fifth year of
the sugar program authorized by the 2008 farm bill, could total from about 420,000
tons to 1.215 million tons above existing WTO and FTA trade commitments and the
amount of unrestricted sugar imports that could enter from Mexico. The wide range
reflects two varying assumptions made to estimate by how much HFCS use in
Mexico might displace sugar consumption in Mexico and create a surplus available
for export to the U.S. market.
Legislation. The sugar program provisions in the farm bill conference report
did not directly address the issue of additional sugar imports. Instead, a new sugar-
for-ethanol program is authorized to handle the price-related impact of such imports
(Section 9001 in the energy title; see “Sugar for Ethanol” and “Program Costs”
below). However, other provisions prescribe how USDA must now administer
import quotas. To cover shortfalls (because of hurricanes or other disastrous events)
in what domestic sugar processors can sell under allotments, USDA is directed to
ensure that most imports enter in the form of raw cane sugar rather than refined
sugar. While historically most permitted imports have entered in raw form, USDA
allowed large quantities of refined sugar to enter after the late 2005 hurricanes
significantly affected the ability of cane refineries in Louisiana and Florida to process
raw sugar. Unlike 2001-2002, when the Congress considered the last farm bill, most
cane refineries are now a key part of vertically integrated operations owned by raw
sugar processors and/or sugarcane producers. The 2008 farm bill’s policy change is
intended to ensure that these cane refineries (which process raw sugar into refined
sugar) can more fully use their operating capacity. Also, limiting the entry of refined

5 However, the recent increase in U.S. HFCS prices due to the higher cost of corn — its
main input — may reduce its competitiveness against Mexican-priced sugar. To the extent
this price difference narrows, the incentive for Mexican bottlers of soft drinks to shift to
HFCS is lowered.
6 U.S. sugar processors also are now free to export sugar to Mexico to take advantage of the
occasional higher prices there.
7 Most of the sugar access provisions in the Dominican Republic-Central American FTA
(DR-CAFTA) already are in effect. Congress has yet to consider the FTAs with Panama and
Colombia, which would grant additional access for their sugar to the U.S. market.

sugar enhances the position of the domestic beet sector to increase their sales of
refined sugar.
Conferees, though, did not adopt provisions found only in the House- passed bill
that would have directed USDA to regulate when and how much raw cane sugar
imports are allowed to be shipped to U.S. cane refineries. While USDA announced
shipping patterns in FY2003-FY2005, the impact of the hurricanes led to a decision
not to follow this long-standing practice in FY2006-FY2008. USDA justified
removing these restrictions because of “changes occurring over time in the domestic
marketing of cane sugar.” The House-passed provisions could be viewed as
intending to increase the transaction costs for countries that export larger amounts of
sugar to the U.S. market and giving a slight competitive edge to domestic processors
with respect to buyers. Food and beverage firms opposed “micro-managing” the
timing of imports, noting that the application of such rules will limit the ability of
cane refiners to efficiently use their processing capacity and could lead to serious
shortfalls at times in the amount of sugar supplied to the market.8 In commenting on
the House bill, the Bush Administration expressed concern over requiring shipping
patterns for quota sugar imports. Also, several countries eligible to ship sugar to the
U.S. market expressed concern that the proposed regulation of the flow of imports
would run counter to U.S. trade commitments. Because of the concern expressed that
prescribing how sugar import shipping patterns should be administered would open
up the United States to challenges by sugar exporting countries in the WTO, these
provisions were dropped in conference.9
Implementation. In line with the changes made by the 2008 farm bill, USDA
on September 9, 2008, announced that the FY2009 raw sugar tariff-rate quota10
(TRQ) will be set at 1,231,497 million STRV — the U.S. minimum access
commitment for raw sugar imports under WTO rules. Relatedly, USDA announced
the TRQ for refined and specialty sugars at 104,251 STRV. This amount is 80,000
ST higher than the U.S. minimum refined sugar TRQ (24,251 STRV), increased in
order to meet U.S. demand for organic sugar not available from the domestic
producing sector. Both announcements reflect the new requirement that USDA set
both the raw sugar and refined sugar TRQs at the minimum levels required by U.S.
WTO trade commitments by October 1, 2008. USDA’s accompanying statement
acknowledged that it expects the domestic market will require additional supplies of
sugar during FY2009, and indicated that appropriate adjustments will be made to
these TRQ levels and the national marketing allotment level (see below) to ensure

8 Letter to Members of Congress, July 13, 2007.
9 The World Trade Organization administers trade dispute settle procedures whereby a
country can file a case against another alleging that the latter operates a program or policy
that runs counter to WTO rules. In this context, the prospect arose that a sugar exporting
country might allege that the proposed shipping patterns provision were discriminatory or
trade distorting.
10 The quota component of a TRQ provides for duty-free access of a specified quantity of
a commodity. Imports above this quota are subject to a prohibitive tariff.

the availability of adequate supplies of sugar.11 Any decision to increase the raw
sugar TRQ and/or the refined sugar TRQ before April 1, 2009, requires USDA to
first declare that an emergency sugar shortage exists because of “war, flood,
hurricane, or other natural disaster” or another similar event as determined by the
Secretary of Agriculture.
Though not part of the FY2009 sugar program, an earlier USDA decision to
increase FY2008 refined sugar imports generated debate and highlighted the
significance of one change that will soon take effect. On August 6, 2008, USDA
announced a 300,000 STRV increase in the FY2008 refined sugar TRQ. This
decision was based on its assessment that the United States “is experiencing a tight
market for refined sugar” due to the capacity lost after the explosion of a cane
refinery in February 2008 and a reduction in estimated 2008 sugar beet production.
Refined sugar imported against this TRQ increase is allowed to enter until December
31, 2008. The American Sugar Alliance (producers of sugar crops and firms that
process them) responded that this action was premature, stating that “USDA has
made a market-moving announcement based on unknowns” in the U.S. sugar market
more than 14 months from now. The International Sugar Trade Coalition (ISTC,
representing the sugar industries in 17 of the 39 countries that are eligible to export
raw sugar under the TRQ to the United States) expressed concern that the increase
“is inconsistent with Congress’ intent” on how USDA is to implement the new TRQ
administration provisions. The coalition’s concern is that because the period for
delivery of refined sugar extends past October 1, 2008, when the 2008 farm bill
provisions take effect, this decision “discriminates against [its members’] legitimate
access to the U.S. sugar market.” It pointed to the new requirement that any increase
in the sugar TRQs before April 1 in a marketing year must first be made in the raw
sugar TRQ, which its members can supply, and only then if needed, by an increase
in the refined sugar TRQ. The Sweetener Users Association (domestic manufacturers
of food and beverage products that use sugar) “praised” USDA’s actions, and
“strongly disagreed” with the coalition’s claim that USDA violated the new farm bill.
Its spokesman stated that USDA acted consistently with the law and on the
conservative side, acknowledging that “there is a need for additional sugar supplies
in the near term.” USDA commented that the coalition’s complaint was “irrelevant”
because the new provision does not take effect until October 1, 2008.12
Marketing Allotments. In the 2002 farm bill, the domestic production sector
accepted mandatory limits on the amount of sugar that processors can sell — known
as marketing allotments — in return for the assurance of price protection. It viewed
allotments as a way to try to capture any growth in U.S. sugar demand, and assumed
that the then-U.S. sugar import quota commitments would continue without change

11 “USDA Announces Fiscal Year 2009 Sugar Program,” September 9, 2008, as accessed
at [!ut/p/_s.7_0_A/

7_0_1OB?contentidonly= true &c ontentid=2008/09/0226.xml].

12 American Sugar Alliance, “Sugar Supplies Stable,” August 6, 2008; ISTC, Letter to
Secretary of Agriculture Schafer on Refined TRQ Increase, August 19, 2008, accessed at
World Trade Online; Sweetener Users Association, “Sweetener Users Say U.S.D.A. Acted
Wisely in Granting Increased Access to U.S. Sugar Market,” August 27, 2008; The
Dyergram, “Response to Refined Sugar TRQ Increase,” September 12, 2008, p. 6.

(see “Import Quotas” above). The statute, however, stipulated that if (1) USDA
estimates imports will be above 1.532 million short tons, and (2) that such imports
would lead USDA to reduce the amount of domestic sugar that U.S. processors can
sell, then USDA must suspend marketing allotments. Suspending allotments because
of additional imports raises the prospect of downward pressure on market prices if
most U.S. sugar demand is already met. If the additional imports were to cause the
price to fall below support levels, forfeitures would occur and USDA would be
unable to meet the no-cost requirement. Including the allotment suspension
provision in the 2002 farm bill was designed to ensure that USDA not lose control
over managing U.S. sugar supplies for fear of the consequences that could be
unleashed (i.e., demonstrate its inability to implement congressional policy).
Legislation. Implementation of the 2002 farm bill’s marketing allotment
authority resulted in the U.S. sugar production sector’s share of domestic food
consumption ranging from a low of 73% in FY2006 to a high of 89% in FY2004.
Concerned that their market share would decline as sugar imports increase under
various trade agreements (see “Import Quotas” above), sugar producers and
processors decided to pursue a different approach in formulating their proposals for
the 2008 farm bill. Adopted by farm bill conferees, an important new provision
guarantees that the domestic production sector always benefits from a minimum 85%
share of the U.S. sugar-for-food market. USDA is now required to announce an
“overall allotment quantity” (OAQ) — the amount of sugar that all processors
combined can sell — that represents at least 85% of estimated domestic sugar
consumption. This is intended to address the sector’s objective that imports not
displace the ability of U.S. sugar processors to sell more of their output in each
successive year, to the extent that U.S. demand for sugar grows.
Implementation. On September 9, 2008, USDA announced that the FY2009
OAQ will be 8.925 million STRV. This complies with the new statutory requirement
that USDA establish the OAQ at not less than 85% of estimated U.S. human sugar
consumption (projected at 10.5 million STRV for FY2009).
The FY2009 OAQ level is considerably higher than USDA’s estimate of
FY2009 sugar production. Though cane sugar output is projected to increase
marginally over FY2008, beet sugar production is expected to be 16% lower because
of spring weather problems in North Dakota and Minnesota, a major beet-producing
region, and reduced planted beet acreage. As of mid-September 2008, USDA
projected 2008/2009 U.S. sugar production at 7.45 million ST, almost 1.5 million ST
below the OAQ that USDA just announced. With the OAQ split between the beet
and cane producing sectors using the percentage shares laid out in law, each sector
will be able to fully market all of the sugar that USDA projects will be produced
during FY2009 (Table 2).
With current U.S. refined sugar prices well above historical levels, and raw cane
sugar prices up to a lesser extent, other sugar imports projected by USDA to enter
under existing free trade agreements (NAFTA and DR-CAFTA) likely could be
accommodated without U.S. market prices falling below loan forfeiture levels. These
imports will cover a portion of the 1.5 million ST shortfall that the domestic
production sector is currently expected not to be able to supply during FY2009 to
meet projected demand. USDA did signal that more imports may be needed, stating

that the U.S. sugar market “will require additional supplies of sugar during FY2009”
and that “appropriate adjustments will be made to sugar program parameters to
ensure” the market is adequately supplied.13 Though the 2008 farm bill limits
USDA’s ability to allow additional sugar imports under the TRQs established to meet
U.S. WTO trade commitments, USDA could exercise some flexibility. USDA could
interpret the law’s discretionary language to determine that an emergency sugar
shortage exists and allow additional imports to the extent it determines that market
prices will not fall below support levels to result in loan forfeitures. The sugar
production sector likely will argue that there is no need for additional imports,
pointing out that there is no physical shortage of sugar. Industrial sugar users likely
will petition USDA to allow for additional refined sugar imports, pointing out that
projected low ending stocks are keeping refined sugar prices considerably above the
historical average.
Table 2. Comparison of National Sugar Allotment to
USDA-Projected Sugar Production, FY2009
Overall AllotmentEstimatedaShortfall
Quantity P r oduction
shareshort tons, raw value
National100.00 %8,925,0007,454,000- 1,470,999
Beet Sugar 54.35 %4,850,7384,000,000 - 850,738
Cane Sugar 45.65 %4,074,2623,454,000 - 620,262
a. As of September 12, 2008.
Source: USDA, “USDA Announces Fiscal Year 2009 Sugar Program,” Release No. 0226.0 8,
September 8, 2008; USDA, World Agricultural Outlook Board, World Agricultural Supply and
Demand Estimates, September 12, 2008.
Sugar for Ethanol
Background. Sugar producers and processors have had an ongoing interest
in exploring the potential for using sugar crops and processed sugar as a feedstock
to produce ethanol (a gasoline additive). In the 2002-2003 period, they encouraged
USDA to explore selling forfeited sugar stocks to corn-based ethanol processors. A
few ethanol producers experimented by adding sugar to speed up the ethanol
fermentation process, but the results were disappointing.
In 2005, Congress approved the Dominican Republic-Central American Free
Trade Agreement (DR-CAFTA) that gives six countries increased access for their
sugar to the U.S. market. During the debate, producers and processors sought a deal
with the Bush Administration on a sugar-for-ethanol package. Their objective was
to have the option available to divert additional sugar imports under DR-CAFTA

13 USDA, op. cit.

whenever domestic prices fall below support levels.14 With Congress mandating in
2005 that the use of renewable fuels be doubled by 2012,15 some advocated that sugar
be considered as a feedstock along with other agricultural crops and waste.
Separately, Hawaii mandated (effective April 2006) that 85% of the gasoline sold
must contain 10% ethanol. This requirement assumes that over time, the sugarcane
produced on the islands will be used as the prime feedstock for ethanol.
If the cost of feedstock is excluded, producing ethanol from sugar cane can be
less costly than producing it from corn. This is because the starch in corn must first
be broken down into sugar before it can be fermented. This extra step adds to the
cost of processing corn into ethanol, when contrasted to using sugarcane or processed
sugar. Further, sugar cane waste (bagasse) also can be burned to provide energy for
an ethanol plant, reduce associated energy costs, and improve sugar ethanol’s energy
balance relative to corn ethanol.
Brazil’s success at integrating sugar ethanol into its passenger vehicle fuel
supply has stimulated interest in exploring prospects for sugar-based ethanol in the
United States. However, wide differences in sugar production costs and market
prices in the two countries cause the economics of sugar-based ethanol to differ
significantly. In investigating the economics of ethanol from sugar, USDA
concluded that producing sugar cane ethanol in the United States would be more than
twice as costly as U.S. corn ethanol and nearly three times as costly as Brazilian
sugar ethanol.16 Feedstock costs accounted for most of this price differential.17 The
USDA study showed that while sugar ethanol may be a positive energy strategy in
such countries as Brazil, it may not be economical in the United States.18
Legislation. The enacted 2008 farm bill conference agreement incorporates
a proposal presented to the Agriculture Committees by the U.S. sugar production
sector. The “Feedstock Flexibility Program for Bioenergy Producers” requires
USDA to administer a sugar-for-ethanol program using sugar intended for food use

14 Though the Administration did not agree to such a package, the Secretary of Agriculture
pledged to divert surplus sugar imports — through purchases — for ethanol and other
non-food uses, to ensure that the sugar program operates as authorized only through
FY2008. For additional information, see “Sugar in DR-CAFTA — Sugar Deal to Secure
Votes” in CRS Report RL33541, Background on Sugar Policy Issues, by Remy Jurenas.
15 For more information, see CRS Report RL33564, Alternative Fuels and Advanced
Technology Vehicles: Issues in Congress, by Brent D. Yacobucci.
16 Office of Economics, The Economic Feasibility of Ethanol Production from Sugar in the
United States, July 2006.
17 In Brazil, the cost of producing raw cane sugar reportedly ranges from 6 to 9 cents per
pound (or 9 to 12 cents when converted to refined basis). In the United States, raw cane
sugar production costs range from 12 to 20 cents per pound; U.S. production costs for
refined beet sugar range from 17 to 33 cents per pound. For additional perspective, see
“Costs of Production and Sugar Processing” in USDA, Economic Research Service, Sugar
Backgrounder, July 2007, pp. 17-21.
18 This discussion is adapted from “Sugar Ethanol” in CRS Report RL33928, Ethanol and
Biofuels: Agriculture, Infrastructure, and Market Constraints Related to Expanded
Production, by Brent D. Yacobucci and Randy Schnepf, March 16, 2007.

but deemed to be in surplus. USDA will sell both surplus sugar that it purchases if
determined necessary to maintain prices above support levels, and the sugar acquired
as a result of loan forfeitures, to bioenergy producers for processing into fuel grade
ethanol and other biofuel. Competitive bids would be used by USDA to purchase
sugar from processors, at a price not less than sugar program support levels, which
it would then sell to ethanol firms. USDA would implement this program only in
those years where purchases are required to operate the sugar program at no cost.
USDA’s CCC would provide open-ended funding.
Because it would cost much more to produce ethanol from U.S.-priced sugar
than from corn, this new program will require a considerable subsidy to operate as
intended. The prime market for such sugar likely would be existing and planned
corn-based ethanol facilities close to sugar beet and sugarcane producing areas (e.g.,
the Upper Midwest and Hawaii). Producers of ethanol from corn in the continental
United States, though, would likely need to adjust their fermentation process and/or
invest in new equipment to handle sugar. As a result, they may not be as interested
in purchasing sugar as a feedstock unless the price is significantly discounted further
(e.g., requiring even more of a subsidy) to reflect the additional costs of processing
sugar instead of corn. However, the availability of this subsidy could facilitate the
development of the ethanol sector in Hawaii and partially reduce the islands’
dependence on importing gasoline for its vehicle transportation needs. CBO
estimated that this feedstock program would increase demand for sugar and slightly
reduce the cost of the sugar program itself.
As designed, this program will rely on U.S.-produced (rather than foreign)
sugar. The amount that USDA decides to purchase would approximate its estimate
of the extent that imports under trade agreements reduce the U.S. sugar price below
support levels. Producers supported this provision, viewing it as an insurance policy
for receiving the benefits of a guaranteed minimum price for sugar marketed for food
use. Sugar users opposed this program “to ostensibly manage surplus supplies.” In
their July 13, 2007, letter to Members of Congress, they argued that this authority
“will likely be used to short domestic markets, further restricting the availability of
sugar for food use in the U.S. market.” They characterized this approach as
“wasteful of taxpayer resources” because sugar is not price competitive with corn as
a feedstock, and will require large subsidies to ethanol producers “to induce them to
accept the sugar.” The Bush Administration opposed this sugar-for-ethanol
component, commenting that it would not allow USDA to dispose of surplus sugar
to end uses other than ethanol production, even if “those uses would yield a much
higher return for taxpayers.”19
Outlook. The current U.S. sugar market outlook (i.e., demand considerably
above current supply, implying market prices above loan forfeiture levels) suggests
that, at present, USDA will be able to meet the program’s no-cost directive without
having to activate the new sugar-for-ethanol program in FY2009. The status of this
program in subsequent years will depend on whether U.S. sugar production returns
to more normal levels, and on how sugar users (particularly in the beverage sector)
in both the United States and Mexico respond to higher HFCS prices caused by

19 Office of Management and Budget, “Statement of Administration Policy” on the Senate
bill (Food and Energy Security Act of 2007), November 6, 2007, p. 3.

historically high corn prices. If HFCS prices are higher than Mexican sugar prices,
the likely result will be a smaller displacement of Mexican-produced sugar by HFCS
imports from the United States, and thus a smaller surplus available to be exported
without restriction to the U.S. market. This reportedly has occurred during
FY2008.20 In light of USDA’s much reduced outlook for U.S. sugar production in
FY2009 and the prospect of no U.S. sugar surplus in the near term, there appears to
be no need for USDA to implement a sugar-to-ethanol program.
Sugar Program Costs
For the six years covered by the 2002 farm bill (FY2003-FY2008), USDA
succeeded in operating the sugar program at no cost, as directed by law. Budget
forecasts in early 2007 projected that the sugar program, if continued without change,
would cost from almost $700 million (Congressional Budget Office, or CBO) to
about $800 million (USDA) over the FY2008-FY2012 five-year period. Projected
outlays reflected estimates of the budgetary impact of additional sugar imports from
Mexico and from other countries that have additional access to the U.S. market for
their sugar under bilateral FTAs. Each cost projection assumed that the additional
supplies depress the domestic sugar price below price support levels, and lead
processors to forfeit on a portion of their loans.21
The policy changes proposed during 2008 farm bill debate to address these
potential costs were intended to ensure that USDA can operate the program at no
cost. However, in estimating the budgetary impact of the modified sugar program
against its early 2007 budget forecast or baseline, CBO projected that the net cost of
the conference agreement’s sugar-related provisions would be $643 million over five
years and over $1.2 billion over 10 years. CBO did note that the sugar-for-ethanol
program would increase sugar demand and in turn partly reduce the cost of the sugar
price support program. However, its bottom-line cost estimate appears to assume
that USDA incurs losses when it sells surplus sugar acquired earlier as a result of
loan forfeitures for ethanol processing at a price much lower than the sugar
program’s minimum price guarantee.
Outlook. Estimating future budgetary impacts is difficult, considering that
market conditions can change quickly and dramatically, and can differ significantly
from historical experience. Current market conditions and USDA program decisions
to date imply that prices will likely remain above loan forfeiture levels during
FY2009. If so, the sugar program likely will not record any budget outlays in the
near term. For this reason, it appears that the new sugar program’s budgetary
exposure could end up being lower than initially estimated by CBO.

20 Inside U.S. Trade, “USDA Projects Lower Mexican Sugar Exports; Corn Syrup Price Link
Seen,” June 6, 2008, pp. 11-12.
21 The forfeiture of a price support loan results in a budget outlay, because the credit that had
been extended is not paid back by the processor (resulting in a loss to the U.S. government).
To the extent USDA succeeds in selling forfeited sugar, proceeds flow back to USDA and
reduce the loss.

Appendix A. Comparison of 2008 Farm Bill Sugar Program Provisions
with Previous Law and House and Senate Bills
No Net Cost Directive
Requires USDA to the maximum extentRetains current no net-costSame as the House bill.Continues no-cost requirement found
practicable to operate the sugar non-requirement.[Secs. 1501 and 1504(b)]in prior law.
recourse loan program at no net cost by[Secs. 1301 and 1303(b)][Secs. 1401, 1403]
avoiding sugar forfeitures to the CCC.Requires USDA to operate sugar-for-
[7 U.S.C. 7272 (g), 7 U.S.C. 1359bb (b),ethanol program (in Energy title) to
7 U.S.C. 1359cc (b)(2)]ensure this no-cost directive is met.
[Sec. 9001]
Price Support Levels, Loans and Payments
iki/CRS-RL34103Sets raw cane and refined beet sugarIncreases raw cane sugar andIncreases raw cane sugar loan rateIncreases raw cane sugar loan rate to
g/wloan rates at 18.0¢/lb. and 22.9¢/lb.,refined beet sugar loan rates toto 19.0¢/lb. by FY2013, in 1/18.75¢/lb. by FY2012, in 1/
s.orrespectively, through FY2008. Expands18.5¢/lb. and 23.5¢/lb,increments beginning in FY2010,increments beginning in FY2010, as
leakloan eligibility to in-process sugars andrespectively, for FY2009 throughas follows: follows:
syrups at 80% of the applicable cane orFY2013. [Sec. 1301] ¢ / lb. ¢ / lb.
://wikibeet loan rates. Makes nonrecourse FY2009 - 18.00 FY2009 - 18.00
httploans available to processors that meetspecified conditions. Sets 9-month FY2010 - 18.25 FY2011 - 18.50 FY2010 - 18.25 FY2011 - 18.50
repayment term for such loans. FY2012 - 18.75 FY2012 - 18.75
[7 U.S.C. 7272 (a, b, d, e, f)] FY2013 - 19.00 FY2013 - 18.75
Increases beet sugar loan rate,Sets refined beet sugar loan at 22.9¢/lb.
beginning in FY2010, to be set atin FY2009. Starting in FY2010, sets
128.5% of the raw cane loan ratebeet sugar rate equal to 128.5% of the
in effect each year (e.g., reachingraw cane loan rate in effect (e.g., rising
24.42¢/lb. in FY2013), or asto 24.09¢/lb. by FY2012, or as follows:
fo llo ws:
¢ / lb. ¢ / lb.
FY2009 - 22.90FY2009 - 22.90
FY2010 - 23.45FY2010 - 23.45
FY2011 - 23.77FY2011 - 23.77
FY2012 - 24.09FY2012 - 24.09
FY2013 - 24.42FY2013 - 24.09
[Sec. 1501]Continues other provisions found in

prior law. [Sec. 1401]
Authorizes CCC to accept bids fromContinues in-kind authority. Similar to the House bill.Continues in-kind authority and adds
sugar processors to purchase USDA-Stipulates that planted beets or[Sec. 1501]House/Senate provision.
owned sugar in conjunction withcane diverted from production[Sec. 1401]
reduced production of new sugar crops.can only be used as bioenergy
[7 U.S.C. 7272 (g)]feedstock. [Sec. 1301]
USDA now pays storage rates of perNo comparable provision.Requires (only through crop yearAdopts Senate provision.
100 lbs. for raw cane sugar and 10¢ per2011) USDA minimum storage[Sec. 1405]
100 lbs. for refined beet sugar that haspayment rates of 10¢/cwt. and
been forfeited under the nonrecourse15¢/cwt. on forfeited raw cane and
loan program.refined beet sugar.
[15 U.S.C. 714b & 714c;[Sec. 1503]
7 CFR Part 1423]
iki/CRS-RL34103Authorizes CCC to provide financing toprocessors of domestic sugar toNo comparable provision.Retains authority, but stipulatesthat loans shall not require anyContinues prior law and adds Senateprovision.
g/wconstruct or upgrade storage andprepayment penalty. [Sec. 1502][Sec. 1404]
s.orhandling facilities. [Sec. 1402]
Marketing Allotments and Allocations
httpTo avert loan forfeitures, requiresContinues purpose and structureSimilar to the House bill. Continues marketing allotment
USDA to limit the amount of sugarof marketing allotments and[Sec. 1504(a)-(d)]authority and adopts House/Senate
processors can sell each year. This isallocations, but changes someprovisions that:
done through a national “overallkey provisions. Changes formula
allotment quantity” (OAQ) that is splitto require USDA to set OAQ at — require USDA to set OAQ at not
between beet and cane sectors (54.35%not less than 85% of estimatedless than 85% of estimated U.S. human
and 45.65%, respectively), and thenhuman food and beverage sugarconsumption, and
allocated to individual processors. Theuse. Eliminates allotment
OAQ must accommodate WTO andsuspension provision. — eliminate allotment suspension
NAFTA import commitments (1.532[Sec. 1303(a)-(d)]trigger.
million short tons). If imports are
greater, USDAs authority to implement[Sec. 1403(a)-(d)]
allotments is suspended.
[7 U.S.C. 1359aa, 1359bb, 1359cc, and
Directs USDA to reassign unused rawRequires that any reassignmentSimilar to the House bill.Adopts House/Senate change to prior
cane and beet sugar marketingof unused cane and beet[Sec. 1504(e)]law. [Sec. 1403(e)]

allocations first to other cane states andallocations to imports in the

beet processors, respectively; second tofourth step must be met by
cane processors within each state; thirdimportsof raw cane sugar.”
to sales of sugar in CCC’s inventory;[Sec. 1303(e)]
and fourth to imports.
[7 U.S.C. 1359ee]
Trade-Related Provisions
In accord with a 1994 tradeMakes no changes to importMakes no changes to import quotaMakes no change to current U.S. trade
commitment, USDA sets an annualquota commitments found incommitments.commitments.
global sugar import quota of not lessvarious trade agreements and
than 1.256 million short tons. USTRlaws.
allocates the quota among eligible
countries, and also administers
preferential sugar import quotas for free
trade agreement partner countries.
iki/CRS-RL34103Effective January 1, 2008, Mexico can
g/wship duty free an unlimited amount ofsugar to the U.S. market.
leakRequires USTR in 2002-07 to reallocateRepeals requirement forSimilar to the House bill.Adopts House/Senate repeal provision.
://wikiunused country quota allocations toother quota-holding countries with sugarreallocating sugar import quotashortfalls. [Sec. 1504(i)][Sec. 1403(i)]
httpto sell.[Sec. 1303(i)]
[7 U.S.C. 1359kk]
USDA has discretion to increase the sizeRequires USDA to set quotas forSimilar to the House bill.Adopts House/Senate provision on
of global raw cane and refined sugarraw cane and refined sugar at the[Sec. 1504(j)]setting initial import quotas at
import quotas when domestic sugarminimum level necessary tominimum levels and laying out steps to
supplies are inadequate to meet U.S.comply with U.S. tradebe followed to increase imports in the
demand at reasonable prices. [Chapteragreement obligations. In casesevent of a sugar shortage.
17, additional note 5, of the U.S.of sugar shortages, supplies are to[Sec. 1403(j)]

Harmonized Tariff Schedule;be increased first by reassigning
19 CFR Part 2001, Subpart A]allotment deficits to imports of
raw cane sugar, second by
increasing the refined sugar
quota, and third by increasing
raw cane sugar quota.
[Sec. 1303(I)]

To protect domestic sugar prices, USDARequires USDA to establishNo comparable provision.Deletes House “shipping patterns”
regulated the flow of sugar imports fromorderly shipping patterns” forprovision.
large quota holders (through 2005).major suppliers of sugar to the
U.S. market. [Sec. 1303(i)]
The U.S.-Mexican agreement onNo comparable provision.Expresses sense of Senate thatDeletes Senate provision.
bilateral market access for sugar andU.S. & Mexican governments
high-fructose corn syrup (HFCS)should coordinate their sugar
created an industry and government taskpolicies to be consistent with U.S.
force to address problems that mightinternational commitments, to
arise after the elimination of tariffs onavoid disruptions of each
sweeteners on January 1, 2008. countrys sweetener markets
[Exchange of Letters between USTR(sugar and HFCS). [Sec. 1505]
and Mexico’s Secretariat of Economy,
July 27, 2006]
iki/CRS-RL34103The U.S. withdrew from theRequires the Secretary ofSimilar to the House bill.Adopts House provision.
g/wInternational Sugar Organization (ISO)in 1992 because of opposition to theAgriculture to work with theSecretary of State to restore U.S.[Sec. 1504][Sec. 1402]
s.orallocation of country contributions tomembership in the ISO within
leakISOs year. [Sec. 1302]
://wikiSugar-for-Ethanol Program (Feedstock Flexibility Program)
httpNo comparable provision.Requires USDA (for FY2008-Similar to the House bill. Adopts House/Senate provisions, and
FY2012) to purchase sugar from[Sec. 1501] extends program by one year
those firms that sell sugar (equal(FY2013). Prescribes how CCC-
to the quantity of imports thatinventory sugar is to be disposed for
USDA estimates exceeds U.S.this Program and other purposes, and
food demand), and to resell suchallows for the sale of CCC-inventory
sugar as a biomass feedstock tosugar in the case of emergency
produce bioenergy, in a way toshortages of sugar for food use.
ensure that sugar price support[Sec. 9001]

program provisions (see above)
operate at no cost and avoid loan
forfeitures. Requires USDA to
use CCC resources, including
such sums as are necessary,” to
implement this new authority.
[Sec. 9013]