	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. This report focuses on the issues raised by the sugar program provisions in the House and Senate farm bills. USDA is required to use its other tools to protect this price guarantee. 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. 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. Since January 1, 2008, however, U.S. sugar imports from Mexico are no longer restricted. However, other provisions prescribe how USDA must now administer import quotas. USDA justified removing these restrictions because of "changes occurring over time in the domestic marketing of cane sugar." Both announcements reflect the enacted 2008 farm bill's 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. However, USDA is given some discretionary authority to exercise on this matter. 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. In the interim, any call made by sugar users for USDA to increase the end-of-year U.S. sugar supply (to meet their desire for lower sugar prices) is limited by what USDA can do under the enacted 2008 farm bill to increase imports (see " Implementation " under " Import Quotas ", above). During the debate, producers and processors sought a deal with the Bush Administration on a sugar-for-ethanol package. Legislation

The enacted 2008 farm bill 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 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. Outlook

The current U.S. sugar market outlook (i.e., demand considerably above current supply, implying that market prices will be above loan forfeiture levels) suggests that, at present, USDA will likely be able to meet the program's no-cost directive without having to activate the new sugar-for-ethanol program in FY2009. Projected outlays reflected estimates of the budgetary impact of additional sugar imports from Mexico and from other countries with additional access to the U.S. market for their sugar under bilateral FTAs.
Congress reauthorized the sugar price support program with some changes in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the enacted 2008 farm bill). The sugar program is designed to guarantee the price received by sugar crop growers and processors and is intended to operate at "no cost" to the U.S. Treasury. To accomplish this, the U.S. Department of Agriculture (USDA) controls supply by limiting 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.
Since January 1, 2008, sugar imports from Mexico no longer face quotas or duties under the North American Free Trade Agreement. Other imports are allowed entry under quotas found in other free trade agreements (FTAs). To address the potential for a U.S. sugar surplus caused by additional imports under these trade agreements, the enacted 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 sugar provisions reflect the proposal 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 proposed 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 has continued to estimate a tight domestic sugar supply in FY2009 largely due to reduced beet production. Its import quota decisions made to date and its estimate of sugar expected to enter from Mexico and other FTA partners do not point to a sugar surplus. As a result, USDA announced in September 2008 that the sugar-for-ethanol program will not be implemented this year. Attention now turns to how USDA will implement newly enacted rules dealing with the timing of additional raw cane sugar versus refined sugar imports, because of the implications for market prices.
For background information on the sugar program and a review of more recent developments, please see CRS Report R40995, Sugar Policy Issues, by [author name scrubbed].