	Recent Developments

On April 23, 2010, the U.S. Department of Agriculture (USDA), after determining that additional supplies of raw cane sugar are required in the U.S. market, announced a 200,000 short ton (ST) increase in the FY2010 raw sugar import quota. Current law authorizes the sugar program through the 2012 crops for sugar beets and sugarcane. This share has grown over the last 25 years, reflecting the price protection provided by the sugar program. The program's support level and import protection, however, keep the U.S. sugar price above the price of sugar traded internationally, and constitute an indirect subsidy to the production sector by way of higher prices paid by U.S. sugar users (food and beverage manufacturers) and household consumers. The 2008 farm bill ( P.L. for refined beet sugar. This provision guarantees a minimum 85% market share for the domestic sector, and is intended to ensure that imports do not displace the ability of U.S. sugar processors to sell more of their output in each successive year, to the extent that there is growth in U.S. demand for sugar. Although the WTO commitment sets this minimum level, the Secretary of Agriculture has authority to allow additional amounts of sugar to enter if "domestic supplies of sugars may be inadequate to meet domestic demand at reasonable prices." In a significant policy change, the 2008 farm bill requires USDA to set the WTO sugar TRQ commitments at the minimum levels at the beginning of the quota (i.e., marketing) year, lays out the factors to be considered to increase quota imports if there is an emergency sugar shortage before April 1 of each year, details what import actions USDA can take before and after April 1, and prescribes the mix of raw versus refined sugar allowed to enter, depending upon which half of the year such entries occur (see " 2008 Farm Bill Sugar TRQ Provision "). Food Use

The United States is the fifth-largest user of sugar for food in the world, consuming an estimated 10.5 million ST in FY2009. However, if sugar use trends higher than now projected, USDA would face continued calls to allow for additional imports. Reflecting this uncertainty, USDA admitted that its FY2010 sugar use projection may be at the low end of a range. Significance of Sugar Ending Stocks

USDA projected in early summer 2009 that U.S. sugar stocks relative to domestic food consumption would be much lower than usual at the end of both the FY2009 and FY2010 marketing years. In implementing the sugar marketing allotment provisions of the 2002 farm bill, USDA stated that its estimate of reasonable ending stocks will be set "at a level expected to preclude sugar loan collateral forfeitures" (i.e., to ensure that sugar market prices were above effective price support levels so that the statutory directive to operate the sugar program at no cost to the U.S. Treasury was met). The raw sugar futures price has since fallen back to average 31.0¢/lb. in April 2010. Issues

Sugar users continue to press their case for USDA to increase sugar imports, arguing that action is needed to restore supplies to more normal levels. Sugar processors maintain that the domestic market is adequately supplied now that the harvesting and processing of the 2009 crops is completed. Sugar processors seek to maintain their advantage in negotiating sales prices with users. Food and beverage firms want prices for refined sugar that are lower and closer to the historical average. Members of Congress have weighed in with letters to USDA in support of each side's position. To address this, sugar processors advocate increased coordination between the U.S. and Mexican governments on sugar policies. 2008 Farm Bill Sugar TRQ Provision

One new provision prescribes USDA's authority in administering the sugar TRQs established to meet U.S. WTO trade commitments. one year earlier. Sugar Users Call for Import Increase

Sugar users, beginning in March 2009, have made repeated requests for USDA to increase import quotas for raw and refined sugar in order to head off a shortage in the domestic sugar supply. Sugar Imports from Mexico

			Free Trade under NAFTA

Unrestricted imports of sugar from Mexico since January 1, 2008, have introduced considerable uncertainty into USDA's efforts to manage the sugar program to ensure that market prices stay above effective support levels (i.e., that sugar processors have no incentive to forfeit on their loans if prices are lower).
The sugar program, as reauthorized by the 2008 farm bill (P.L. 110-246), is designed to guarantee that growers and processors of sugar beets and sugarcane receive a minimum price. To do this, the U.S. Department of Agriculture (USDA) limits the amount of domestically produced sugar that processors can sell under "marketing allotments" and restricts imports. These decisions to control supply are aimed at keeping market prices above support levels, so that USDA can operate the sugar program at "no cost" to the U.S. Treasury. Separately, trade law authorizes the Secretary of Agriculture to allow additional imports if the domestic sugar supply is not adequate to meet domestic demand at reasonable prices.
The United States is the fifth-largest consumer of sugar in the world. Consumption in food has increased in recent years, reflecting population growth and a shift back to sugar from corn syrup, an alternative and cheaper sweetener. Adverse weather significantly reduced beet sugar output in FY2009 and contributed to tight sugar supplies as FY2010 began. USDA projects a continued tight outlook at the end of FY2010 and also for FY2011, with ending stocks relative to demand at the low end of the range compared to earlier this decade. Reflecting this, the raw sugar futures price and the refined beet sugar spot price in April 2010 were 43% higher than year-ago levels. These prices were considerably above their support levels and 10-year market averages.
Since early 2009, food manufacturers that use sugar have called on USDA to allow for additional sugar imports to head off sugar "shortages" and to restore supplies to more normal levels. Sugar crop growers and their processors maintain that the domestic market is adequately supplied, with the processing of the 2009 crops now complete. Though these contrasting views spotlight the issue of sugar availability, the debate has more to do with the future level of the price of sugar. Sugar processors seek to maintain their advantage in negotiating higher sales prices with users. Sugar users want lower refined sugar prices that are closer to the historical average.
The debate over additional sugar imports centers around a provision in the 2008 farm bill that prescribes USDA's authority in administering the import quotas established to meet U.S. commitments under the World Trade Organization. It requires USDA at the beginning of each fiscal year to set the quotas for raw sugar and refined sugar at the minimum levels laid out in this obligation. The Secretary of Agriculture, however, is directed to increase imports before April 1 of any year if there is an "emergency shortage of sugar" due to war or a natural disaster. Sugar users have argued since summer 2009 that circumstances warranted additional imports before April 1. Processors urged USDA to wait until the supply picture became clearer. On April 23, 2010, USDA announced an increase in the raw sugar import quota. Over the last year, Members of Congress have weighed in to USDA in support of each side's position.
Differing estimates of U.S. sugar use for food have implications for USDA's management of the sugar program—in particular for import quota decisions. Some analysts view USDA's projection of FY2010 sugar use as too low. They argue that available data suggest consumption of sugar for food is actually higher, and that additional imports are needed.
Free trade in sweeteners with Mexico now introduces considerable uncertainty as to how much sugar Mexico might export in any year to the U.S. market. This, in turn, complicates USDA's effort to administer the sugar program. Sugar processors advocate increased coordination between the U.S. and Mexican governments on sugar policies. Sugar users oppose their "managed-trade proposal," arguing that it would result in inadequate domestic supplies and hurt U.S. jobs.