2014 Farm Bill and Sugar Policy Challenges

1. 2014 Farm Bill and Sugar Policy Challenges

2. The opinions expressed in this presentation are my own and do not necessarily represent the views of the Sweetener Users Association.

3. What We Won’t Say a Lot About

4. Mexico Case: Overview • Filing followed Mexico agreement to divert sugar to world market • Mexico vital part of U.S. supply • Domestic production <85% since mid-’00s • TRQ set at minimum by law

5. Mexico Case: Overview • Mexico imports increased but at expense of TRQ imports, not domestic production • In period of investigation – • U.S. production rose • Total imports declined • U.S. market share rose • High prices from sugar program = higher output

8. Mexico Case: Overview • U.S. raw, refined prices averaged higher in post-NAFTA than pre-NAFTA period • Same is true for farm cash receipts, value added for processors • Some individual processors had near-record results • Prior points all documented in public hearing record

9. Some Common Ground … • Added sugars • ISO • Transportation policy • GMO labeling

10. OK, But What About the Sugar Program? • Basic structure likely in place for a while • Users sought reform, not abolition in farm bill • Don’t like current sugar program structure, but reforms would have left loan rate, allotments, TRQ in place • Further legislative debates likely in coming years • USDA has made good-faith effort to manage

11. OK, But What About the Sugar Program? • Where users, growers may agree • Should be transparent, least public cost • Key assumption • Periods of surplus, tightness both likely

12. Transparency

13. Is S/U Ratio Only Policy Guide?

14. Is S/U Ratio Only Policy Guide? • Wide variations on S/U month-to-month • Challenging for USDA to set policy • What info could supplement S/U? • HTSUS already calls for “reasonable prices” • Reflect more individual judgments • Regulated (raws only) • Could USDA incorporate into decisions – with transparency?

15. Announce Contingent Policy Actions • USDA announce (advance) intentions in event of undersupply • Subject to change if markets changes • USDA reinstate tranche system for TRQ when markets uncertain • Cancellable • Makes TRQ increase less irrevocable

16. Make Minimum TRQ Quantity Real • Shortfalls approaching point where minimum TRQ not available in practical terms • TRQ often justified as foreign aid – but no benefit if no sales • Some form of tradability would allow small quota-holders to profit • U.S. could (& should) take steps to prevent market manipulation

17. Improve Information Quality • Agencies should have more direct interaction in WASDE process • U.S. should join ISO

18. Program Cost Reduction

19. Is FFP Best Surplus Option? • Will always show large losses on acquired sugar • Whether forfeiture or market purchase • Exposure increases as corn price falls

20. Cost Reduction Options • Cost reduction options should be first choice • If subsidy< likely FFP subsidy • If no net increase in domestic supply • Re-export programs can be used when U.S., world prices relatively close • Limited by balances, other factors • Expand eligible universe to include SCP re-export license holders, polyhydric alcohol

21. Cost Reduction Options • USDA should publish calculations for what OAQ would be in absence of 85% floor • Would not reduce costs by itself … • Tell market what USDA would do, but for 85% limit • Allotments not real supply constraint for industry as whole • No year in since mid-’00s when production = 85% • Does affect some individual processors • In absence of floor, USDA would use for cost control

22. Program Management • USDA has challenging job, has performed well in recent years (considering) • Additional transparency would help all market participants • Using cost reduction options can help contain potential costs

23. 2015 International Sweetener Colloquium • Feb 8-11, 2015 • Waldorf Astoria Orlando • Orlando, FL