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The U.S. Sugar Regime: Options for Reform

The U.S. Sugar Regime: Options for Reform. David Blandford Penn State University German Marshall Fund Luncheon Washington, DC. November 16, 2005. Two scenarios examined. Focus on impact of duty-free imports of sugar from Mexico from 2007/08

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The U.S. Sugar Regime: Options for Reform

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  1. The U.S. Sugar Regime: Options for Reform David Blandford Penn State University German Marshall Fund Luncheon Washington, DC. November 16, 2005

  2. Two scenarios examined • Focus on impact of duty-free imports of sugar from Mexico from 2007/08 • Low imports – increase in duty-free imports of roughly 200,000 short tons • High imports – increase in duty-free imports of sugar of over 1.3 million short tons (use of HFCS in Mexican beverages is a key factor) Note: all the numbers for future years (FY2006 – 2015) are projections not forecasts!

  3. U.S. sugar prices:the two scenarios

  4. Bottom line… • A significant increase in imports from Mexico would mean that the sugar program could not operate on a no-cost basis • Would a shift to a “standard” commodity program be feasible? • Key elements - elimination of marketing allotments, reduction in loan rates, use of direct payments

  5. Parameters for the standard program scenario *Except for loan rates, beet sugar provisions are expressed in raw sugar equivalents. Counter-cyclical payment rates for both cane and beet sugar are determined by the following formula: max(0, (Target price - Direct payment rate - NY raw sugar price)

  6. Sugar and sweetener prices(high import assumption FY 2008-15 average)

  7. Producer returns ($)(high import assumptionFY 2008-15 average)

  8. Sugar payments(high import assumption FY 2008-15 average, mill. $) * With no payment limitations; $224 million with payment limitations?

  9. Government outlays(high import assumption FY 2008-15 average, mill. $) • With no payment limitations; $64 million with payment limitations? • Approximate “break-even” direct payments gives net cost of $100 million

  10. Environment and natural resources Community economic development The full AFBF sugar study can be found at http://dblandford.aers.psu.edu Food and agricultural systems

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