TESTIMONY OF
Carol Brick-Turin
President
CBT Consulting
CONCERNING THE REVIEW OF THE FEDERAL SUGAR PROGRAM
BEFORE THE
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
UNITED STATES SENATE
JULY 26, 2000
Chairman Lugar, Mr. Harkin, and Members of the Committee:
Good morning! Thank you for inviting me to participate in today's hearing; I'm honored to be here to share my thoughts with you on the U.S. sugar program. I am Carol Brick-Turin, President of CBT Consulting, the company I founded one year ago this month, having worked in both the public and private sectors on agricultural issues for the past 25 years, 15 of which were spent analyzing U.S. sugar policy.
In my remarks today I would like to highlight the following three points:
1. Adversities faced by the domestic sweetener industry today were not created overnight. They are the culmination of public policy and private sector initiatives that have evolved over the past two decades.
2. As a result, the collision between free market forces and government controls is nearing. The U.S. Department of Agriculture is no longer able to carry out the intent of its Congressional mandate.
3. It is therefore crucial to begin the debate on the future direction of the U.S. sugar program. In forging the future of the sugar program, the complexity of current government policy, and the industry response to such policy, must be acknowledged and understood.
As shown in the attachment to my written testimony, the federal government has been involved in the sugar market for over 60 years. The price support program has been the only domestic program for sugar since 1981 (with the exception of marketing allotments used briefly in the early 1990s). However, since 1982, the federal government has also used a whole host of import policies in order to meet its domestic policy objectives. Since President Reagan established a country-by-country quota that year, the federal government has issued and re-issued dozens of related rules, regulations, Presidential Proclamations, and administrative decisions to govern imports. The issuance of certificates of quota eligibility, shipping patterns, re-export programs for quota exempt sugar, specialty sugar licensing, sugar containing product quotas, and tariff classifications for sugar and products are but part of the complex web that constitutes the sugar import program.
Sugar policy set and administered by the federal government has been the single most important influence on the evolution of the sweetener industry over the past twenty years. Yet, many changes in the dynamics in the sweetener marketplace have also occurred as a result of normal industry practice to maintain a competitive edge by cutting costs and increasing efficiencies. This interplay between public policy and private sector initiatives almost always results in the use of qualifiers when discussing the U.S. sugar program.
In fact, discussions about U.S. sugar policy bring to mind discussions held by Tevya, in Fiddler on the Roof (with himself), in that there is always an other hand. Let me give you a few significant examples.
o On the one hand U.S. sugar policy has protected sugar growers from volatile price movements in the world market with guaranteed minimum price supports and restricted import levels. On the other hand the same policy, by elevating prices, has encouraged displacement of sugar by high fructose corn syrup, stimulated a rate of sugar production that has outstripped consumption, reduced U.S. import needs significantly, and advanced an extraordinary level of consolidation in the cane refining and beet processing sectors.
o On the one hand, current industry woes may be attributed to external factors such as imports of certain syrups from which non-quota sugar is extracted, threats of Mexican imports overhanging the market, and from time to time, tariff-rate quota (TRQ) mismanagement. On the other hand, the industry itself must take responsibility for creating the current oversupply situation through increased acreage and output, supported by scientific and technological advances in production and processing operations that have resulted in record recovery rates and yields.
o On the one hand opponents argue that lower loan rates will help the consumer. Clearly grower prices exceed levels that would be expected in a free market scenario. On the other hand, the contention by the General Accounting Office (GAO) that the sugar program cost domestic sweetener users almost $2 billion in 1998, unrealistically assumes 100% pass-through of cost reductions by refiners and industrial users to final consumers. (1)
In fact, my point is that when it comes to sugar policy there is always an other hand.
There are simply no more ways for the U.S. Department of Agriculture (USDA) to help the grower/processor sector within the framework of the current sugar title. The Administration's hands are tied by a Congressional mandate that sets the loan rate and requires recourse loans if imports drop below 1.5 million tons; a World Trade Organization (WTO) obligation to permit imports of at least 1.25 million tons; and a North American Free Trade Agreement (NAFTA) commitment that will ultimately establish the free flow of product between the U.S. and Mexico. It is therefore vital to begin the debate on the long-term direction of the U.S. sugar program.
In summary, I believe that the potential for reform is undermined by oversimplified criticism or applause of the U.S. sugar program; that the current sugar program is a patchwork of statutes, rules, regulations, Executive Orders, and administrative decisions that has been pieced together over the past two decades. When crafting a long-term policy, both program opponents and supporters must recognize its complexity in order to move toward a unified, constructive approach that accommodates the changing dynamics of the sweetener marketplace.
This concludes my prepared remarks. I would be pleased to answer any questions the Committee has for me. Thank you very much.
Selected Highlights of Federal Legislation/Presidential Proclamations Governing the U.S. Sugar Market
1934 Sugar Act 40 years of government control over industry
1949 Agricultural Act Became part of fundamental legislation for first comprehensive price support program with non-recourse loans
1974 Sugar Act Not renewed as consumer prices escalated
1977 Variable import fee mechanism established
1977-78 Interim payment program under Food and Agriculture Act of 1977
1979 Authority reverted to 1949 Act
1980-81 No support program due to high world prices
1981 Agriculture and Food Act Re-established supports with non-recourse loans; Import fee system revised using Market Stabilization Price
1982 Import quota established on country-by-country basis; Certificate of Quota Eligibility system established
1983 Specialty sugar program established; Refined re-export program established; Certain blends and mixtures embargoed
1984 Sugar-containing product and polyhydric alcohol re-export programs established
1985 Food Security Act See provisions below; Sugar-containing product quotas set; Fee system suspended
1987 Foreign Trade Subzone status granted to certain sugar-containing product manufacturers
1990 Food, Agriculture, Conservation See provisions below
and Trade Act
1996 Food and Agriculture Improvement See provisions below
and Reform Act
1985, 1990, 1996 Farm Bill Provisions
1. 1 GAO/RCED-00-126, Sugar Program, June 9, 2000.