Testimony of U.S. Representative Dan Miller Before Senate Agriculture Committee on U.S. Sugar Program

July 26, 2000

Chairman Lugar and Distinguished Senators,

Thank you for allowing me to testify about the important issues underlying federal sugar reform. It is important that this issue be dealt with in a bicameral fashion and I appreciate your willingness to hear from this House member's perspective.

Why would someone from Florida be opposed to the sugar program you may ask? I am because it is bad for the environment, bad for taxpayers, bad for trade and bad for America. It is especially bad for Florida.

I can summarize the pro Big Sugar arguments about proposed changes to the sugar program; "Don't change a thing. We love it the way it is. Socialism is a good thing!" This is a shame. This socialist modeled program harms many more people than it helps. Capitalism won. Socialism lost. Eventually, we will have capitalism in sugar again, it is just up to Congress to decide whether to do it now or later.

I am here today to discuss the sweet deal that sugar producers are receiving under the sugar daddy of corporate welfare; the U.S. sugar program. Contrary to what the big sugar producers may tell you, the sugar program was not really reformed in the 1996 Farm bill. While other farm commodities will gradually experience a phase-out of price supports, big sugar producers will continue to reap the benefits of this corporate welfare program.

I recognize that during Freedom to Farm debate I fell 5 votes short in our efforts to reform this socialist modeled price support system, however, all the predictions we made in the debate back then have come true and defenders of the sugar program are just wrong.

Through price supports, the sugar program keeps the price of sugar in the United States artificially high. By tightly limiting the amount of sugar that may be imported into the United States, and subsidizing the operations of sugar producers through federal loans, the sugar

program forces the price of domestic sugar to be at least twice as high as the price of sugar on the world market.

While this is a sweet deal for sugar producers, it leaves a sour taste in the mouths of taxpayers, consumers, American workers, and the environment. GAO estimates that the sugar program costs consumers more than $1.9 billion every year.

Jobs for American workers have been eliminated because of sugar refineries that have been forced to shut down and because of companies relocating overseas where sugar is cheaper.

The environment is damaged by sugar production in Florida. The subsidized production of sugar in Florida results in phosphorous-laden run-off flowing into the Everglades, which contributes to the destruction of this fragile ecosystem. Amazingly, the Federal Government continues to subsidize sugar producers, even as Congress participates in a multi-billion dollar project to repair the damage done to the Everglades.

Further, the sugar program harms our position with foreign governments when negotiating trade agreements. Much of the financial hardship being experienced by our nation's farmers is due to contraction of overseas markets for U.S. agricultural exports. We need

to work to open the markets in foreign nations. It is hypocritical and counterproductive for the United States to protect the sugar industry while urging other countries to reduce their trade barriers. Quite simply, our negotiators must decide whether it is more important to preserve an outdated sugar program than to open markets for competitive American farm products.

For the past several Congresses I have introduced amendments to the Agriculture Appropriations Bill as well as stand alone legislation to reform the Federal sugar program. This Congress I introduced H.R. 1850 with Congressman George Miller (D-CA). This Miller-Miller bill currently has 72 bi-partisan co-sponsors. H.R. 1850 has the support of national taxpayer, consumer, and environmental advocacy groups united in their opposition to our silly sugar program.

More recently, the USDA announced it would purchase at least $54 million in sugar (not under loan). Reports mention that all sugar under loan may be forfeited to the government costing taxpayers up to $500 million. Yet despite this, supporters of Big Sugar will say that this program does not cost anything. Amazing.

I would like to further examine the effect of the US Sugar program as this program hurts the environment; our effort to knock down foreign trade barriers; and American taxpayers, workers and consumers.

Costs to Consumers/Taxpayers

The GAO has recently estimated that the present sugar program costs over $1.9 billion per year in higher prices for table sugar and food. Not only do higher costs affect the prices paid at the cash register, they affect the taxpayer in the costs of government. Higher food costs mean higher entitlement spending under Food Stamps or other government programs such as school lunches and Meals on Wheels. It is a regressive form of corporate welfare benefitting a select few producers while making every consumer pay more at the cash register to justify this program. The U.S. Department of Commerce has noted that the ``effect of the sugar program is similar to a regressive sales tax, which hits lower-income families harder than upper income families.'' If you

support regressive taxation, then I guess you have no problem with the U.S. sugar program. If you do not favor taxing the poor more heavily, however, you should favor changes in our sugar policies.

As a result of the recent GAO study, Big Sugar has tried to "attack the messenger" by attacking the GAO report. They claim that "even the USDA" attacks the GAO report. These attacks fail to mention the critically important fact that before GAO did this report, they tried to get USDA to help achieve a consensus economic model. However, USDA failed to help or even comment on this proposed study and has only now taken cowardly pot shots at the GAO report after it has been finalized. Nevertheless, anticipating the political inaction at the USDA, the GAO report represents an impressive collaborative effort with many noted economic modeling experts consulted throughout the study. The attack the GAO efforts of Big Sugar are an attempt to distract from the findings of this report that the US sugar program costs US consumers an extra $1.9 billion per year.

Much of the debate on sugar in Congress has claimed that this program has no taxpayer costs. Well, the recent USDA purchase of $54 million with plans of buying at least $140 million this year and possibly up to $500 million have shredded this argument. Low income US taxpayers in New York City or Indianapolis are paying to bail out big sugar barons such as the Fanjuls. The USDA is like a drug dealer enabling the sugar industry to ignore its problems.

USDA's purchase of surplus sugar is like rearranging deck chairs on the Titanic, it does nothing to address the fundamental flaws in the failed U.S. sugar program. A corporate welfare program which already costs consumers $2.2 Billion per year in hidden costs will now cost taxpayers $60 million up front. This was exactly the course of action that I cautioned the Administration against taking. Providing the sugar industry with this sickly sweet taxpayer bailout will not stop loan defaults, but the bailout will encourage further overproduction of sugar and may do nothing to affect prices. It is a short term action with long term consequences.

It was unfortunate that USDA gave in to industry pressure instead of following the law that sugar producers themselves designed. I had previously urged Agriculture Secretary Glickman to let the law work as intended and accept the loan defaults and forfeitures that would occur. I was pleased that Secretary Glickman had both recognized the need for reform of the sugar program and warned the industry not to rely on further government bailouts. But actions speak louder than words, and USDA had an opportunity to send a signal to the sugar industry that its free ride was over by not purchasing this sugar. The reforms the Secretary mentions such as stopping overproduction are merely symptoms of a failed program that is now costing consumers billions and taxpayers millions. I fear this sugar purchase has put us on the slippery slope to even larger taxpayer financed bailouts.

However, despite this recent direct taxpayer costs, the pro sugar side is "moving the target" again. Instead of "not costing the taxpayers a penny" as they have claimed in the past, they now say, sugar growers have given million to eliminating the deficit. Therefore, even with the recent $54 million purchase, the taxpayers still "owe" big Sugar for "contributing" roughly $250 million towards getting rid of the debt. I do not recall any speech to the American people where President Clinton claimed the sugar assessment as the reason why we do not have a budget deficit anymore. Nevertheless, in an exercise of raw political power, Big Sugar got rid of this assessment last year in the FY00 Agricultural Appropriations bill.

ENVIRONMENT

If you listen to Big Sugar, they will almost seem to imply to say that sugar cane farming is better for the Everglades than the natural state. There have been numerous studies that prove that sugar production in the Everglades area has had a very detrimental effect on its health. The increased farming in the area has produced tremendous phosphorous runoff as well as runoff from pesticides and wastewater. Cattails and other indicators of non-pristine water have greatly increased in the area because of it.

The Tampa Tribune noted that "fish in the River of Grass are so packed with poison that state health officials warn people against eating them." This runoff has affected Lake Okechobee and harmed water quality and fishing there as well. Less clean water and fish mean less tourists and less jobs.

Our sugar program has caused this problem. Rather than having idle "swamp" land, it has been converted into sugar cane fields. More and more acres are being farmed for sugar cane producing more stress on the ecosystem. The recent GAO reports shows that the acres under loan from the sugar program have greatly increased from 56,000 short tons in 1997 to 470,000 short tons in 1999. As such, our sugar program is the culprit in this production in this environmentally sensitive area. It has instituted this farming in this ecologically sensitive location.

Because of the non recourse nature of the sugar program loans, a land rush to turn "swamp" into cane exists. You can not lose sugar cane farming and if prices are bad it is Uncle Sam's problem. The sugar program is the lure to attract folks to developing the Everglades.

The Senate has shown leadership by starting to move the multi billion Everglades Restoration project and I support it. However, I cannot help but note that the sugar subsidy is increasing the costs of this important restoration. Part of the multi billion effort to restore the Everglades will involve buying land. The US government will not be buying what we often think of as "swampland". They will be buying land that receives a huge government subsidy so we would have to pay extra. Cutting the subsidy would be a more efficient way to do this and remove the incentive for sugar production in the area.

TRADE

Much of the financial hardship being experienced by our nation's farmers is due to contraction of overseas markets for U.S. agricultural exports. What I want to stress to you today is the importance of having the United States Trade Representative enter into trade talks around the world with "clean hands" in order to change that troublesome trend. Ostensibly, trade talks are an opportunity to knock down barriers to trades and allow American industry a greater opportunity to export into other countries. This would result in greater incomes for U.S. farmers and businesses. The sugar program undermines our trade objectives and is colliding with efforts to help small farmers.

Trade talks are the best opportunity to be pro-U.S. farmer if we have the courage to knock down barriers. If every country is allowed to exempt politically well connected commodities from trade negotiations by taking them off the table before they enter the room, then there can be no progress on free trade. For example, if the United States continues to knock out foreign sugar, then Canada can justify kicking out United States dairy and Europe can knock out US oilseed crops, and so on. The agriculture community must not allow this protectionist and wasteful cycle to continue. Quite simply, our negotiators must decide whether it is more important to preserve an outdated sugar program than to open markets for competitive American farm products. Remember the US sugar program hurts more people than it helps.

For example, during the Seattle Round, our trade negotiator was trying to lower foreign subsidies on corn and other grain, however, the other nations would point to our obscenely generous support to the sugar and call us hypocrites. We cannot let the sugar program continue to be a black eye on our efforts at knocking down trade barriers.

We are a net importer of sugar because we cannot produce enough. We need to import to meet domestic demands and needs. However, we are a net exporter of important products like Boeing jets, corn, Coca Cola, etcetera which represent a greater segment of our GNP. Our trade policy should be to open up markets overseas first, not blind and narrow minded defensive manners relating to a very little segment of our economy, the domestic sugar industry.

The U.S. sugar protection program and its implementation causes odd distortions in the world wide import and export of sugar that are utterly inconsistent with free trade and free markets. According to another GAO study on the sugar program, the United States allocates import levels to some 40 trading partner countries in a manner that bears little relationship to the realities of supply and demand.

For example, Brazil and the Philippines are both "allowed" by the USTR to import approximately the same tonnage of sugar under this bizarre quota system despite the fact that Brazil produces 21 times more sugar (5,215,000 tons) than the Philippines (249,000 tons). Furthermore, 10 of the 40 countries who are given sugar quota allocations by the United States to import sugar here are actually net importers of sugar themselves. 11 of the 40 countries who receive an allocation have average worldwide export levels that are less than their U.S. allocation level.

Can such a system really be consistent with our free trade message? How would the United States react if one of our trading partners gave American corn farmers a quota level that was the same as that of Honduras? Would we take seriously another country's admonitions about free trade if that country allocated imports of American beef at the same low level as those of Liberia? These are the questions that naturally flow from examination of our sugar program and I hope that our trade representatives do not feel compelled to expend valuable credibility defending such an archaic and economically inefficient system that does not advance the overall interests of the United States such as our sugar program.

The United States trade policy must be to effectuate the greater good for our country. Many more American jobs and consumers need cheaper sugar and many more non-sugar farmers need our trade policy to be freed from the millstone of our domestic sugar subsidy. If free trade talks are successful, the USTR can save American jobs in refining and manufacturing of anything that uses sugar. Also, the USTR will save the taxpayers billions of dollars.

So when our trade representatives defend the US sugar program in global trade talks, they are defending the Fanjuls, the politically well connected, the select few, but definitely not the average family farmer hurt by the contraction of overseas markets. The USTR must not protect a few folks who are profiting from an overpriced subsidy program at the expense of cattlemen, corn growers and other important American commodities. Nor must the USTR protect the select few sugar barons at the expense of the many important domestic users of sugar such as candy makers and refineries which are important US industries.

I have had conversations with the Ambassador Barshefsky about this matter. She has admitted on record that trade negotiations relating to sugar are some of the most contentious she has to deal with despite the relatively small aspect of the economy of our sugar industry. Congress should not put our trade representatives in this position to defend smaller parts of our GNP at the expense of the greater good.

Corporate Welfare

The GAO reported that 42 percent of the sugar programs benefits went to just 1 percent of the sugar producers in 1991 and 33 big sugar barons each received more than $1 million in extra revenues under the program. One producer even received $65 million in 1 year. Time Magazine did a story in November, 1998 on the Fanjul family that outlined how the U.S. sugar subsidy has helped propel this family into the ranks of the multi-millionaires. I commend it to your reading as it fairly captures how the sugar program helps a few well connected folks

while sacrificing the good of the rest of the country.

I must emphasize this because you will hear; ``Don't kick farmers when they are down'' or ``the family farm needs support, not a kick in the teeth.'' Great sound bites, but totally inappropriate with the sugar program. Sugar plantations are not family farms in the normal sense of that phrase. In 1995, the USDA compared the non-cash economic benefits that accrue to farmers of various commodities thanks to government action. Wheat gets $23 per acre in government benefits, cotton farmers $87 per acre. Sugar gets $472 per acre. Moreover this

artificially high price per acre of sugar acreage complicates efforts to restore the Everglades by creating an economic incentive to utilize more Everglades for sugar farming. And this benefit goes to a select few sugar barons.

Effects On Economy

Two major American industries adversely affected by our sugar program are sugar refineries and manufacturers of products that utilize sugar. Often, sugar refineries are unable to find a consistent and adequate supply of sugar to operate year round. The variations create

economic inefficiencies and waste which result in these facilities being unable to stay in business. Moreover, refineries process sugar and require sugar cane and beet to operate. Needless to say, buying this raw material in the United States is overly expensive when compared to the world price. Why would a company buy large quantities of sugar cane at $ .22 per pound when they can buy at $.10 per pound in a foreign nation and take advantage of other favorable economic factors such as labor costs and government regulation?

Accordingly, it is not hard to see why our sugar system is sending refinery jobs overseas. As recently as 1981 there were 23 sugar refineries in the United States. Today, there are only 11 refineries. Over 3,500 jobs have been lost by closures at the refineries due to a sugar program that only benefits a select few.

Similarly, manufacturers of products that rely on sugar are greatly affected by the present sugar subsidy. Ask any businessman would they rather buy sugar at 22 cents per pound or at 10 cents per pound and they would all agree they would like the cheaper sugar. Even with a duty that raises the cost to over 19 cents per pound when sugar is brought into America, businessmen know that 19 cents is cheaper than 22 cents. And businessmen know that they need to pack up and leave the United States if they want to get that cheaper sugar. Also, the incentive remains to move operations overseas if the company is pursuing an aggressive export strategy.

I think a good example of the present sugar program driving jobs out of America is the story of Bob's Candies. Bob's Candies was the largest producer of candy canes in America. Candy canes are a very cyclical industry and are made to be a low cost candy. However, the U.S. sugar program throws large roadblocks in the way of domestic candy makers. Accordingly, Bob's Candies moved much of its production to Jamaica where sugar is much cheaper. The president of Bob's Candies recently told Reader's Digest that the company would save more than $2 million a year in raw materials if the sugar program was scrapped. This savings would enable the company to keep jobs in America and lower retail prices. Unfortunately, it just makes good business sense to go overseas to get cheaper sugar to make candy. How many Bob's Candy Canes

will this Committee tolerate?

Another example pitches two agricultural groups against each other. Cranberries need sugar to make dried fruit, i.e. Craisins. However, US growers and producers of cranberries are at a competitive disadvantage to growers in countries such as Canada that pay the world price because American cranberry growers must pay 2.5 times more for sugar.

Also, the Committee should note that the cost of our sugar program was a main reason why Coke and other soda companies do not use sugar in soft drinks. Sugar got too expensive. The program priced sugar out of the lucrative soft drink industry. Instead, soft drinks now use high fructose corn syrup (HFCS) which does not have the high costs and economic inefficiencies of the sugar program. However, I continue to be amazed by how many of my pro-sugar colleagues still talk about sugar in US soda. I am not sure if this is intentional or not, however it is wrong.

Finally, I ask this committee to keep in mind the fact the sugar industry is not large in comparison to other aspects of the economy. According to USDA data there are between 40,000 and 70,000 jobs directly related to the sugar program. This is a small number compared

to the 520,000 jobs in the food processing industry or the thousands of lost Everglades related tourist jobs. Congress must not blindly protect a small special interest sugar program at the expense of the greater good.

Conclusion

I am grateful for the Senate Agriculture Committee and its willingness to stand up to big Sugar and expose this program to public scrutiny. Chairman Lugar, you are to be commended for your stalwart opposition to this program and I am inspired by your efforts.

I believe sunshine on the sugar programs is one of the greatest ways to fix this corporate welfare to give the select few a benefit at the expense of everybody else. The sugar program is a regressive system that raises the costs of goods for all consumers, it contributes to the destruction of the Everglades, it causes U.S. jobs to move overseas, and it harms American efforts to open trade markets around the world. Congress must end this sweet corporate welfare cavity. Congress must not let the misleading noise of a single issue advocacy group like Big Sugar drown out the greater good of American consumers, workers, environmentalists, and taxpayers.

The recent sugar purchase only underscores how bad this program is. I hope we can use this event to fix the problem, not cover it up. Thank you for allowing me to testify about this important subject.