STATEMENT OF NICHOLAS KOMINUS
ON BEHALF OF
THE UNITED STATES CANE SUGAR REFINERS' ASSOCIATION
BEFORE THE
SENATE COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
JULY 26, 2000
Mr. Chairman, my name is Nicholas Kominus, I am the President of the United States Cane Sugar Refiners' Association, 1730 Rhode Island Avenue, Washington, D.C. 20036.
The member companies of the Association account for half of
the refined sugar marketed in the United States. They refine raw cane sugar that is produced in the United States, and that which
is imported from foreign nations.
They operate eight refineries in seven states - California, Florida, Georgia, Louisiana, Maryland, New York, and Texas. In addition, they operate a number of other facilities in other states. A list of member companies is attached.
The cane sugar refining industry plays a unique and important role in ensuring that ample supplies of sugar are available to the nation's food and beverage manufacturers and consumers at all times, and under all conditions. No other segment of the sugar industry in the United States or abroad can meet this need.
When there is a domestic crop failure through drought or freeze, as often there is, food processors must depend upon the refiners to fill the void by importing and refining more foreign raw sugar.
For example, in the summer of 1997, the domestic sugar beet crop was much smaller than anticipated. Fortunately, we still
had enough refining capacity to make up for the beet shortfall.
Without adequate refining capacity, the situation would have been chaotic, particularly for those food manufacturers who depend upon daily deliveries of sugar.
In the absence of sufficient refining capacity, some food processing plant closings would be inevitable, and consumers could face shortages and skyrocketing prices.
Needless to say, supply is not a problem today. There is a surplus of sugar. However, most of the expansion in beet sugar production has taken place in nonirrigated regions that are far more susceptible to the uncertainties of the weather.
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And, under the NAFTA, more of our sugar supply will come from Mexico, which is certainly not insulated from crop disasters.
In the future, the only practical response to short crops,
here or in Mexico, will be for refiners to tap the world's raw sugar supply. There are no practical alternatives.
Thus, in order to protect the integrity of the nation's sugar supply, we must maintain adequate refining capacity.
In this regard, it is indeed unfortunate that the mismanange-ment of the Government's sugar subsidy program has been damaging the cane sugar refining industry.
Since the program was adopted in 1981, 12 of the industry's
22 refineries have closed (see the attached table). The industry has lost over 40 percent of its capacity, and thousands of employ-ees have lost jobs. And the industry is under undue stress that threatens more refinery closings.
Under the program, the Department of Agriculture has support
ed the price of sugar for domestic producers by limiting the quantity of imported raw sugar available to refiners.
In doing so, it has been far too restrictive. In the past,
the Department has forced the price of raw cane sugar up as high as 25 cents a pound - more than the price of refined beet sugar
at the time. Under those circumstances it is impossible for refiners to compete.
Until the recent market adjustment, raw sugar prices were still being supported too high - from 22 to 23 cents a pound - much higher than the forfeiture level, which is around 20 cents
a pound.
These unnecessarily high prices have sent the wrong signal to domestic producers, and they have responded by overproducing.
In other words, tight import quotas have begot high prices, and high prices have begot more domestic production.
Over the years, we have repeatedly called for larger import quotas and warned that the sugar program was in trouble. Changes were needed. These calls, and the calls of others, for modera-
tion in setting the quota went unheeded.
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Before the program was adopted, we were importing from five to
six million tons of sugar a year, mostly from the developing nations. Imports accounted for around 45 percent of our nation's sugar needs.
Today, we are importing little more than one million tons a year, and imports now account for around 10 percent of our needs.
And herein lies the current problem.
Historically, the Department supported the price of raw and refined sugar by controlling imports. It can no longer do so. Imports are too small because domestic growers have overproduced. The tail cannot wag the dog.
Since it was adopted in 1981, the Government's sugar subsidy program has changed the structure of the sugar market (1) by pricing sugar out of the sweetener market, and (2) by encouraging more domestic production at the expense of imports.
As a result, today the sugar program is inneffective. The price of refined sugar is depressed. The Department has lost control of the situation, and it is largely of its own doing. It can no longer support the price of sugar, and as a result has to expose the taxpayer to considerable cost by acquiring unneeded sugar.
As mentioned earlier, the Department has totally ignored repeated warnings by refiners and others. Despite our pleas, it continued to set exceptionally tight import quotas which arti-ficially forced up the price of raw sugar, and stimulated more domestic production.
In the 1996 farm bill, the Congress adopted three changes in the sugar program that should have helped alleviate the current mess, had the Department not chosen to ignore them.
The so-called "no-cost" provisions were dropped and a one-cent forfeiture penalty was adopted. These changes would have permitted larger import quotas. The Department, at the urging of the producers chose to ignore them. It continued its policy of tight quotas that resulted in higher than necessary prices, which encouraged still more domestic production.
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The farm bill also attempted to restore balance by denying
nonrecourse loans, if imports continued to slip. A 1.5 million ton trigger was adopted. However, the Department, in its wisdom, decided to ignore this provision last year by providing non-recourse loans, even though everyone in the sugar trade knew that import needs would be well under the 1.5 million ton trigger.
The Department also failed to consider our trade obligations under the WTO and under the NAFTA that require minimum foreign access to our market.
So, the Department has done nothing to try to temper un-bridled domestic production. In administering the program, the Department has failed to balance the interest of all Americans, including consumers, food manufacturers, and refiners.
The Department has also failed to make timely quota announce-ments.
So, things are a mess. The question now is how to respond
to that mess. The Department has already purchased 132,000 tons of refined sugar, and will probably purchase more. It is, we understand, also considering a payment-in-kind program.
Whatever it does, the Department should not further aggravate the situation by taking those who expanded plantings off the hook. The burden for correcting the situation should fall on them. A message must be sent to the beet and cane producers.
We have the following recommendations:
First, the Department should announce and allocate the tariff rate quota well before the beginning of this coming marketing
year. The six-week delay last year created all sorts of costly problems for refiners and others in the sugar trade that should
not be repeated.
Second, if the quota allocated is less than 1.5 million tons,
the loans must be recourse. If the quota announced is greater
than 1.5 million tons, the 1.5 million tons should actually be available for import.
Third, if the Department is compelled to buy additional sug-
ar, it should purchase refined sugar and not raw sugar, as low refined sugar prices are driving the low raw sugar prices.
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Purchasing additional raw sugar will not result in any increase in refined sugar prices. And it would encourage more overproduction, and thus not act to avert refined beet sugar forfeitures.
Fourth, require that any increase in the quota for Mexico be imported as raw sugar for further refining so as to avoid any further loss in refining capacity. Cane sugar refiners should not be further disadvantaged.
And fifth, whatever short-term steps the Department takes to alleviate the current situation should be designed to facilitate a long-term solution to the problem.
Thank you.
U. S. CANE SUGAR REFINERS' ASSOCIATION
List of Member Companies
California & Hawaiian Sugar Company
2300 Contra Costa Boulevard
Pleasant Hill, CA 94523
Imperial Sugar Company
P.O. Box 9
Sugar Land, TX 77487
Tate & Lyle North American Sugars Inc.
Domino Sugar Refinery
1100 Key Highway East
Baltimore, MD 21230
7/24/00