The current countervailing duty suspension agreement between the United States and Mexico is “biased toward shorting the market,” said Greg Breunig, vice-president of operations, Clasen Quality Coatings, Inc., representing sugar users at the International Sweetener Symposium, sponsored by the American Sugar Alliance, a sugar producers’ group.
“Sugar program price supports don’t count,” Mr. Breunig said on Aug. 3. “Marketing allotments don’t really count. Import quotas don’t count for much. The Feedstock Flexibility Program doesn’t count.”
Instead, he said, U.S. sugar supplies are determined by the Dec. 19, 2014, suspension agreement with Mexico based on maintaining a minimum U.S. ending stocks-to-use ratio of 13.5%, which is “biased toward shorting the market.”
He noted that in the past, the U.S. Department of Agriculture sought to maintain a stocks-to-use ratio between 13.5% and 15.5% that averaged 15.1% between 2005-06 and 2014-15. A ratio of 13.5% and below (13.2% in 2009-10) has resulted in high prices and a volatile market in the past, he said.
The suspension agreement puts the U.S. Department of Commerce in charge rather than the U.S.D.A., Mr. Breunig said, ignores sugar user interests and threatens the survival of U.S. cane refiners. He suggested the U.S.D.A. still could operate the U.S. sugar policy “beyond the suspension agreement, but will they?” He said sugar users supported increased access for Australia to the U.S. sugar market under the Trans-Pacific Partnership, and a stocks-to-use ratio of 15.5% or higher maintained by the suspension agreement with more frequent tariff rate quota adjustments by the U.S.D.A. to increase U.S. sugar supplies to balance the program.
Mr. Breunig said sugar price was important for users, but it was the gap between domestic refined prices (currently near 35c a lb f.o.b. Midwest) and world refined prices (near 19c a lb) that put U.S. users at a disadvantage to users in other countries. The gap has widened since the anti-dumping and countervailing duty petitions were filed in March 2014, he said.
Jack Roney, director of economics and policy analysis for the American Sugar Alliance, said the world price actually was a “dump” price for excess sugar from other countries that resulted from subsidies in those countries, where domestic sugar prices actually were much higher, including many that were higher than U.S. sugar prices. He noted the average world retail sugar price was 71c a lb, the average price in developed countries was 76c a lb and the average in the United States was 59c a lb in 2014. The global average wholesale price was 31c a lb, the average in developed countries was 41c and the average in the United States was 37c in 2014.
Mr. Roney said the United States-Mexico suspension agreement will allow the U.S. sugar program to operate at zero cost to U.S. tax payers for the life of the farm bill. In addition, he said, U.S. sugar policy will provide reliable and safe sugar at retail prices among the lowest in the world for U.S. consumers, just-in-time delivery for U.S. manufacturers, jobs for the sugar industry and manufacturers, and will allow the U.S. sugar industry to survive, among other benefits.
Barbara Fecso, director, dairy and sweetener analysis for U.S.D.A.’s Farm Service Agency, said the U.S.D.A. was guided by a number of rules in addition to the new suspension agreement to administer the U.S. sugar program, which still was required under the farm bill to be run at no cost by avoiding forfeitures to the extent possible.
“I don’t see why we would ever have a program cost as long as the suspension agreement is in place,” Ms. Fecso said.
Supply management by the U.S.D.A., among other things, involved adjusting domestic market allocations and tariff rate quota increases at certain times to maintain “adequate supplies” of raw and refined sugar at “reasonable prices,” Ms. Fecso said. Various rules for supply may allow cane refiners to “feel more comfort,” but may not always result in increased supply, she said.
With the suspension agreement, shipping patterns (for sugar imports) must be monitored closely, she said.
“If Mexico has sugar available, but if the price is too high for U.S. buyers, is that a shortage?” Ms. Fecso asked. Price was an issue that hasn’t had time to be adequately tested under the suspension agreement, she said.
“The suspension agreement is only in place as long as both parties (the United States and Mexico) agree it is better than having duties applied,” Ms. Fecso said. “Or if the International Trade Commission determines that imports from Mexico did not damage the U.S. sugar industry. Or if someone violates the agreement.”