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1 1 (February 22, 2017)

handle is hein.crs/govccvw0001 and id is 1 raw text is: ~~k\ %~cnc)'n~S$W~flas riE SE .$rCh &~ ~ ~ Updated February 22, 2017 Fundamental Elements of the U.S. Sugar Program The U.S. sugar program is singular among major farm commodity programs in that it combines a floor price guarantee with a supply management structure that encompasses both domestic production for human use and sugar imports. Historically, the U.S. sugar market has been managed to help stabilize supplies and support prices. The current sugar program provides a price guarantee to the processors of sugarcane and sugar beets and, by extension, to the producers of both crops. The 2014 farm bill (P.L. 113-79) reauthorized the sugar program that expired with the 2013 crop year through crop year 2018 with no changes. It directs the U.S. Department of Agriculture (USDA) to administer the program at no budgetary cost to the federal government by limiting the amount of sugar supplied for food use in the U.S. market (see CRS Report R43998, U.S. Sugar Program Fundamentals). To achieve the dual objectives of providing a price guarantee to producers while avoiding program costs, USDA uses four tools to keep domestic market prices above guaranteed levels. These are: * Price support loans are the basis for the price guarantee; * Marketing allotments limit the amount of sugar each processor can sell for domestic human use; * Import quotas control the quantity and source of imported sugar; and * A sugar-to-ethanol backstop (Feedstock Flexibility Program) removes sugar from food channels to help keep market prices above loan forfeiture levels. In addition, agreements with Mexico that were finalized in late 2014 impose important limits on a substantial and previously unrestricted supply of sugar to the U.S. market. K(ey Prograc k -kePrc~s oo L_;xr-;kn Nonrecourse loans taken out by a processor of a sugar crop, not producers themselves, provide a source of short-term, low-cost financing until a raw cane sugar mill or beet sugar refiner sells sugar. The nonrecourse feature means that processors-to meet their loan repayment obligation-can forfeit sugar offered as collateral to USDA to secure the loan, if the market price is below the effective support level when the loan comes due. The loan rate is the amount processors receive for placing sugar under loan. For 2016 crops (FY2017), the national average raw cane sugar loan rate is 18.75¢/lb; that of refined beet sugar is higher at 24.09¢/lb. The loan rate for raw cane sugar is lower because raw cane must be further processed to have the same value and characteristics as refined beet sugar for food use. The minimum market price that a processor requires to repay the loan instead of forfeiting sugar is higher than the loan rate. This effective support level, also called the loan forfeiture level, represents all of the costs that processors need to offset to make it economically viable to repay the loan. These costs equal the loan rate, plus interest accrued over the nine-month term of the loan, plus certain marketing costs. The effective support level for the 2016 crop of raw cane sugar is 20.87¢/lb and from 24.41¢ to 26.09¢/lb for refined beet sugar, depending on the region. If market prices are below these loan forfeiture levels when a price support loan comes due (i.e., usually July to September), and a processor hands over sugar pledged as collateral rather than repaying the loan, USDA records a budgetary expense (i.e., an outlay). USDA then gains title to the sugar and is responsible for disposing of it. To avoid such loan forfeitures and associated outlays, USDA sets annual limits on the quantity of domestically produced sugar that can be sold for human use. It also restricts the level of imports that may enter the U.S. market through tariff-rate quotas and annual limits on Mexican sugar. Figure I. U.S. Supply and Overall Allotment Quantity Source: Derived by CRS from USDA sugar program announcements and USDA's World Agricultural Supply and Demand Estimates. Key, Pk,- -,o.mn , ,,, a, , ,, t,,,, ,,, Sugar marketing allotments limit the amount of domestically produced sugar that processors can sell each year. They do not limit how much beet and cane farmers can produce, nor do they limit how much sugar beets and sugarcane that beet refiners and raw sugar cane mills can process. The farm bill requires USDA each year to set the overall allotment quantity (OAQ) at not less than 85% of estimated U.S. human consumption of sugar for food as illustrated in Figure 1. Sugar production in excess of a processors' allotment may only be sold for human use to allow another processor to meet its allocation or for export. The national OAQ is split between the beet and cane sectors and then allocated to processing companies based on previous sales and production capacity. 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