USDA sells sugar to biofuel producer for $2.7M loss

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, September 4, 2013

The U.S. government purchased $3.6 million worth of sugar and sold it to a bioenergy company for a steep loss last month under a federal sugar-to-ethanol program.

The Agriculture Department’s Commodity Credit Corp. purchased the 7,118 short tons of refined beet sugar in late August in its first bidding opportunity under the Feedstock Flexibility Program, a 2008 initiative meant to boost the sugar industry in periods of low prices. The corporation Friday announced the sale of the sugar to Colorado-based Front Range Energy LLC for $900,000.

The sale — the first under the Feedstock Flexibility Program — represented a loss of 75 percent, or $2.7 million, for the government.

In a statement, USDA said the interest from sugar producers in the program was “encouraging” but that bioenergy producers expressed concerns over transportation and volume of the available sugar feedstock.

“USDA expects greater participation in FFP as these concerns are addressed,” the department said.

Under the broader federal sugar program put in place under the 2008 farm bill, USDA’s Commodity Credit Corp. is required to maintain a domestic supply of sugar that keeps prices at or above specific levels. The program allows sugar processors to borrow from the CCC when the sugar harvest begins and requires them to pay it back in full or forfeit their sugar as collateral to the government.

The CCC is required by law to operate the sugar program at no cost to the federal government whenever possible. Falling sugar prices this year, though, mean sugar producers are in danger of loan forfeiture.

Through Feedstock Flexibility, the CCC may acquire sugar either through forfeitures of sugar loans or through actual purchases of sugar and then sell it to ethanol producers until prices are brought back to target levels.

In rolling out the program in late July, USDA said that “atypical market conditions have necessitated” several actions to manage the sugar supply. The domestic sugar price has fallen more than 10 percent in the last six months; U.S. sugar producers blame the fall in domestic prices on highly subsidized sugar coming into the country from Mexico.

In a statement Friday, USDA said the sugar purchased through Feedstock Flexibility would prevent forfeitures of loan collateral and that it was still evaluating options to avoid forfeitures in the month of September.

The department said, though, that it did not expect to purchase sugar under the program in fiscal 2014 because market forecasts suggest that the year’s sugar surplus will be less than in fiscal 2013.

“USDA will closely monitor stocks, consumption, imports and all sugar market and program variables on an ongoing basis,” the department said. “USDA will continue to administer the sugar program as transparently as possible using the latest available data.”

In a May report, the Congressional Budget Office projected that using the program for sugar would cost $51 million this fiscal year and nearly $240 million over the next 10 years.

The American Sugar Alliance, a coalition of sugar producers, has applauded its use.

“The FFP will save money relative to the cost to the government from the sugar loan forfeitures that would otherwise result from the flood of subsidized Mexican sugar this year,” the alliance said.

In recent months, though, the program has been swept up in a political battle over the broader array of sugar supports, which critics say have kept domestic sugar prices at an artificially high level — on average, 68 percent higher than they were under the 2002 farm bill. Industries that use sugar, including beverage companies and candy makers, oppose both the broader sugar support program and Feedstock Flexibility.

The Coalition for Sugar Reform, a group of confectioners, bakers, cereal manufacturers, beverage makers and dairy companies, blasted the $3.6 million sugar purchase by the government as a waste of taxpayer dollars and called it “yet another signal of need of sugar reform this year.”

“The meager results of today’s Feedstock Flexibility purchases strongly suggest that Congress was wrong in assuming that the ethanol industry would provide a safety valve for our failed sugar policies,” Larry Graham, president of the National Confectioners Association and chairman of the reform coalition, said Friday. “By distorting markets, congressional sugar policy created the current surplus, but the sugar-for-ethanol sleight of hand mandated by Congress doesn’t appear capable of curing the surplus.”