USDA to buy more sugar for fuel production

Source: Amanda Peterka, E&E reporter • Posted: Friday, September 20, 2013

The Department of Agriculture is planning another purchase of excess sugar for resale to ethanol producers in a bid to boost falling domestic sugar prices.

USDA yesterday called for bids from sugar and bioenergy producers for the Feedstock Flexibility Program, a 2008 farm bill program that lets the government buy sugar to avoid loan forfeitures by sugar producers.

USDA says it’s been forced to use the program and other price supports under the broad federal sugar program because of “atypical market conditions.” The price of domestic sugar has been down by more than 8 percent since February and by more than 18 percent from a year ago, largely due to subsidized sugar from Mexico entering the marketplace, sugar producers say.

The USDA purchases anger big sugar users — beverage companies and candy manufacturers — which protested last month when the government paid $3.6 million for sugar it later sold to a bioenergy producer for $900,000, a 75 percent loss (Greenwire, Sept. 3).

“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 Coalition for Sugar Reform, said late last month.

USDA is required by law to operate the sugar program at no cost to taxpayers wherever possible. But sugar’s downward price spiral has left the government picking up the tab.

“The selling point of the sugar program was that it’s always been no net cost,” said Bob Stallman, president of the American Farm Bureau Federation. “We are entering an era now where the theory is you can take enough sugar off the market and turn it into ethanol and raise the price, but that starts creating costs when you do that.”

Last week, Agriculture Secretary Tom Vilsack acknowledged challenges with the first attempt at using the Feedstock Flexibility Program.

“I think we have to recognize that there’s a learning curve on the Feedstock Flexibility Program,” he told reporters at an ethanol industry conference. “Obviously the first effort in terms of overall numbers was disappointing. So hopefully we’ll do a better job next time we’ll trigger it.”

Biofuel producers are also expressing concerns over the volume of available sugar and problems with getting it to refineries.

“I think it is somewhat telling that there was only one ethanol company that successfully bid on that” last time, Bob Dinneen, president and CEO of the ethanol trade group Renewable Fuels Association, said in a recent conference call. “And I think it just points to the challenging logistics in getting the sugar, the limitations in using the sugar in an ethanol facility and the economics, so I don’t anticipate there being a great deal more.”

USDA is trying to improve the logistics by encouraging sugar producers to submit a joint offer with a bioenergy producer.

Vilsack said he believed that the sugar program has saved taxpayers a “significant amount of money.”

At issue for him are the overall sugar program and other things USDA is doing to stop loan forfeitures by sugar producers. A main feature of that program is a sugar exchange, in which the department purchases domestic sugar in exchange for credits, an effort to reduce sugar imports.

The Feedstock Flexibility Program, though, is carrying a price tag for taxpayers, $2.7 million for last month’s sugar purchase.

“But I don’t think we’re anywhere near out of the woods,” Vilsack said. “We still have a ways to go and we’re going to continue to look for ways in which we can reduce the cost of this program overall.”