White House ends review of controversial USDA sugar purchase proposal

Source: Amanda Peterka, E&E reporter • Posted: Monday, July 1, 2013

The White House yesterday finished its review of a Department of Agriculture plan for buying up excess sugar for resale to ethanol producers.

USDA has proposed to use the Feedstock Flexibility Program to boost domestic sugar prices, which have plunged more than 11 percent in the last six months. With the White House review finished, the department is likely to soon release a proposed rule to launch the program.

The department said it does not have a specific timeline for rolling out the proposed program. It is one of several actions USDA is considering under the federal sugar program to help out producers with the oversupply in the sugar market.

Created by the 2008 farm bill, the Feedstock Flexibility Program would allow USDA to buy sugar until prices reach targeted levels and then resell the sugar to U.S. ethanol producers. Ethanol plants could use sugar to produce advanced biofuels that qualify for credit under the renewable fuel standard.

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 overall federal sugar support program is controversial and is opposed by candy and beverage manufacturers, which maintain that it inflates the cost of one of their most important raw materials. Likewise, the Feedstock Flexibility Program proposal is also generating heat.

Food industry, fiscal conservative and business groups arrayed under the “Coalition for Sugar Reform” flag have been pushing Congress to pass legislation to torpedo the sugar program and repeal Feedstock Flexibility, citing its potential costs and market distortions.

The coalition argues that the sugar program has kept domestic sugar prices at an artificially high level — on average, 68 percent higher than under the 2002 farm bill — and spurred food and beverage manufacturers to move abroad.

“Changes to the sugar program in the 2008 farm bill made a bad program even worse and have destabilized the U.S. sugar market,” said Tom Earley, vice president of Agralytica and author of a coalition report detailing program costs. “Those changes are to blame for both the shortages and high prices we have experienced over the past four years, as well as the current surplus that could force USDA, and ultimately taxpayers, to spend up to $250 million to purchase excess sugar and sell it to fuel ethanol plants at a loss this year and next.”

But the Feedstock Flexibility Program and the broader sugar supports survived a crucial House vote in the farm bill process.

An amendment by Rep. Joe Pitts (R-Pa.) that would have set the program back to its pre-2008 levels and eliminated Feedstock Flexibility failed by a 206-211 vote.

A similar farm bill amendment sponsored by Sen. Jeanne Shaheen (D-N.H.) fell in May by a 45-54 vote in the Senate. Supporters, though, have introduced stand-alone legislation in both the House and the Senate.

The bill sponsored by Pitts currently has 91 bipartisan co-sponsors.

“The federal government will buy that excess sugar and sell it to ethanol producers at a loss. The taxpayer and the consumer is royally abused twice,” said bill co-sponsor Rep. Charlie Dent (R-Pa.), whose district includes the state’s chocolate-manufacturing hub, Hershey. “This is protectionism at its worst.”

Proponents of the sugar program argue that without it, the U.S. market will be flooded with cheaper, heavily subsidized sugar from Brazil and Mexico. They say confectioners and other sugar users are simply attempting to boost already high profit margins.

Feedstock Flexibility, the American Sugar Alliance maintains, would save taxpayers money because it would be cheaper than the loan forfeitures that would be caused by the low sugar prices.

“Simply put, foreign subsidies have gotten out of hand, and if we’re ever going to have a free market in sugar, we must do something about it,” American Sugar Alliance Chairman Ryan Weston said. “To unilaterally disarm America by gutting U.S. sugar policy without addressing these foreign subsidies, as some are advocating, does nothing to further a free market.”