Search

This report address considerations in the 1995 farm bill debate for sugar, including market conditions, policy proposals, trade agreements, and the interactions between policy and markets for selected commodities. Current U.S. sugar price support programs have their origin in 1981 legislation. The price support program has resulted in significant expansion of the industry in the last decade. Beet sugar production has expanded in many regions, but has contracted in some western regions, particularly California. Cane sugar production has expanded in Florida, Louisiana, and Texas, but has shrunk in Hawaii where costs are high. National average costs of producing beet and cane sugar have been declining in the last decade, and returns have exceeded costs. Average production costs of refined beet sugar are below those of refined cane sugar. Overall sugar demand has been growing at about 2 percent a year since 1986, when the rapid replacement of sugar by high-fructose corn syrup ended. Sugar imports under quota have fallen to levels close to the minimum provided by law. Prospects are for sugar production and consumption to continue to rise. No major impacts on the industry are expected from the GATT Uruguay Round or NAFTA.

The trade flows in sugar and high-fructose corn sweetener (HFCS) among Mexico, Canada, and the United States consist mainly of U.S. exports of refined sugar to Mexico, US.-Canadian two-way trade in sugar and HFCS, and recent growth in U.S. HFCS exports to Mexico. The North American Free Trade Agreement (NAFTA) could increase these trade flows by reducing tariffs and allowing competitive advantage (for example, the United States in HFCS) to satisfy regional consumption habits.

Extensive government intervention in sugar markets significantly affects sugar production, consumption, and trade. Many countries provide support for sugar producers, placing the cost on consumers and/or taxpayers. A trade liberalization scenario is analyzed in which only the industrial market economies are assumed to liberalize their agriculture. The analysis shows that compared with actual 1986-88 levels, liberalized levels of sugar production in 1986-88 would have been lower in the industrial market economies, and higher in the less -developed countries. Liberalization would have led to an increase in the world sugar price of 10-30 percent from its 1975-89 longrun average level, and would have reduced world price variability while increasing domestic price variability in many industrial market economies. Sugar production in the United States would have been lower, and consumption slightly higher. World sugar trade patterns would have shifted dramatically, but overall trade volume would have increased only marginally. Sugar substitutes, primarily high fructose starch syrups, would have increased market share, mainly in a few industrial market economies.