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Congressional Testimony
July 19, 2001, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2059 words
COMMITTEE:
HOUSE AGRICULTURE
HEADLINE: 2002
FARM BILL TESTIMONY-BY: MR. GREG
MCCORMACK, PRESIDENT, BOB'S CANDIES, INC. ON BEHALF OF THE
AFFILIATION: COALITION FOR SUGAR REFORM, ALBANY,
GEORGIA
BODY: July 19, 2001
STATEMENT OF
MR. GREG McCORMACK, PRESIDENT, BOB'S CANDIES, INC. ON BEHALF OF THE
COALITION FOR SUGAR REFORM, ALBANY, GEORGIA
House Committee on
Agriculture
Mr. Chairman, my name is Greg McCormack. I am president and
chairman of the board of Bobs Candies, Inc., in Albany, Georgia, and the third
generation of my family involved in this business.
Today I am testifying
on behalf of the Coalition for Sugar Reform. This coalition includes trade
associations that represent food companies, grocery manufacturers and others who
use sugar, as well as the companies that refine cane sugar. The coalition's
members also include taxpayer advocacy groups, consumer organizations and
environmental groups. I would like to explain why our coalition is opposed to
the sugar program - not to sugar producers, but to the sugar program. I make
this distinction because the sugar program is not only harming the interests of
our coalition, but it is not serving growers well either. I do not claim that
growers would solve these problems they same way we would. Indeed, I will
explain why we must strongly oppose some of their suggestions. Nevertheless,
sometimes common problems create common opportunities for cooperation.
The sugar program is not like most other farm programs. It does not have
to be so different, but it is. Instead of direct, transparent assistance to
farmers, the sugar program distorts prices through import quotas and a price
guarantee that is twice world levels.
When Congress wrote the last
farm bill, advocates of the sugar program argued that the
program was run at no net cost to taxpayers. They argued that it worked, and
that it benefited producers.
The committee needs to understand that much
has changed since 1996. Domestic production rose almost 25% in the subsequent
three years and will still be 15% higher than 1996 this year despite lower
prices. By contrast, imports have fallen 40%. Imports are not the problem. The
problem is that our high sugar price supports have led to a surplus of sugar.
Unlike 1996, the sugar market is not balanced, it is unbalanced. In
1996, the government owned no sugar. By contrast, the government acquired over 1
million tons of sugar last year. USDA entered the market during the spring to
purchase sugar in the hope of shoring up prices - a hope that turned out to be
vain. Then USDA acquired much more surplus sugar through forfeitures under the
price support program. The federal government is spending over $1 million a
month to store this sugar.
At the same time it was acquiring sugar, USDA
paid growers - using some of the same sugar - to plow under their crops. More
recently, USDA has said it will use up to 100,000 tons of taxpayer-owned sugar
to subsidize ethanol plants. This sugar will be sold at a fraction of the price
USDA could receive if it simply sold the same sugar into the open market, as it
is allowed to do by law.
None of this had happened in 1996. Not only had
there been no recent large-scale forfeitures of sugar, there was no great
likelihood of forfeitures in the future. Again, the situation is different
today. Not only have there been forfeitures, there may well be more - fewer this
year than last, perhaps, but still at a substantial cost to taxpayers. Reported
prices for refined beet sugar are less than forfeiture-equivalent levels today,
so later in the year it is quite possible that taxpayers will again be given the
gift of sugar they do not want to own.
That will come at a cost, and
this is another way the world has changed. In 1996, the sugar program did not
result in a net outlay of taxpayer dollars, at least directly (although it did
and does make federal nutrition programs more costly and less effective). But in
2000, taxpayers spent $465 million to buy sugar. Both CBO and USDA project
levels of surplus that will lead to additional taxpayer costs down the road.
USDA's long-term baseline projects sugar stocks rising to as much as three times
normal levels, with taxpayers owning the biggest part of the surplus.
Finally, the sugar program's effect on employment today is more evident
than was the case in 1996. The problems of the cane refining industry are stark.
Of the refineries that were operating when the current program began in the
early 1980s, about half have closed, taking over 3,000 good manufacturing jobs
with them. The refining industry has been devastated in the past year by the
collapse of refining margins, so that the largest refiner is now in bankruptcy.
Recently, Chicago's candy industry has been threatened by plant closings
that are the direct result, among other factors, of the spread between U.S. and
world sugar prices. American candy manufacturers must pay double what their
competitors pay for sugar. Increasingly, they find it difficult to remain
competitive in this kind of environment. They are being subjected to what is, in
effect, a tax from which their competitors are exempt.
Mayor Richard
Daley of Chicago has spoken eloquently about this problem. He has been joined by
both the business and labor communities in Chicago. Prominent Chicago-area
members of Congress such as Danny Davis and Bobby Rush have likewise denounced
the sugar program.
As long as the sugar program distorts trade, problems
like these will grow. It may be Chicago today, but it will be other cities and
communities tomorrow. Indeed, my own company has experienced these problems.
These are only some of the ways in which 2001 is different from 1996.
But it is extremely important that the committee recognize these differences.
Even if you thought the current sugar program was workable in 1996 - and of
course, we did not - you should come to a different conclusion today.
The processors and growers who support the current program have proposed
changes. We respect them and we respect their views. But we disagree with them
profoundly.
Their proposal is to increase the sugar price support both
directly and indirectly. The direct increase would be achieved through a
"rebalancing" of the sugar loan rate. The indirect increase would be achieved by
getting rid of the forfeiture penalty. This penalty, now assessed on processors
who forfeit sugar, operates to reduce government costs and to reduce - by one
cent per pound - the price at which a rational processor would forfeit sugar.
Abolishing it would have the opposite effect, and would be tantamount to raising
the support price by one cent.
Let's remember the problem: too much
domestic sugar production, up more than 15% under the current price support. How
can we imagine that the solution to that problem is a higher price support that
will induce still more production? Even after the past year of lower-than-normal
U.S. prices, harvested sugar cane acres for 2001 are forecast to rise 5%, or
24,000 acres. What do we think will happen if price supports are even higher?
The growers and processors propose marketing allotments as a solution.
But such a policy is no solution at all. Congress wisely repealed allotments in
1996, along with production controls for almost all other commodities. If
allotments achieved their stated purpose, they would make the problems of
Chicago candy workers even worse by widening the spread between U.S. and world
prices. As we move toward an open sweetener market with Mexico under the North
American Free Trade Agreement - an open market that will occur within the likely
lifetime of the
farm bill you are writing now - marketing
allotments will simply lock U.S. producers into a declining share of their own
market. That is not a wise decision for Congress to make.
I have dwelled
on those factors that have changed since 1996. They do not exhaust the list of
problems with today's sugar program. Consider only a few others:
The
sugar program hurts the environment. In Florida alone, almost half a million
acres just south of Lake Okeechobee are used for sugarcane production. The 2
million tons of raw sugar produced there - one-quarter of all U.S. sugar
production - greatly contributed to the degradation of the Everglades. Congress
has begun a multi-billion-dollar, 20-year Everglades cleanup effort. But as long
as the sugar program encourages more sugar cane production in Florida, our
environmental efforts will be less effective than they could be.
The
sugar program raises consumer and user costs. We can argue endlessly about
consumer prices, but the fact is that objective studies of the sugar program
show that it costs consumers and users from hundreds of millions to almost $2
billion each year. The General Accounting Office and the International Trade
Commission are not on the payroll of sugar users.
The sugar program
frustrates our international trade policies. The clearest example is the ongoing
harm to corn refiners and producers from the sweetener disputes with Mexico. Our
negotiators' desire to placate the domestic sugar industry has frustrated their
efforts to get better access for HFCS into the Mexican market. The sugar program
has been cited by our hemispheric trade partners, particularly Brazil, as an
obstacle to the Free Trade Area of the Americas. And the sugar program
complicates our negotiators' job of expanding market access and ending
non-tariff trade barriers in the WTO for U.S. export commodities like beef,
pork, corn, wheat and soybeans.
This
farm bill should
reform the sugar program. It should not tinker around the edges but make genuine
change.
Reform can take a variety of forms. We believe certain
principles should govern our sugar policies. We also believe these principles
should be used to evaluate any legislation considered by the committee. All the
principles have one overriding theme: We should give greater sway to market
forces than current policy allows.
First, policies should allow the
market to operate in such a manner that supplies are adequate and balanced. This
means that shorting the market through production controls should be off the
table, and market signals should be transmitted to all producing regions so that
an imbalance of beet sugar relative to cane sugar can be avoided. In turn,
market balance will allow a return to viability for the cane refining industry.
Second, our market needs to become more open to world supplies. In
recent years, as I have already pointed out, we have gone in the other
direction, cutting imports by 40%. Reversing this trend is vital to
accommodating our present and future trade obligations, and to encouraging
expanded market access worldwide for our competitive export commodities, whether
pork, soybeans, corn or beef.
Third, our policies should not provide
incentives for overproduction. The current support system has clearly encouraged
more domestic production than the market needed. We must change that. The
operation and role of the support price, the loan program, the tariff rate quota
and the forfeiture penalty all need to be analyzed in this context.
Fourth, market prices must be better able to fluctuate with supply and
demand. Too often in recent years, price movements have been the result of
abrupt and arbitrary government policy changes, excess supplies induced by
government programs, the abrupt removal of those supplies from market channels,
and similar factors. Whatever policies Congress may choose to address the
difficulties of some producers, those policies should permit the price mechanism
to operate with greater market-responsiveness than is the case today.
We
strongly support H.R. 2081, which 53 bipartisan Members of Congress have
introduced, as a genuine reform of sugar policy. That bill does not exhaust the
possibilities for crafting genuine reform, which could take a variety of shapes,
but the legislation has garnered the support of Members from a range of regions
and ideologies and has the backing of our coalition. Whatever decisions this
committee ultimately makes, I ask you to remember three things. First, things
have changed since 1996, and not for the better. Second, the current sugar
program is no longer helping the people it is designed to help and it is hurting
many other people from all walks of life. Third, real reform must bring more
market orientation to this outdated, counterproductive, unsustainable program.
Thank you, Mr. Chairman.
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July 23, 2001