FARM BILL: Sugar Provisions

The "Farm Security and Rural Investment Act of 2002", which passed the House 280 to 141 and the Senate 64 to 35, is a major disappointment to sugar users because it not only continues the protection for domestic sugar growers but will also likely result in higher sugar prices.

Following is a detailed description of the sugar provisions in the recently-passed farm bill.

Extension of Sugar Program
The sugar program is extended through the 2007 sugar crops.

Loan Rate and Term
The sugar loan rate is 18 cents per pound of raw cane sugar and 22.9 cents per pound of refined beet sugar, unchanged from the Federal Agriculture Improvement and Reform Act (FAIR Act) of 1996. Loans mature after nine months or at the end of the fiscal year, whichever is sooner. Loans maturing at the end of the fiscal year may, in effect, be "rolled over" into the next fiscal year so that the total loan term is still nine months – a provision unchanged from the FAIR Act.

Loan Type and Processor Assurances
Only nonrecourse loans are authorized. The FAIR Act required recourse loans under some circumstances, but the provision never became effective and subsequent legislation removed the recourse provision. Processors receiving loans must provide assurances that they will pay growers at least the equivalent of the loan rate. A new provision bars the use of any prenotification requirement that would have the effect of foreclosing the option of forfeiture for a processor.

Loan Rate Adjustments
The Secretary has authority to reduce the loan rate, but only if other major countries have reduced sugar export and domestic subsidies below levels required under the Uruguay Round Agreement on Agriculture. A similar provision was included in the FAIR Act.

Forfeiture Penalty
The forfeiture penalty is repealed, effective immediately. The penalty under the FAIR Act was 1 cent per pound of raw cane sugar and an equivalent amount for refined beet sugar. This will have the effect of increasing sugar prices.

Marketing Assessment
The marketing assessment is repealed, effective October 2001. The assessment had previously been suspended for several consecutive years.

Loans for In-Process Sugar
Loans are required to be available for in-process sugars and syrups. The subsequently-derived raw cane or refined beet sugar may also be placed under loan, but the combined loan terms may not exceed nine months.

No-Cost Requirement; Payment in Kind
The Secretary is required to operate the sugar program at no cost to the federal government by avoiding forfeitures. To prevent forfeitures, the Secretary may accept bids for CCC-owned stocks in exchange for production cutbacks – a policy often called a "pre-PIK," a payment-in-kind that may be offered before planting.

Information Reporting
The Secretary may require reporting of information by sugarcane processors, cane sugar refiners, and sugar beet processors. A new provision also requires reporting by importers of sugars, syrups or molasses to be used for human consumption or extraction of sugar for human consumption (the reporting requirement does not apply to tariff rate quota [TRQ] imports).

Re-Export Program
Refined beet sugar may be substituted for raw cane sugar in re-export programs for sugar and sugar-containing products. The provision codifies a regulatory waiver provided earlier in the year by USDA.

Interest Rate
An existing 100-basis-point surcharge on CCC interest rates will not apply to sugar.

Storage Facility Loans
CCC is required to operate a sugar storage facility loan program, providing financing to construct or upgrade storage and handling facilities.

Marketing Allotments
Marketing allotments, in effect under 1990 farm legislation, are restored. The statutory provisions are similar to the 1990 law but with significant revisions. Notably, allotments are automatic for the 2002-2007 crops unless suspended. A suspension occurs if the Secretary projects an import level (excluding re-export and polyhydric-alcohol sugar) of 1.532 million short tons raw value or more, and finds that the imports would reduce the amount of allotments. (Both the House and Senate bills would have made allotments effective immediately, for the 2001 crop, but this provision was changed in the final statute.)

When allotments are in effect, no cane or beet sugar processor may market sugar in excess of its allocation. A forfeiture is considered the same as marketing. Company allocations are made under formulas prescribed in the statute, based on past marketings and other factors. The overall quantity of sugar allotted is divided under a strict percentage split between cane and beet sugar – 54.35% for beets and 45.65% for cane.

If the holder of an allocation cannot fill it (i.e., there is a "deficit"), the unfilled quantity is reallocated to other processors of the same type of sugar (beet or cane), then to sales of CCC stocks, then to an increase in the TRQ. There is no provision allowing the reallocation of a beet deficit to domestic cane processors or vice versa.

Reallocation of Import Quotas
After June 1 of each year, the U.S. Trade Representative must determine the amount of any shortfall in TRQ imports, and may reallocate unused quota to qualified supplying countries, generally the 40 countries who hold quotas.

June 2002