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Big Sugar Seeks Bailout, Gives Money to Get Way

WASHINGTON-Never have old hands at the Agriculture Department seen such a turnout: 11 U.S. senators trooping into Secretary Dan Glickman's office to lobby for a big sugar-industry bailout.

"When you have 11 senators showing up," says Florida sugar-company executive Robert Buker, "that's horse power" - enough power, he believes, to push an ambivalent Clinton administration into an unprecedented market intervention to bail out distressed U.S. sugar producers.

The producers are floundering beneath a market-depressing glut of sugar. Come October, they face another problem: a tenfold jump in Mexican sugar imports. The federal sugar-loan program, which has cosseted them for nearly two decades, is suddenly in danger of imploding.

So, to shore up the domestic market, sugar lobbyists are imploring administration officials to authorize a bold sugar-buying spree. Only by spending $100 million now to buy sugar and boost market prices, they contend, can the government hope to head off a much costlier wave of sugar-loan forfeitures later this summer, in the midst of an election campaign.

Fighting the sugar lobby at every turn is a well-financed alliance of consumer groups, candy makers, confectioners and other major users of sweeteners. Their vision of the sweet hereafter is a deregulated sugar industry, and they want the administration to let the market sink. Says Jeff Nedelman, spokesman for the Coalition for Sugar Reform: "The whole house of cards is starting to collapse."

The government has long managed to keep U.S. sugar prices far above the world price, largely by curtailing imports of lower-cost sugar. That benefits producers, obviously, though it also means consumers get stuck with a price-support tab-estimated at more than $1 billion a year-in the form of higher sugar, candy and soft drink prices.

But in recent months, due to rising sugar plantings and improving yields, prices have fallen below the guaranteed price-support levels of 18 cents a pound for raw cane sugar and 22.9 cents for refined beet sugar. Lately, prices are up a little in anticipation of a bailout. Under the loan program, sugar processors who put up sugar as collateral are entitled to forfeit their crop, keep the loan money and let the government eat the loss.

Processors are threatening to forfeit as much as 1.4 million tons of sugar valued at an estimated $550 million. The sugar lobby's pitch to Mr. Glickman and White House officials is that buying 300,000 to 350,000 tons immediately will give the market enough lift to avert massive forfeitures at the end of August and September. "Sugar prices are at a 20-year low," says Sen. Larry Craig, an Idaho Republican. "The potential for loan forfeitures ... is very real."

The senators visiting Mr. Glickman on March 26-all but one from major sugar producing states-told the agriculture secretary that "he needed to get on the stick," says Mr. Buker, senior vice president of United States Sugar Corp., the nation's largest processor. On April 6, a dozen sugar-state lawmakers met with White House Chief of Staff John Podesta. They and the industry fear costly forfeitures would be a public-relations debacle, sparking moves in Congress to scrap the shaky program.

Administration officials wouldn't be so hesitant about buying heaps of sugar if they knew what to do with it. One option is to sell excess sugar on the world market at cut-rate prices, but that would be just as controversial as Europe's oft-deplored dumping practices. Another is to donate it overseas as humanitarian aid, but so far no country has shown any interest in empty calories.

Limited amounts could possibly be used for school lunches and other feeding programs. The only other viable option is to use it as feedstock for ethanol plants, but it would have to be dirt-cheap to compete with corn, which sells for a nickel a pound.

Diverting sugar into ethanol, a fuel additive, would displace corn, costing farmers $100 million a year, the National Corn Growers Association argues. They shouldn't have to "shoulder the burden" of bailing out sugar producers, the association says.

Adding to the difficulty of a bailout is the opposition from politicians who represent more sugar consumers than producers. Splurging on sugar would be a "quick fix" of "dubious legality," 15 House members asserted in a bipartisan letter. It would bestow a "bonanza" on processors, without preventing forfeitures in the end, Senate Agriculture Committee Chairman Richard Lugar cautioned last week. The Indiana Republican also warned that "dumping" sugar overseas would infuriate trading partners.

Ultimately, though, such considerations may not offset the political leverage of Big Sugar, which gave Democrats and Republicans $7.2 million between 1995 and 1999, more than any other commodity group in Washington. The fact that the meeting with Mr. Glickman was attended by New Jersey Sen. Robert Torricelli, who hails from a state with no sugar growers but is chairman of the Democratic Senatorial Campaign Committee, highlights sugar's importance in an election year.

At least three sugar states-Michigan, Ohio and Florida-are seen as being in play in the presidential race. Earlier this year, Florida Crystals Inc., owned by the Cuban-born Fanjul family, gave Sen. Torricelli's committee $50,000. Last July, Alfonso Fanjul hosted a $25,000-a-couple dinner, attended by President Clinton, raising more than $1 million for the Florida Democratic Party. Mr. Fanjul is renowned for calling up the president to discuss sugar-related issues.

Particularly desperate are three big Hawaiian sugar-cane producers, Gay & Robinson Sugar Co., an Alexander & Baldwin Inc. subsidiary and Amfac/JMB-Hawaii Inc., whose first shipload of the season is due to reach the mainland next week. Unlike their counterparts, they are "price-takers," says their lobbyist, Dalton Yancey. Under an exclusive contract with a refinery on San Francisco Bay, they are obligated to base the price of arriving shiploads on the going New York price, no matter how far it falls below the guaranteed price-support level. The contract doesn't allow putting sugar under loan or forfeiting it.

Adding to the industry's problems is a looming surge of Mexican imports. In October, under terms of the North American Free Trade Agreement, Mexico will be free to ship 250,000 metric tons of low-duty sugar into the U.S.

Despite more than a 20% drop in prices since 1996, sugar production is still much more profitable than raising grain or cotton. The result is that the nation's 10,000 cane and beet growers are shifting more land into sugar. Their lobbyists portray them as suffering from agriculture's woes, including crop failures and lost markets, when in fact most fare better than non-sugar producers.

All told, the sugar problem threatens to haunt the White House and Vice President Al Gore's presidential bid. It could complicate the coming visit of Mexico's president to Washington, and could further hamstring U.S. efforts to open up overseas markets for meat, corn sweetener and other foodstuffs.

Ironically, the administration could have avoided the whole sticky mess. But Messrs. Glickman and Podesta, under intense industry pressure, went along with an administrative decision last fall to reinstate the guaranteed minimum price, even though under a 1996 change in the loan program it shouldn't have been offered to processors.

Now, the industry is arguing that "sugar is in crisis," in the words of Jack Roney, economist for the American Sugar Alliance.

-Jake Bleed contributed to this article.

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