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NEW
YORK (Dow Jones)--Every year U.S. sugar producers have the option to
either sell sugar in the domestic market or default on loans and turn
collateralized sugar over to the U.S. Department of Agriculture and still
reap a profit.
But
that could change next year. Or that's what some market experts fear could
happen when the U.S. government reviews the current farm law that's
approaching expiration, and when legislators in Washington begin to look
at commodities policies later this month.
So,
participants heading to the International Sweetener Colloquium that starts
Monday in Orlando, Fla. will be discussing whether the government will
continue supporting the sector, and how farmers will approach the possible
changes to sugar legislation.
The
current farm law, the so-called Freedom to Farm bill enacted in 1996,
expires in 2002. Congress is expected to begin mulling a new law in March
or April.
"What
types of policy producers will pursue and what types of program the
government will adopt," will top the backroom talk at the Colloquium,
said David Juday, senior analyst at World Perspectives, a Washington-based
commodities analysis firm, who will attend the gathering.
Also
dominating private talks will be sugar import restrictions now in place
and an ongoing dispute with Mexico over sugar quotas, said Janet Nuzum,
vice president and general counsel at the International Dairy Foods
Association, the organizer of the event.
The
Colloquium, Feb. 11-14, will host a wide array of experts, including
milk-based food processors, sugar refiners, confectionary manufacturers,
ice cream makers and others. Invited guest speakers include legislators
and the new U.S. Secretary of Agriculture, Ann Veneman.
US
Production Rise Blamed On Current Subsidy System
U.S.
sugar cane and beet growers can receive non-recourse loans every year,
which they collateralize with their sugar crops.
The
loans are for a nine-month period, after which if the domestic sugar price
falls below production costs - including the interest expense on the
credit - the growers can default on the loans and turn in the sugar to the
USDA's Commodity Credit Corp. The CCC is now holding 800,000 tons of
sugar, most of which came from loan defaults.
"There's
no question that something must be done," said a U.S. sugar trader.
"Otherwise the unbridled expansion in sugar production will
continue," and will depress prices further. "A new Farm Bill
will have to make sure that some of the marginal, inefficient players
aren't encouraged to increase production."
The
current U.S. sugar policy also curbs imports through quotas, a measure
criticized by U.S. consumer advocates - including the Coalition for Sugar
Reform - and foreign producers.
But
many in the industry think the U.S. government is just doing what other
nations do for local industries.
"As
long as other governments protect their industries, the U.S. needs to
maintain some kind of intervention," said Jack Roney, economist for
the American Sugar Alliance, a lobbying group for U.S. sugar beet and cane
growers.
World
raw sugar prices are around 10 cents a pound, while domestic prices,
reflecting the quotas, are at about 21 cents. The price support loan
program was locked in at the 1995 level of 18 cents for cane sugar and
22.9 cents for beet sugar, which is normally refined.
The
presentations in Orlando will include a forward- looking seminar on how
the U.S. and Mexico will set sugar policies in 2008, when according to the
North American Free Trade Agreement, the two nations and Canada will
converge into a common market for sugar.
A
controversial two-version, side letter to Nafta has Mexican producers and
their U.S. counterparts arguing over how much sugar Mexico can send
north.
-By
Marvin Perez, Dow Jones Newswires;
201-938-2031;
marvin.perez@dowjones.com |