NEW YORK (Dow Jones)--U.S. government sugar policy needs reform because it keeps the domestic market oversupplied, prices way above world levels and hurts U.S. processors and users, the head of the U.S. Cane Sugar Refiners' Association told Dow Jones Newswires this week. 

Condemning the current policy as "a mess," and arguing that "the government has lost control of the situation," Nicholas Kominus said he'd like to see the program change so that sugar users can start importing the commodity at cheaper prices and maintain refineries in operation. 

"We're concerned that we've closed 12 refineries since this program started. We've lost about 40% of our capacity," said Kominus in an interview on the sidelines of the annual International Sweetener Colloquium held this week in Orlando, Fla. 

He said that if a crop is damaged by adverse weather, for example, the refiners can't go to the world market and buy the sugar they need because of the restriction on imports now in place. 

"Most users today don't carry inventories of refined sugar. They get what we call just-in-time deliveries from refiners and beet processors. We'd like to see the act change so that our refiners can import sugar." 

The Freedom to Farm law enacted in 1996 and the current price support program are blamed by many industry observers for encouraging inefficient growers to divert acreage to sugar production, for beets in particular, which in turn has kept the market oversupplied. That's meant low prices for domestic sugar, although they're still well above world levels. 

Domestic sugar is currently at about 21 cents a pound, while world prices are close to 10 cents. 

Government price supports are locked in at the 1995 level of 18 cents for cane sugar and 22.9 cents for beet, which is normally refined. 

The fall in domestic prices is the result of a 2-million-ton increase in production since 1996-97. 

The "price support is too high. A lot of food companies are going abroad where they can cheaper sugar...that only drives jobs out of the country...It's one thing to help the farmers, but this goes too far," said Kominus, who's been in the industry for 40 years. 

He said that before the program was implemented in 1981, the U.S. used to import 6 million metric tons of sugar, now imports are limited to around 1.5 million tons. 

Kominus also faulted a payment-in-kind program, in which the USDA pays growers to destroy their crops, removing sugar from the market and preventing prices from falling further. 

"It's absurd to have people plant in the spring and then pay them to plow up the crops later. What we're doing is producing sugar for the government," he said. "The government now has about 800,000 tons of sugar (mostly from loan forfeitures) and they don't have a clue about what to do with it." 

Protectionism Hasn't Stopped Cos. From Failing 

The government's protectionist policy hasn't stopped the domestic industry from arriving at a parlous state. 

Imperial Sugar, the largest sugar producer in the U.S., filed for bankruptcy protection last month. 

U.K.-based sweetener and starch producer Tate & Lyle PLC (U.TAT) recently reduced earnings estimates, citing energy costs and a margin squeeze in the U.S. Tate is also trying to sell its Domino sugar factory and is close to completing the sale of its Western Sugar Co. unit, both in the U.S. 

To bring domestic prices in line with world levels, Kominus said that lifting the Cuban trade embargo would help. But that's a long shot, he admitted, noting that Cubans don't want or expect to resume the amount of sugar exports the island sent to the U.S. before Fidel Castro seized power in 1959. 

"They'd like to bring about 100,000 or 150,000 tons," said Kominus, who last year led a U.S. delegation visit to Cuba. 

For their part, executives at the American Sugar Alliance, a lobbying group that represents growers of sugar beet and cane, argue that other lower-cost producing nations dump their sugar into the world market and keep prices artificially low. 

The ASA also contends that even though U.S. prices are at 22-year lows, consumers don't see the benefits because processors and refiners haven't lowered their prices at the grocery shop. 

-By Marvin Perez, Dow Jones Newswires; 

201-938-2031; marvin.perez@dowjones.com