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Free-trade frontier: U.S. sugar policy
By David Barboza, The New York Times
May 7, 2001
 
SUGAR LAND, Texas For anyone who thinks of the United States as a free-trade nation, the 10-story brick sugar refinery on Highway 90A on the outskirts of Houston is startling.

The plant can produce 500,000 tons of sugar a year, enough to sweeten about 90 billion doughnuts. But while America has a sweet tooth, it does not need all that sugar. Indeed, America is swimming in sugar, largely because the sugar business is one of the economy's most protectionist niches.

Sugar programs that protect growers from foreign competition cost U.S. consumers almost $2 billion a year in higher prices for everything from candy bars to cold cereal, according to government studies. Artificially high prices have led to overproduction, leaving taxpayers the owners of 1 million tons of sugar that they pay $1.4 million a month just to store, some of it in Sugar Land.

Yet this year the owner of the plant here - Imperial Sugar Co., the biggest U.S. sugar refiner - filed for Chapter 11 bankruptcy-law protection because it had lost so much money turning relatively high-priced raw sugar into refined sugar, which it sells into a depressed, glutted market.

Now refiners are demanding an overhaul of the sugar program. Consumer groups want it abolished. And even its backers and beneficiaries - big growers that are major donors to both political parties - are dissatisfied. They want more protection, complaining that trade initiatives such as the North American Free Trade Agreement threaten to undermine the industry and further depress the price of sugar.

Congress is hearing testimony on these matters as it takes up a new farm bill, debate on which is expected to continue into next year. The conventional wisdom is that Washington - for all its talk of free trade - is unlikely to scrap a program that has bipartisan support any more than it has been prone to eliminate supports for other farmers.

But some lawmakers say that sugar policy is ripe for revision.

"Events of the past year indicate that the sugar program is becoming increasingly unmanageable and that radical reforms are needed urgently," said Richard Lugar, chairman of the Senate Agriculture Committee and a longtime opponent of the program.

At the heart of the debate is a sugar policy that since the New Deal has held that domestic growers ought to be shielded from the vagaries of the commodity markets. The current program, put in place in 1981, promised that kind of stability by limiting imports and making loans to growers.

But production has exploded in recent years, helped by new technology and favorable weather. Government policies and price supports, on balance, also encouraged farmers to abandon even more seriously depressed crops in favor of sugar beets and cane.

Overproduction sent prices tumbling, and the lower prices hurt growers. But the hardest hit were cane refiners. At times, the prices they paid for raw sugar were higher than those at which they could sell refined sugar.

If nothing changes, industry officials fear a ferocious one-two punch: the possible loss of cane-refining capacity at home, which could hurt food producers, and a steady rise in imports, which could wipe out both domestic growers and refiners.

Free-market economists say that might be the most efficient outcome, but no industry disappears without a fight. The refiners are one of many interest groups that have stormed Capitol Hill, trying to influence the shape of sugar policy.

None are so powerful as the largest U.S. producer of raw sugar, Flo-Sun Corp. of Palm Beach, Florida, run by Jose Pepe Fanjul and Alfonso Fanjul, Cuban exiles who created a sugar empire in the Florida Everglades and are now big donors both to Republicans and Democrats.

Flo-Sun and other giant producers want to strengthen the program by putting new restrictions on domestic production of sugar beets and cane. They also want to limit the scope of any future trade deal that might lead to what they consider unfair competition.

Critics of the program - from food producers to refiners to consumer groups - would like the program discarded or significantly weakened. SUGAR LAND, Texas For anyone who thinks of the United States as a free-trade nation, the 10-story brick sugar refinery on Highway 90A on the outskirts of Houston is startling.

The plant can produce 500,000 tons of sugar a year, enough to sweeten about 90 billion doughnuts. But while America has a sweet tooth, it does not need all that sugar. Indeed, America is swimming in sugar, largely because the sugar business is one of the economy's most protectionist niches.

Sugar programs that protect growers from foreign competition cost U.S. consumers almost $2 billion a year in higher prices for everything from candy bars to cold cereal, according to government studies. Artificially high prices have led to overproduction, leaving taxpayers the owners of 1 million tons of sugar that they pay $1.4 million a month just to store, some of it in Sugar Land.

Yet this year the owner of the plant here - Imperial Sugar Co., the biggest U.S. sugar refiner - filed for Chapter 11 bankruptcy-law protection because it had lost so much money turning relatively high-priced raw sugar into refined sugar, which it sells into a depressed, glutted market.

Now refiners are demanding an overhaul of the sugar program. Consumer groups want it abolished. And even its backers and beneficiaries - big growers that are major donors to both political parties - are dissatisfied. They want more protection, complaining that trade initiatives such as the North American Free Trade Agreement threaten to undermine the industry and further depress the price of sugar.

Congress is hearing testimony on these matters as it takes up a new farm bill, debate on which is expected to continue into next year. The conventional wisdom is that Washington - for all its talk of free trade - is unlikely to scrap a program that has bipartisan support any more than it has been prone to eliminate supports for other farmers.

But some lawmakers say that sugar policy is ripe for revision.

"Events of the past year indicate that the sugar program is becoming increasingly unmanageable and that radical reforms are needed urgently," said Richard Lugar, chairman of the Senate Agriculture Committee and a longtime opponent of the program.

At the heart of the debate is a sugar policy that since the New Deal has held that domestic growers ought to be shielded from the vagaries of the commodity markets. The current program, put in place in 1981, promised that kind of stability by limiting imports and making loans to growers.

But production has exploded in recent years, helped by new technology and favorable weather. Government policies and price supports, on balance, also encouraged farmers to abandon even more seriously depressed crops in favor of sugar beets and cane.

Overproduction sent prices tumbling, and the lower prices hurt growers. But the hardest hit were cane refiners. At times, the prices they paid for raw sugar were higher than those at which they could sell refined sugar.

If nothing changes, industry officials fear a ferocious one-two punch: the possible loss of cane-refining capacity at home, which could hurt food producers, and a steady rise in imports, which could wipe out both domestic growers and refiners.

Free-market economists say that might be the most efficient outcome, but no industry disappears without a fight. The refiners are one of many interest groups that have stormed Capitol Hill, trying to influence the shape of sugar policy.

None are so powerful as the largest U.S. producer of raw sugar, Flo-Sun Corp. of Palm Beach, Florida, run by Jose Pepe Fanjul and Alfonso Fanjul, Cuban exiles who created a sugar empire in the Florida Everglades and are now big donors both to Republicans and Democrats.

Flo-Sun and other giant producers want to strengthen the program by putting new restrictions on domestic production of sugar beets and cane. They also want to limit the scope of any future trade deal that might lead to what they consider unfair competition.

Critics of the program - from food producers to refiners to consumer groups - would like the program discarded or significantly weakened. SUGAR LAND, Texas For anyone who thinks of the United States as a free-trade nation, the 10-story brick sugar refinery on Highway 90A on the outskirts of Houston is startling.

The plant can produce 500,000 tons of sugar a year, enough to sweeten about 90 billion doughnuts. But while America has a sweet tooth, it does not need all that sugar. Indeed, America is swimming in sugar, largely because the sugar business is one of the economy's most protectionist niches.

Sugar programs that protect growers from foreign competition cost U.S. consumers almost $2 billion a year in higher prices for everything from candy bars to cold cereal, according to government studies. Artificially high prices have led to overproduction, leaving taxpayers the owners of 1 million tons of sugar that they pay $1.4 million a month just to store, some of it in Sugar Land.

Yet this year the owner of the plant here - Imperial Sugar Co., the biggest U.S. sugar refiner - filed for Chapter 11 bankruptcy-law protection because it had lost so much money turning relatively high-priced raw sugar into refined sugar, which it sells into a depressed, glutted market.

Now refiners are demanding an overhaul of the sugar program. Consumer groups want it abolished. And even its backers and beneficiaries - big growers that are major donors to both political parties - are dissatisfied. They want more protection, complaining that trade initiatives such as the North American Free Trade Agreement threaten to undermine the industry and further depress the price of sugar.

Congress is hearing testimony on these matters as it takes up a new farm bill, debate on which is expected to continue into next year. The conventional wisdom is that Washington - for all its talk of free trade - is unlikely to scrap a program that has bipartisan support any more than it has been prone to eliminate supports for other farmers.

But some lawmakers say that sugar policy is ripe for revision.