The looming debate over the future of the U.S. government's domestic sugar price support program, and its direct effect on sugar price and availability, could have far-reaching implications for food processors who use sugar and, to a lesser degree, other sweeteners.

Domestic food processors, especially candy makers who still rely heavily on sugar, as well as sugar refiners and other varied interests, are pushing for a phase-out of the programor at the very least, substantial changes to it. They say it's forcing them to buy sugar at as much as four times the price of sugar sold on the world market, making it difficult for refiners to stay in business and for food makers to compete with lower-priced imported food products made with cheaper sugar.

At the same time, domestic sugar producers, though suffering from downward spiraling prices even with the program, are banding together to prevent a renewed assault on it. Without the existing program, and even tougher restrictions written into it on the amount of sugar brought into the United States, sugar growers say the domestic sugar industry is doomed to extinction. And such a scenario, they maintain, wouldn't end up pleasing either short-sighted refiners or food processors.

"The food processing industry, like any buyer of anything, wants supply, No. 1, products that meet their quality specifications and exact needs on a just-in-time basis, which our product does," says Luther Markwart, chairman of the American Sugar Alliance and executive vice president of the American Sugarbeet Growers Association, both based in Washington, D.C. "But they also want to buy as cheaply as they can, so the core debate is over what a fair price is. But we think processors need to figure out how to protect the domestic industry, one that has serious problems now because the monetary returns just aren't there for producers or refiners."

Those lining up against the sugar program, however, say sugar that far exceeds the going price for the commodity on the world market is too high a price to pay for ensuring the survival of an increasingly small domestic sugar industry. Sugar farmers, they say, should have to compete on a level world playing field, just as food processors and other industries increasingly must.

"We have a sugar price support program where imports are controlled to the point that the price of raw cane sugar we refine is 20 cents per pound, compared with a world price of around 9 cents," says Nick Kominus, president of the U.S. Cane Sugar Refiners Association, Washington, D.C. "Over the years these supports have helped to price sugar out of the U.S. sweetener market, led to more imports of sugar-containing products from manufacturers who can get their hands on more reasonably priced sugar, and forced the closure of a number of sugar refineries."

The refiners association is one of a number of interested groups that make up the Coalition for Sugar Reform. Formed in 1997, the group, which also counts the Grocery Manufacturers Association and the National Confectioners Association among its members, is backing legislative efforts that are now taking shape in the form of bills that would address reform of the sugar program in the 2002 Farm Bill. Hearings on a bill sponsored by Rep. Dan Miller to change the program are scheduled for this spring. Some predict that action could be taken on the politically charged issue this year, ahead of the off-year elections next year.

In the meantime, the existing program is being blamed for the woes facing the U.S. candy industry. One of the biggest users of sugar, hard candy makers in particular are making more noise about the impact of high sugar prices. Limited to how much world sugar they can buy, companies like Chicago-based Brach's Confections are making plans to close domestic plants and move operations to places like Mexico where they aren't hamstrung in their purchasing.

The National Confectioners Association, Washington, D.C., says the domestic market share of U.S. manufacturers of non-chocolate candies is steadily eroding. Non-chocolate candy imports for the year ended November 2000 were estimated to be 17 percent, up from 15 percent a year earlier and 10.7 percent in 1996. The sugar program and the raw sugar price disparity it breeds, says the association's Steve Lodge, is partly to blame.

"Stores that sell candy here are saying, 'Why should I pay so much more for domestically produced candy when I can buy it cheaper from overseas producers?'" says Lodge, vice president of legislative affairs. "So candy makers here are feeling the pinch, and some are having to relocate their facilities. We think candy imports are on a track to reach 40 percent in the future, so we'd like to see the sugar program phased out or made to be more market-oriented."

Sugar producers, however, counter that sugar prices haven't appeared to sap the candy industry's pricing power. While prices that the producer receives have continued to fall, the American Sugar Alliance says, candy prices are up almost 25 percent since 1990. In addition, the association says, other issues such as antiquated processing plants and cheaper labor are really driving domestic candy makers to relocate operations.

Processors of other food products, though not as heavily reliant on sugar as confectioners are, would still like to see a scenario where cheaper sugar was an option. The National Soft Drink Association says that even though its members have largely shifted away from sugar to high-fructose corn syrup because of cost pressures several years ago, it supports any effort that would give its members more latitude in the future.

"Our companies say they'd like to see a day where the playing field is such that on any given day a bottler would have the option of buying sugar or corn sweeteners," says the association's vice president of federal affairs, Drew Davis. "The more sweeteners out there competing, the better off you are and the more creative product development people can be."

One scenario under which sugar could conceivably become more important to soft drink makers is if high-fructose corn syrup prices were to rise and sugar prices were to fall. That could happen if Mexico, in return for gaining access to the U.S. sugar market via the North American Free Trade Agreement, agrees to allow more U.S. high-fructose corn syrup into its market.

"There could be a scenario where we'd go to sugar in the future if, say, duty-free sugar from both Mexico and Cuba eventually were to come into the United States," Davis says. "But it's likely that even if the sugar program was not renewed, we doubt sugar prices will fall to a level where they'll be competitive with high-fructose corn syrup."

Candy makers, meanwhile, say that unless they can find a way to substitute high-fructose corn syrup for sugara major challengetheir industry's fate will be linked tightly to the future price of sugar and, thus, the fate of the U.S. sugar program.

"If half of your raw materials are sugar and you're paying 30 to 50 percent more for it than world sugar, that's going to put you at a competitive disadvantage," says Gaylon Warrington, president and chief executive officer of American Candy Co., Selma, Ala. "We're trying to figure out how we're supposed to compete with those who can get sugar that cheap.