| Q: What is the Sugar Payment-in-Kind (PIK) Program?
A: The Sugar PIK Program offers sugar beet and sugarcane producers the
choice of diverting from production a portion of their crop in exchange
for sugar held in Commodity Credit Corporation (CCC) inventory.
Q: Why is USDA conducting a 2001 Sugar PIK Program?
A: The Sugar PIK Program will help reduce the large Government
inventory overhanging the market. Currently, CCC holds about 731,423 tons
of sugar (436,869 tons refined and 294,554 tons raw cane sugar) in 43
locations in 17 states at a cost of approximately $16.1 million annually.
PIK is not only a good inventory management policy, it will help raise
prices above forfeiture levels, deter additional forfeitures to CCC, and
reduce Government outlays.
Q: How did CCC obtain such a large sugar inventory?
A: As a result of depressed sugar parices last year, CCC acquired
1,024,491 tons of sugar in FY 2000 through USDAs sugar program. Sugar
beet and sugarcane processors forfeited 892,491 tons of nonrecourse loan
collateral, and CCC purchased 132,000 tons of sugar to reduce the cost of
FY 2000 forfeitures. Under the sugar program, sugar beet and sugarcane
processors have the option to forfeit their CCC loan collateral in lieu of
repayment of loan principal and interest.
Q: Why cant CCC just sell its inventory like private
distributors?
A: Because market prices are below forfeiture levels, CCC sale of sugar
to the domestic sugar market at this time would simply encourage a like
amount of additional FY 2001 sugar loan collateral forfeitures.
Q: Did last years PIK reduce CCCs sugar inventory?
A: Last years PIK used 277,677 tons of CCCs refined sugar
inventory. The 2000 PIK program also reduced potential FY 2001 forfeitures
by diverting 102,000 acres of sugar beets from harvest. The approximately
300,000 tons of beet sugar that would have been made from the diverted
acres would have put additional downward pressure on refined sugar prices.
Q: Why cant CCC find a beneficial use for its sugar inventory
instead of trading it for a crop in the ground?
A: The Department of Agriculture (USDA) has limited options for
disposing of surplus sugar, unlike other food commodities. USDA has
committed to sell up to 100,000 tons of refined sugar to ethanol
producers. However to date, only 9,098 tons of refined sugar have been
sold for ethanol. About 5,000 tons of CCC inventory will go for domestic
feeding programs administered by the Food and Nutrition Service to sweeten
cranberry juice cocktail. CCC has also offered processors storing CCC
sugar the option of receiving monthly storage payments-in-kind. Other
small amounts may be donated as opportunities arise. World Trade
Organizatin commitments prevent CCC from selling the sugar into the world
market.
If sugar prices increase sufficiently in 2002, CCC will sell its
remaining inventory on the domestic market. A PIK program increases the
likelihood that the burdensome surplus can be sold for unrestricted use on
the domestic market in 2002.
Q: How much CCC inventory will be used for the PIK Program?
A: The total diversion program will be limited to 200,000 tons of CCC
held sugar.
Q: How will the offers be selected?
A: The 2001 Sugar PIK Program will be conducted through a competitive
offer process whereby each eligible offer will be compared with all other
eligible offers after the end of the signup period. Each eligible offer
will be ranked on the basis of the per acre offered amount as a percentage
of the per acre bid cap. The lower the ranking percentage, the higher the
offer will be ranked. Accordingly, producers who do not offer less than
the bid cap are less likely to be accepted.
Q: Is USDA concerned that the US sugar market may be short of sugar
in FY 2002?
A: No. Current market demand and supply conditions for FY 2002 do not
indicate shortages. Should they develop, however, CCC will still hold
significant inventory to return to the market.
Q: In light of the recent court decision to no longer allow
Heartland to import "stuffed molasses" into the United States,
essentially taking 100,000 tons of sugar out of the US market, is a PIK
program still necessary?
A: Yes. The court decision will reduce sugar inflow somewhat, thus
reducing total availability. However, it will only have a moderate price
effect and is not enough to avoid further loan forfeitures. The court
decision reinforces the PIK effect and should help preclude more
forfeitures.
For More Information
Contact local Farm Service Agency offices or USDA Service Centers.
Information may also be obtained from the FSA web site at:
www.fsa.usda.gov
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