[Senate Hearing 109-625]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-625
 
   TO REVIEW THE IMPLEMENTATION OF THE SUGAR PROVISIONS OF THE FARM 
               SECURITY AND RURAL INVESTMENT ACT OF 2002

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                               __________

                              MAY 10, 2006

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

              Steven Meeks, Majority Legislative Director

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)

 
                            C O N T E N T S

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                                                                   Page

Hearing(s):

To Review the Implementation of the Sugar Provisions of the Farm 
  Security and Rural Investment Act of 2002......................    01

                              ----------                              

                         Wednesday May 10, 2006
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    01
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............    03
Baucus, Hon. Max, a U.S. Senator from Montana....................    02
Crapo, Hon. Michael, a U.S. Senator from Idaho...................    02
                              ----------                              

                               WITNESSES
                                Panel I

Penn, J.B. Dr., Under Secretary for Farm and Foreign Agriculture 
  Services, United States Department of Agriculture, Washington, 
  DC.............................................................    04

                                Panel II

Blamberg, Margaret Dr., Executive Director, American Cane Sugar 
  Refiners' Association, Brooklyn, New York......................    21
Goehring, Joe, Director of Commodity Operations, The Hershey 
  Company, Hershey, Pennsylvania.................................    24
Peiser, Robert A., President and CEO, Imperial Sugar Company, 
  Sugar Land, Texas..............................................    22
Roney, John C., Director of Economics & Policy Analysis, American 
  Sugar Alliance, Arlington, Virginia, Acompanied by: Wallace 
  Ellender, III, Chairman, National Legislative Committee, 
  American Sugar Cane Leage, Bourg, Louisiana, and Steve 
  Williams, Presedint, Red River Valley Sugarbeet Growers 
  Association President, American Sugarbeet Growers Association, 
  Fisher Minnesota...............................................    19
Roy, Mrinal, General Overseas Representative, Mauritius Sugar 
  Syndicate and Mauritius Chamber od Agriculture Grosvenor 
  Gardens House London, United Kingdom...........................    26
                              ----------                              

                                APPENDIX

Prepared Statements:
    Harkin, Hon. Tom.............................................    42
    Blamberg, Margaret, Dr.......................................    66
    Goehring, Joe................................................    76
    Penn, J.B. Dr................................................    43
    Peiser, Robert, A............................................    68
    Roney, John C................................................    52
    Roy, Mrinal..................................................    84
Document(s) Submitted for the Record:
    Roberts, Hon. Pat............................................    98
    Statement of the American Crystal Sugar Company, Moorhead,
      Minnesota..................................................    99
    Statement of the California Beet Growers Association, LTD....   102
    Statement of the Corn Refiners Association...................   104
    Statement of the International Sugar Policy Coordinating 
      Commission of the Dominican Republic.......................   106
    Statement of the Southern Minnesota Beet Sugar Coorporative..   113
    Statement of on the behalf of the Sugar Alliance of the 
      Philippines................................................   123
    Statement of the Imperial Sugar Company......................   125
Questions and Answers Submitted for the Record:
    Baucus, Hon. Max.............................................   130
    Stabenow, Hon. Pat...........................................   132



   TO REVIEW THE IMPLEMENTATION OF THE SUGAR PROVISIONS OF THE FARM 
               SECURITY AND RURAL INVESTMENT ACT OF 2002

                              ----------                              


                        WEDNESDAY, MAY 10, 2006

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                     Washington, DC
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Saxby Chambliss, 
chairman of the committee, presiding.
    Present or submitting a statement: Senators Chambliss, 
Lugar, Thomas, Coleman, Crapo, Harkin, Baucus, Dayton, and 
Salazar.

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    The Chairman. This hearing will come to order and good 
morning, everyone.
    We are here today to review the implementation of the sugar 
provisions of the Farm Security and Rural Investment Act of 
2002, or the 2002 farm bill. Last week, the committee heard 
from USDA and representatives of the peanut industry on the 
peanut program. Today we continue our series of oversight 
hearings with a look at the U.S. sugar program.
    The sugar program functions differently than all of the 
other commodity programs. Rather than receive direct government 
payments, domestic sugar producers and processors benefit from 
a combination of two methods which ensure a minimum price for 
their sugar. Marketing allotments are used to control domestic 
supply and import quotas are used to regulate the quantity of 
imported sugar entering the U.S. market. These two tools allow 
the Federal Government to control the domestic price of sugar, 
which allows the program to function without direct taxpayer 
support and at a no-cost basis for Federal Government outlays, 
a requirement mandated by the 2002 farm bill.
    Unfortunately, there are many challenges facing the sugar 
program today, including many issues related to trade. 
Different sectors of the sugar industry, from growers to 
refiners to users and import quota holders, may view the sugar 
program in different ways. These views are what we expect and 
hope to learn here today.
    We welcome all of our witnesses. We thank you all for 
appearing here today and we look forward to your testimony.
    I understand my colleague and friend, the ranking member, 
Senator Harkin, will be here for a little while this morning. 
We will obviously let him have the opportunity to make any 
comments he wishes to make.
    At this time, I will turn to Senator Crapo for any comments 
he wishes to make.

    STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman. I will be 
very brief. I appreciate the attention you are giving to these 
commodities and to the opportunities that we need to conduct 
the oversight necessary to prepare for the next farm bill. As 
you know very well, sugar is a very important issue to me and 
the importance of making sure that we get it right in the next 
farm bill can't be overstated.
    I am going to save most of my comments for the question and 
answer period because I want to talk with our witnesses about 
the thick juice that is now coming in which I think is a 
loophole in the system that is causing a problem with the 
implementation of the program and some of the other issues, but 
I will hold those comments and questions until we have an 
opportunity to get into it. Thank you, Mr. Chairman.
    The Chairman. Very good. Now, Senator Baucus, any comments 
you wish to make?

   STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA

    Senator Baucus. Yes. Thank you, Mr. Chairman. Just a brief 
statement, please.
    Thank you very much for holding the hearing. Obviously, 
sugar is important not only to the country, but to a lot of our 
States, including the State of Montana. I might say that the 
sugar beet industry in Montana supports more than 3,200 jobs. 
It generates more than $188 million of economic activity. More 
than 350 Montana farmers produce 53,000 acres of sugar beets, 
processed at facilities in Billings and Sydney, Montana.
    To further break those numbers down, for every dollar spent 
by the sugar beet industry in Montana, $1.85 in additional 
business activity is generated. Each acre of sugar beets 
planted generates about $4,000 in total business activity. In 
other words, each ton of sugar beets processed generates about 
$211--it must be a lot more than--for each ton, $211 in total 
business activity.
    As we begin to discuss the next farm bill and specifically 
the sugar program, we must think about our producers' 
competitiveness over the next decades. It is our 
responsibility, indeed our obligation, to ensure that the farm 
bill provides the tools and support necessary for our producers 
to compete globally. U.S. agriculture tariffs currently average 
12 percent. For the E.U., Japan, Korea, and India, 
respectively, it is 31 percent for the E.U., 51 percent in 
Japan, 66 percent in Korea, 114 percent for India.
    On domestic supports, current WTO rules allow the E.U. to 
offer more than four times as much as the U.S., almost $80 
billion versus about $20 billion in the U.S. Our producers can 
compete with anyone on a level playing field. It is our duty to 
try to make the playing field level.
    I would also like to take a minute to read an excerpt from 
the Prairie Star. That is a Montana agriculture newspaper. It 
is a snapshot that reminds us that these sugar producers that 
we talk about in the abstract are not just statistics. They are 
real people. ``While Greg Lackman started his farming career 
raising sugar beets, he began to diversify his operation. 
Today, he farms sugar beets, malt barley, and wheat in Denton. 
Greg isn't the only sugar beet grower in his family. His two 
brothers, Scott and Steven, also grow beets. Scott also grows 
corn and grains in addition to sugar beets in the Hysham area, 
while Steve grows beets and grain while raising registered 
Limousin cattle near Hathaway.''
    ``Lackman talks to his brothers almost every day and he 
shares equipment with Scott. They work together, even though 
they have separate operations. Greg's wife, Lorraine, teaches 
kindergarten at the local school and helps take care of their 
children, Tina, who is 16, and David and Shane, 13. The 
Lackmans exemplify the disciplined yet versatile nature of 
sugar beet growers in Montana. They represent the faces and the 
future of agriculture, the producer, his family, and his work. 
Montana producers are hard working, the salt of the earth. They 
are the glue in their communities.''
    So I look very much forward, Mr. Chairman, to working with 
our producers in Montana as well as my colleagues, with you, 
Mr. Chairman, and the rest of the Senate to craft the next farm 
bill that ensures the Lackmans' future and the future of other 
growers in our State. Thank you.
    The Chairman. Thank you very much, Senator Baucus.
    Senator Lugar, any opening comments you wish to make?
    Senator Lugar. Mr. Chairman, I thank you for scheduling the 
hearing. We enjoyed a hearing that was tremendously educational 
on peanuts last week and I look forward to learning much more 
today from the administration and private witnesses.
    I am very hopeful that there will be some discussion about 
sugar and ethanol and the use of sugar for energy. This is a 
new subject and one with which many people may be uncomfortable 
at this point, but it is one in which it appears to me that the 
sugar industry has a role to play that could be substantial and 
could have a different constituency altogether from that which 
at least normally comes around this table.
    I look forward to the witnesses and I thank you for 
scheduling this timely hearing.
    The Chairman. Thank you, and you are absolutely right. We 
are going to have some conversations about alternative fuels 
today and the impact sugar and sugar cane may have on that 
because it is going to be a critical part of the farm bill next 
year.
    Senator Harkin?

     STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA

    Senator Harkin. Thank you very much, Mr. Chairman. I want 
to thank you for having this very timely hearing. As we prepare 
for the next farm bill, it is important that we review the 
current farm programs, assess how they are being implemented, 
determine what is working well and what can be improved in the 
next farm bill.
    The 2002 farm bill continued the no-net cost sugar program 
with non-recourse marketing loans to support sugar prices. 
Again, to all observations, it seems that it has worked fairly 
well. The U.S. sugar program is one that has served our people 
well in the past. Even though we have some of the most 
efficient sugar producers in the world, you can't expect our 
producers to compete with other governments around the world in 
the way other governments have supported their sugar programs.
    We have a lot of challenges facing the sugar program in 
this country and our sugar producers, whether they are cane or 
beet producers. I just listened to the last part of Senator 
Baucus' comments. But it seems to me that, picking up on what 
Senator Lugar just said, that if we are going to be moving 
aggressively ahead--I shouldn't say if. I hope we are moving 
aggressively ahead toward more renewable energies and bio-based 
energy systems in this country. It seems to me that sugar could 
form one of the strong legs of that and it could either be cane 
or beet, either one, and we have got a lot of land in this 
country where beet sugar, for example, can be grown. It is not 
much applicable for other crops, but it certainly is for beet 
sugar. If that is a source for providing more ethanol 
production, then we ought to be thinking about it in those 
terms in terms of the next farm bill.
    With that, Mr. Chairman, again, I thank you for these 
timely hearings and look forward to the testimony of our 
witnesses.
    The Chairman. Thank you, Senator Harkin.
    We have on our first panel today our friend, Dr. J.B. Penn, 
Under Secretary for Farm and Foreign Agricultural Services from 
the U.S. Department of Agriculture.
    Dr. Penn, it is always a privilege to have you here. Thank 
you for the great work you do at USDA and we look forward to 
your comments this morning on the sugar program.

     STATEMENT OF J.B. PENN, UNDER SECRETARY FOR FARM AND 
    AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE, 
                        WASHINGTON, D.C.

    Dr. Penn. Thank you, Mr. Chairman. It is a real opportunity 
to be here with you and other members of the committee this 
morning to review our experiences with the sugar program that 
was included in the 2002 farm bill. We now have almost 5 years' 
experience in operating that program and I am very pleased to 
be able to provide our perspective on how well the program has 
worked over the last 5 years and also to offer some 
observations on the changing business environment in which the 
program will be operated in the future. I think that will have 
relevance as the Congress begins to consider appropriate 
policies for the next farm bill.
    Let me begin by noting that we have a very dynamic 
sweetener industry, one that is increasingly being driven by 
factors both outside the United States and inside our borders. 
Our market today requires about 10.5 million tons of sugar to 
be available across the year and our producers--we now have 
slightly less than 6,000 producers, about 5,000 beet producers 
and less than 1,000 cane producers--they provide something less 
than eight million tons of the 10.5 million tons that we need 
and the rest of the sugar then comes from foreign sources.
    We are among the five largest global producers and the only 
producer in the world to have significant beet and cane 
production both. In our sector, the production is roughly half 
and half.
    Now, as has been noted, the Congress has mandated minimum 
price for sugar in the domestic market and our objective in 
operating the program is to balance the supply against the 
demand as best we can and at the same time keep the price above 
the statutorily required minimum.
    We have a variety of tools to use in pursuing that, as the 
chairman noted earlier. Mainly, we have got in this program 
that is far less market oriented than the other programs, it is 
much more rigid, but we have the Price Support Loan Program, 
which contains the minimum price. We have domestic supply 
controls in the form of marketing allotments that are assigned 
to each processor. And we have foreign supply controls that 
regulate the amount of sugar that may enter from each supplying 
country.
    Now, these supply controls are used, in essence, to short 
the market, to obtain the desired price objective. And then, as 
Senator Harkin noted, there is one additional Congressional 
mandate and that is that this program be operated at no net 
budgetary cost. That is, we are directed to avoid forfeitures 
to the extent possible, forfeitures of the sugar that 
processors place under the Price Support Loan Program.
    Now, there are many other details, many other requirements, 
rules, and regulations that govern the program, but that is the 
general structure that we have to operate with.
    Let me just say a brief word about program operations since 
this program began in the 2002 farm bill. Some of the 
modifications that were made in the 2002 farm bill reflected 
the experience with the previous program, and that one had 
resulted in a substantial amount of forfeitures and it had 
incurred a very substantial cost, so the marketing allotments 
for domestic processors were introduced in this farm bill. And 
then for the period May 2002 when the farm bill was implemented 
until July of 2005, the domestic market was relatively 
tranquil. There were very few significant supply or demand 
disruptions. The market price stayed above the forfeiture level 
and the market was in relative balance. So we think for that 
period, the operation was fairly uneventful.
    But from early August 2005 until the current time, we have 
seen one of the most tumultuous periods in the history of sugar 
in this country, perhaps more so than in 30 years or more 
according to a lot of the industry veterans who tell me about 
this. The period of turmoil started when we had poor weather in 
the upper Midwest as the beet harvest began and one of the 
suppliers was unable to meet the commitments. This industry, 
unlike a lot of other industries, has come to operate with a 
just-in-time inventory system, and when there is any disruption 
of supply, no matter how small, it creates reverberations 
across the whole sector, and that certainly happened. This was 
in very early August of 2005. So the industry was in a period 
of some disruption.
    And then, as you know, on August 29, Hurricane Katrina 
struck and that not only damaged the cane crop in Louisiana, 
but it also closed two of the refineries that were operating 
there and one of those was closed for an extended period. So we 
had a reduction in the cane crop, but we also had a reduction 
in the amount of sugar that was being made immediately 
available to the market. So that created even more uncertainty 
and turmoil.
    And then as we were trying to deal with that, on September 
24, Hurricane Rita struck, and then on October 24, Hurricane 
Wilma then went across Florida and did damage to the cane crop 
there.
    At USDA, we immediately began responding, using the tools 
that we have available that I have described. We quickly 
expanded the marketing allotments to processors so that we 
could release all of the domestic sugar stocks that were 
available into the market and then we increased the quotas on 
imported sugar so that we allowed both refined sugar to be 
available immediately to the market and raw sugar to come in 
for further processing.
    So today, we are beyond the most turbulent period, but we 
continue to monitor the situation very closely. The market 
still is uneasy and somewhat unsettled, but we believe it is 
manageable through the remainder of this farm bill barring 
further highly disruptive events.
    Now, we have learned a lot of lessons from our operation 
through the past several months and we look forward to sharing 
the details of these with you. Some of the things that we have 
learned are that it would be helpful if we had the ability to 
reassign surplus allotments between the beet and cane sectors. 
That is not now available and creates an awkward situation at 
times. There is a prohibition against interstate selling of 
cane sugar to fulfill the allotments from cane producing State 
to State. The calculation of the OAQ is somewhat tortured and 
involves carrying stocks and we think that needs some 
attention. And then our classification standards for refined 
sugar, we believe, need some attention.
    So these are just some of the things that we would like to 
share with you and the staff as you begin to look more closely 
at the structure of this farm bill.
    Now, looking beyond the structure of the current program, 
we think there are some other things that the Congress should 
consider as it begins to look at what would be the most 
appropriate policy for the future. The business environment, 
the operating environment for sugar, for all of agriculture is 
changing very rapidly and those things need to be considered. 
Let me just quickly name a few and then I will stop.
    One of those is the changing industry structure, 
concentration of the industry. This has changed very rapidly in 
recent years. It continues to do this. So we now have a more 
highly concentrated, a more integrated, and a geographically 
changed industry, and that is going to have an impact on how 
any future sugar program would operate. So we think that needs 
to be taken into account.
    Also, we need to think beyond just the production part of 
this sector. The competitiveness of the sugar-containing 
products industry needs some attention. Senator Baucus 
mentioned the number of jobs that are in the growing and 
processing industry. There is a huge number, almost a million 
jobs that are associated with the sugar-containing product 
industry. That industry has been losing competitiveness over 
recent years. It has been moving plants outside the U.S. Jobs 
have been lost. And that is in large part, not in total, but in 
large part due to its facing higher raw material prices than do 
foreign competitors, so we think that is something that should 
be taken into account.
    And then the world market is changing. For a long time, we 
were able to isolate the domestic sugar industry completely 
from the world market and what happened outside our borders 
didn't much matter. That is no longer the case. We simply can't 
do that to that extent any longer. So the world market is 
changing and we need to account for that.
    Three big things are happening that are offering some long-
term trends. One is that the European Union is modifying its 
sugar program. The bottom line result is going to be that less 
sugar is going to be placed into the world market and world 
sugar prices are going to be trending higher as a result of 
that.
    Another, as Senator Lugar mentioned, is the changed energy 
situation now. We see a situation where there is a competition 
between renewable fuels and sugar for sugar cane and that is 
having a bullish impact on the price of sugar and that is one 
of the reasons that we have seen the world price of sugar move 
to 25-year highs in just recent months.
    Third, as has been mentioned here, is the Doha Development 
Agenda negotiations are, we hope, nearing a conclusion. If that 
round is successful, then there will be far-reaching reforms to 
national sugar industries all around the world and that should 
also have the effect of boosting world prices. So we will have 
a situation in which the world market price will be much less 
different than the domestic price, which has not been the case 
for years and years.
    And then, depending upon the success of the Doha 
development agenda, free trade agreements, bilateral free trade 
agreements are going to become more or less important. As has 
been noted also, with most of the future growth of agricultural 
markets occurring outside the United States, then the continued 
prosperity of our farm sector and our food processing sector 
will depend on gaining ever-increasing access to consumers in 
the growth markets around the world. So gaining opportunities 
for all of our farmers and ranchers is going to mean that we 
can no longer shield access to individual product markets, such 
as sugar. Our trading partners are going to want access to our 
market, especially as long as it is a premium market, if they 
are going to grant us access to their markets.
    And then finally and perhaps most importantly for the near 
term, Mr. Chairman, is NAFTA implementation. For a dozen years 
now, the duties on sugar and other agricultural commodities 
have been gradually coming down, and then on January 1, 2008, 
these go to zero, and that means that, in essence, there is no 
longer any border between the U.S. and Mexico for sugar and 
high-fructose corn syrup. This simply means that the current 
program structure can no longer be operated at no net cost 
after that time since the supply can no longer be sufficiently 
controlled to maintain the minimum price. So significant 
forfeiture would thus be expected to result and that would 
entail significant budgetary costs and it would violate the no 
net cost provision that is in the current program.
    So with that, Mr. Chairman, I will close. Again, thanks for 
the opportunity to appear here today. We look forward to 
working with this committee and with the Congress as the next 
farm bill is developed. Thank you.
    The Chairman. Thank you, Dr. Penn.
    [The prepared statement of Dr. Penn can be found n the 
appendix on page 43.]
    The Chairman. Let me start by going back to the process 
that you followed to increase imported sugar in order to make 
up for the domestic shortfall caused by the hurricanes last 
year. How do you allocate the amount of imported sugar needed 
to provide the amount of resources that we need and do our 
bilateral trade agreements that we have in place today, factor 
into your decision on who is allowed to import sugar?
    Dr. Penn. Well, the first thing that we do at the beginning 
of each fiscal year or marketing year is to determine the 
overall allotment quantity, the OAQ. That is determining the 
amount of sugar that is going to be required. As I indicated, 
that is roughly ten million tons. And then we say, OK, if that 
is the amount we are going to need, how are we going to get 
sugar, and we look at that that can be supplied by the domestic 
industry. That is about eight million tons, around it. So that 
means that there are two million tons of additional sugar that 
will be needed.
    Under our long-term trade commitments, we are obliged to 
import 1.25 million tons under the WTO and then under these 
bilateral free trade agreements, we have now committed to allow 
120,000 tons from the CAFTA-DR countries and 12,000 tons from 
Peru. There will be some additional amount in the Colombia Free 
Trade Agreement once that is concluded and announced.
    So then we look at how we are in terms of balance, and if 
that gets us the ten million tons that we need, then we move 
forward.
    Now, that is what we did for the beginning of 2005 and then 
we had the hurricanes. We had the disruption. Then at that 
point, the first thing that we do is to monitor the situation 
and see where there might be domestic sugar. Are the cane 
processors holding stocks that could be released into the 
market? Are the beet processors holding stocks? If they are, 
then we increase the overall allotment quantity by an amount 
sufficient to draw in the sugar that we need. Then we turn to 
the cane sector. They release their stocks into the market. You 
turn to the beet sector and they release stocks.
    Now, where we get an awkward situation and one I alluded to 
in my statement is that this year, we turned to the cane 
producers and they had no stocks. So instead of being able to 
say, OK, we will turn to the beet producers and let them make 
up for the stocks that the sugar processors don't have, the 
statute prohibits us from doing that. We have to reassign the 
shortfall from the cane sector first to the Commodity Credit 
Corporation, if it has no stocks, then to imports. So we are in 
the awkward position of allowing in imported sugar when our 
domestic growers still have sugar on hand. That is one of the 
things that we suggest that might be looked at in the future. 
But that is the process that we go through, Mr. Chairman.
    The Chairman. Do you expect any supply issues for this 
year?
    Dr. Penn. Well, we are looking at the situation at the 
moment and we are closely monitoring it. We are looking at all 
of the factors. We are watching demand, which has at times been 
unstable, and we are looking at the refining capacity in the 
United States. We are looking at whether that is being fully 
utilized or not. And then we are looking at the sugar that we 
have already permitted to come in. Is it entering as we 
expected? And as the world market changes, there is less 
incentive at times for people to supply sugar to us. Our market 
is not as attractive as it has been in times past.
    So we are watching all of those factors. At the moment, I 
can say that it appears that the market is pretty much in 
balance, but we continue to monitor it and we will through the 
remainder of this year. We are only 15 days away from the next 
hurricane season, too, I think.
    The Chairman. In the CAFTA negotiations, there was a 
provision included that required USDA to look at the 
utilization of sugar in the manufacturing of ethanol. I know 
that you and the Secretary, based upon that directive, have 
engaged LSU to do a study on this particular issue. Can you 
bring us up to date on where that is?
    Dr. Penn. I can. I just had a report on that this week. The 
economists who are doing the study have completed a draft and 
they submitted it to our Office of the Chief Economist for 
preliminary review, and so it has been reviewed and suggestions 
for some further work, some additional analysis, have been made 
to the authors and they are doing that now. We expect them to 
complete that so that we have it available by early summer.
    The Chairman. Without indicating what the result is, are 
you encouraged by what you saw in the preliminary draft?
    Dr. Penn. Well, it depends on one's point of view, I guess. 
I had a lot of discussions about that with you and Senator 
Coleman. The idea was to look at the feasibility of using sugar 
cane, sugar beets, and sugar in the production of ethanol, and 
again, without prejudging what the people are going to say, I 
believe that the preliminary results suggest that it is not 
economically nor technically feasible to manufacture ethanol 
from crystalline sugar but that it may well be feasible, as the 
Brazilians are proving on a large scale, to manufacture ethanol 
from sugar beets and sugar cane, from the fermentation of the 
juice from those two crops.
    The Chairman. Last, Dr. Penn, I think it is fair to say 
that the sugar sector is one of the more protected agriculture 
commodities around the world and that it is constantly giving 
fire to that both inside Congress as well as inside the WTO. As 
we move into the consideration of the sugar program in the next 
farm bill, can you give us an idea of what sort of distortions 
or potential problems exist relative to the current program so 
that we might apply WTO rules to that program?
    Dr. Penn. I think, in general, as you indicated, all of our 
farm programs have been subject to some considerable criticism 
by our trading partners, and, of course, one in particular, 
cotton, was the subject of litigation in the WTO. The general 
charge made is that by subsidizing the production of these 
individual commodities, we, therefore, cause more to be 
produced than would otherwise be produced and that we then put 
that into the world market and we depress world markets and 
cause damage to competitor, producer, and exporter countries.
    As you noted at the beginning, the sugar program operates a 
little differently. It does maintain a premium price. It does 
it in a little different way than for the other commodities. 
But I think some of the same criticisms are applicable there. 
By providing a premium price, we are encouraging the production 
of more sugar than would otherwise be produced inside the 
United States. Now, the difference with sugar is that we don't 
export sugar except some in sugar-containing products, but it 
is market access that causes the problem with respect to sugar, 
more so than for corn or some of the other row crops. So we 
have got our trading partners who are saying, again, if we are 
going to give you access to our corn and soybeans and chicken 
leg quarters, then we want access to your sugar market. We want 
to be able to compete there. So that is the big criticism, I 
think.
    The Chairman. Senator Harkin?
    Senator Harkin. Thank you very much, Mr. Chairman.
    It seems that basically what you are saying, Secretary 
Penn, is that the sugar program basically has worked well 
except we got hit with bad weather. We got hit with wetness up 
in the Red River Valley and then we got hit with the hurricanes 
and stuff that threw everything kind of out of whack. But you 
say right now it is in pretty good balance. Right now, it has 
been no net cost to the taxpayers, right?
    Dr. Penn. Given the objectives that the Congress set for 
the sugar program, I mean, then we have tried to operate it as 
specified in the statute, and you are right. We had all of 
these very atypical, unusual circumstances and we found that 
the program was cumbersome and difficult to manage in an 
atypical situation like that and I just gave one example a 
moment ago.
    In short, all of the stakeholders in the industry have to 
look to USDA to manage their businesses. I mean, they have to 
make their special needs known. They have to urge us to act in 
a certain way and that is cumbersome. It is difficult. It is 
costly for the industry. It is our belief that a more flexible 
program would probably operate better. It would supply the 
industry and serve the growers probably more effectively.
    Senator Harkin. I would like to see the concrete proposals 
of that as we move into the next farm bill, if you have got 
something that you would like to have us take a look at.
    Of course, we are going to be facing some new things with 
the next farm bill that we weren't facing with the last one and 
that is the January 1, 2008, curtain that is going to fall at 
that time. Now, again, could you address yourself a little bit 
to the problem that we have been having with Mexico. Three 
times, we have taken them to the WTO. Three times, the WTO has 
found in our favor on their barricades to our high-fructose 
corn syrup in Mexico. And now they have not only instituted a 
new kind of a tariff on imports.
    What is going to happen with this all on January the first 
of 2008? I mean, we are, what, a year and a half away from 
that. So what is going to happen with all of those tariffs and 
all those things with Mexico and how they have been treating us 
in terms of keeping high-fructose corn syrup out? What is going 
to happen at that time?
    Dr. Penn. Well, this is a pretty checkered past involving 
sugar and high-fructose corn syrup. As you know, when the U.S.-
Mexico agreement was reached, at the last minute, there was a 
side letter which addressed the sugar/high-fructose corn syrup 
situation. Well, it turned out in actuality there were two side 
letters. There weren't identical, one in English and one in 
Spanish. You know the story about the lawyers. I mean, that 
just provided an opportunity for a lot of disagreement as to 
what the agreement really was. So that has never, I think, 
performed as people have expected, so we have had a very 
difficult situation there and it, hopefully, will be resolved 
on January 1, 2008, when these side letters are no longer 
applicable. I mean, we again have no border.
    But you are right. The Mexicans placed a tax on high-
fructose corn syrup. We said that was illegal. We took them to 
the WTO. We won. They appealed and we won the appeal. They now 
tell us that they are going to remove the tax and they tell us 
they are going to do that on January 1, 2007. Under the WTO 
rules, we are obliged to give them a reasonable time to do 
that. So we are now looking to January 1, 2007, for that tax to 
be repealed.
    Senator Harkin. Again, no matter what we do, we always have 
to understand that our cane and beet farmers in America are 
still going to have--we are still going to have to take into 
account what other governments do and how other governments run 
their programs. You just can't say that, well, we are going to 
throw our farmers on the market and yet Country X or Country Y, 
their farmers are not on the market. It is a government system. 
It is a socialist type of an endeavor. So you have our farmers 
in an unfair market situation.
    So we are always going to have to take that into account. 
We are going to have to take that into account in the next farm 
bill, also. We just don't have the kind of sugar system in 
other parts of the world that we have in America. So if we are 
going to have a domestic production capacity of sugar, we are 
going to have to take that into account.
    That is why I need to explore with you, and this is not the 
place, but we will as we move ahead to the next farm bill, how 
we integrate both the need for sugar for our sugar-containing 
products in this country, how we provide for a good domestic 
supply where the sugar farmers are at least, I won't say 
guaranteed, but given the prospect of making a decent profit on 
their investments and labor, and at the same time provide for 
openings into the energy area for sugar.
    To me, this is kind of the twin things that we are going to 
have to look at in the next farm bill. I don't have the answers 
right now. I just know that, somehow, we are going to have to 
apply ourselves to that in the next farm bill because we are 
going to demand--I believe the energy sector is going to grow 
in this area, and at the same time, we are going to still need 
to have a base supply of sugar for sugar products in this 
country. Somehow, we are going to have to balance those two and 
I look forward to any thoughts, suggestions, and advice that 
you might have as we move into next year's farm bill. Thank 
you.
    Dr. Penn. I would be happy to work with you.
    The Chairman. Senator Crapo?
    Senator Crapo. Thank you very much, Mr. Chairman.
    Dr. Penn, I want to talk mostly about the sugar beet thick 
juice issue, but before we get to that, I want to go back to 
the chairman's questions about the tariff rate quotas that we 
are establishing. If I understood your interchange with the 
chairman, I understood you to say that at this point, you see 
things as relatively under control. You don't expect at this 
point to need to raise the sugar tariff rate quotas?
    Dr. Penn. Well, these issues are all highly market 
sensitive, as you know, and as I said, we are monitoring this. 
At any point where we think the market is getting out of 
balance, then we reserve the right to take action. But at the 
moment, at the moment, things look reasonably calm.
    Senator Crapo. All right. That is how I see it, too, so I 
just wanted to be sure that we were on the same track there. 
And I understand that we are in a market and the dynamics can 
change, but as of this point in time, you are not considering 
an increase in the tariff rate quota?
    Dr. Penn. I didn't say that----
    Senator Crapo. Are you or aren't you?
    Dr. Penn. I don't think that it would be appropriate for me 
to say at the moment. Let me just say that we are monitoring 
the situation and at the point where we think more sugar might 
be needed into the market, then we will have to do that.
    Senator Crapo. Well, I understand that, but I guess my 
question is, are you evaluating it? At this point in time, do 
you see a need to raise the tariff rate quota?
    Dr. Penn. Well, we are constantly monitoring. I mean, we 
have----
    Senator Crapo. I understand that, but----
    Dr. Penn [continuing]. We have weekly meetings. We go 
through the numbers. It is sensitive, Senator----
    Senator Crapo. I am not trying to get you to say that you 
won't ever do it----
    Dr. Penn. No, no, but on Friday, we have another lock-up. 
We have another WAOSB report where the World Agricultural 
Outlook Situation Board will go through all of the commodities 
and they will issue new supply demand balance sheets and, you 
know, I certainly will be looking at that one with great 
interest.
    Senator Crapo. All right. We will revisit that.
    Let me turn to the sugar beet thick juice. I believe you 
are aware that just a few weeks ago, Senator Conrad and I sent 
a letter to you about this issue. It seems to me that this is a 
major loophole in our regulation which allows basically the 
avoidance of marketing allotments and the importing of thick 
sugar juice that would then be able to be refined into sugar 
and marketed in the United States and avoid marketing allotment 
processes.
    I also am concerned because it seems to me that U.S. sugar 
policy in the past has been undermined by these types of 
things. It was the molasses that had been stuffed with sugar 
before that we have been fighting for years and we just don't 
have the time, I think, to fight another loophole like this for 
a long period of time.
    As I understand it, the imports of thick juice have 
increased from almost zero in 2003, to 19,000 metric tons in 
2004, over 36,000 in 2005, and the estimates are that for 2006, 
the imports from just one factory in Canada could be as much as 
100,000 metric tons, which would be the equivalent, as I 
understand it, of 50,000 metric tons of sugar.
    The question I have is, first of all, do you agree with me 
that this is a loophole and is there action being taken to 
address it?
    Dr. Penn. I would just disagree with your numbers. If you 
look at the report that you are citing closely, the numbers, 
the 100,000 ton number for this fiscal year is from two 
products, thick juice and from high-test molasses or cane 
syrup, which is another product that is made from cane. So 
those two together are coming in in about equal proportions.
    Senator Crapo. So about 50,000 of each?
    Dr. Penn. Yes. So thick juice is only half of the 100,000.
    Senator Crapo. All right. So let us assume that it is 
50,000 metric tons. Do you agree that the thick beet juice is a 
loophole that we need to close?
    Dr. Penn. Well, in the so-called Breaux Report that we are 
obliged to send to the Congress each year, we have to identify 
circumventions of the program and the entry of thick juice was 
included in that report as a circumvention.
    As you indicated, this is an occurrence with these supply 
control programs that people are always trying to find ways to 
take advantage of this premium market. This molasses results 
from the sliced beets, comes in from Canada, and it is not 
classified as sugar. So the Customs Service doesn't assess any 
duties to this product. But once it gets into the U.S., then 
USDA considers it imported sugar and we count it against the 
1.532 million tons import trigger that is contained in the farm 
bill. But it doesn't count, as you suggest, against an 
individual company's OAQ.
    So we have that problem with thick juice. We also have the 
same problem with high-test molasses or cane syrup, and so at 
the moment, we are evaluating both of those and we are looking 
at the possibility of drafting regulations which would address 
the situation that you have written me about.
    Senator Crapo. And you can address this regulatorily?
    Dr. Penn. Yes.
    Senator Crapo. I would encourage you to do that. As I have 
indicated, I do believe this is a loophole and I appreciate 
your understanding of it and would encourage you to act 
expeditiously to close it.
    Thank you, Mr. Chairman.
    The Chairman. Senator Lugar?
    Senator Lugar. Mr. Chairman, let me just pursue this line 
of thought for a moment. It would appear the world price of 
sugar is lower than the price of sugar in the United States, at 
least from the charts that you have. If you were outside the 
sugar program altogether, in discussion of these proposals for 
years, would it not be in the best interests of American 
consumers and people who use sugar to be getting sugar at the 
world price?
    In other words, the case being made by the program is 
essentially that there are 1,000 sugar farmers, cane sugar, 
5,000 beet sugar farmers in America and essentially an 
artificially higher price ought to be obtained by them than the 
world price, or, as the sugar producers would say, talking 
about the manufacturers, that, in fact, the manufacturers are 
the benefit, that they are receiving extraordinary subsidies 
from the rest of the American taxpayers. So in a nutshell, what 
is the rationale for the sugar program?
    Dr. Penn. Well, this is a very complex topic, Senator, as 
you know. On the surface, it does appear that we hold the 
domestic price far higher than the world price. In fact, if you 
look at just the chart that I attached to my testimony, in 
recent times, the world price of sugar has been six cents a 
pound while we have maintained the price at 22 to 24 cents 
domestically. That was atypically low. It moved up to ten cents 
and stayed there for a while, and in recent times, the world 
price of sugar has moved to 19 cents. That has been as we have 
had some shortfalls around the world and seen increased 
competition for cane for ethanol.
    So just looking at that, one would say that we are 
distorting the situation enormously. I have to say that my 
friends in the sugar-growing industry would advance the 
argument that the world sugar price is not a real market 
equilibrium price, that it is a distorted price, because the 
European Union, for instance, has been putting five million or 
more tons of sugar, subsidized sugar, into the world market, 
that it has deflated the price. Virtually every other country 
in the world that has the ability to produce sugar distorts the 
market. They have some kind of national program. So our growers 
then would make the argument that we need some kind of program 
until such a time as we get a free and fair market, as one 
Senator indicated.
    On the other hand, you look at the sugar-containing 
products industry. If you are in the United States, you buy 
sugar at 22 or 24 cents a pound. That is a cost of production 
to you. But at the same time, you are competing with someone 
who wants to send their product to the United States and they 
have been able to buy sugar at six cents a pound or ten cents a 
pound and so you are in the United States and you are saying, I 
have unfair competition from outside. And so what has happened 
is a lot of those plants have simply closed. They have moved 
over to Canada or they have moved to Mexico or they have moved 
elsewhere where they can get the cheaper world price sugar and 
export it.
    So on the one hand, with the domestic sugar program, we are 
protecting jobs in that industry, but we are losing jobs in the 
sugar-containing products industry. So it is a balance. As we 
look forward, I think we need to, as I suggested in my earlier 
statement, try to find a way to take all of these distortions 
into account.
    Senator Lugar. Without arguing the equities, and I think 
you have expressed them well, the reason I am excited about the 
energy side is that I see potentially a way in which sugar 
might be utilized in a market atmosphere worldwide. I think 
that has been the Brazilian experience. It is why their market 
has changed dramatically.
    In other words, if sugar works, sugar cane in particular, 
sugar beets for ethanol, this would be an extraordinary chance 
to change the whole landscape so that we have a supply and 
demand factor in which sugar as it is used for energy, in the 
Brazilian case, 52 percent of the crop right now is used for 
ethanol. It is a huge amount. And that would change the price 
in the United States if 52 percent of our crop were used for 
ethanol, which is not inconceivable given the size of our 
market in the country.
    I mention this not to be invidious to any of the sugar 
program or all the people who have some vested interest in it, 
and it is honeycombed, as you pointed out, with all sorts of 
equities or inequities, but to try to move the argument onward 
to something in which we really have perhaps a crop here of 
sugar that is really valuable to all of us as opposed to an 
arbitrary figure or an arbitrary supposition.
    Now, what is your analysis, and you have said it is just 
preliminary in this, but why would American sugar cane and 
beets not be as equally useful for American ethanol as the 
Brazilian situation has been for Brazilian motorists with 
flexible fuel cars?
    Dr. Penn. Well, I think that it can be, and I certainly 
agree with your assessment of the situation. We produce more 
than four billion gallons of ethanol. We do it largely with 
corn because we started 20, 25 years ago doing it with corn and 
we have invested in developing new technologies around that 
particular feedstock. So today, we are very efficient producers 
of ethanol using corn.
    The Brazilians have had a very different experience. They 
started using sugar cane and producing ethanol and they have 
developed systems which make them very efficient producers. I 
am told that they can produce a gallon of ethanol for 87 cents. 
It costs us about a dollar a gallon using corn. So, I mean, 
they have developed some real efficiencies.
    My sense is that once we begin to focus, and I know Senator 
Coleman has been very interested in this, but once we begin to 
focus on using sugar beets and sugar cane as a feedstock to 
produce renewable fuels and we enhance and get the technology 
improved, the varieties of the crops, the processing 
technologies, then perhaps those two crops can play big roles 
in the production of renewable fuels, as well, and as you 
suggest, that moves the debate quite a long way from the use of 
sugar cane and sugar beets to produce sugar for food. You have 
got a completely different market here, different dynamics.
    Senator Lugar. Finally, Mr. Chairman, my prayer is that as 
this progresses, as I think it will, that we do not have 
endless debates within this committee and in the Senate in 
which we protect sugar against corn or against cellulose or 
whatever else. The nature of these debates is extremely 
parochial in which we hunker down behind whatever crop happens 
to be in our particular field. As a corn producer on my farm, I 
have an interest in all those plants going up in Indiana and I 
am excited about this. So it is almost counterintuitive, and I 
am arguing that sugar, in fact, might be an equivalent to this, 
might even be better. But in terms of the American people as a 
whole, some of us really have to take that into consideration 
as to how in the world we are going to develop resources, and 
sugar is one of these now, and I find some excitement in that 
process.
    I thank you for your testimony. Thank you.
    The Chairman. Dr. Penn, is there anything in the current 
program that would prohibit a farmer in Georgia, where we have 
no sugar grown today from growing sugar cane and using that 
sugar cane to market it to an ethanol producer?
    Dr. Penn. No, nothing. The sugar program is defined around 
sugar for human consumption, so there are no prohibitions.
    The Chairman. Senator Thomas?
    Senator Thomas. Thank you, Mr. Chairman. A complicated 
program, isn't it?
    Sugar manufacturers suggest a no-cost policy be converted 
to a payment kind. I understand that would be pretty costly. If 
that were the case, where would the dollars come from to do 
that?
    Dr. Penn. Well, I think that, as I indicated a little 
earlier, Senator, the sugar program is going to have to be 
changed because of January 1, 2008, open border with Mexico. So 
that is the big challenge, it seems to me, that the sugar 
industry confronts in trying to develop a new program. So it 
seems to me the challenge is one for the industry to make 
suggestions as to the type of program, to engage with others in 
trying to see if a politically acceptable program could be 
structured.
    You know how jealously all of the other commodities--
Senator Lugar just referred to that--protect their dollars, so 
I think it is--far be it from me to sit here and suggest how 
those dollars should be allocated.
    Senator Thomas. Mr. Chairman, I am anxious to hear from the 
other panel, so I will not ask any more questions. Thank you.
    The Chairman. Senator Salazar?
    Senator Salazar. No questions.
    The Chairman. Senator Coleman?
    Senator Coleman. Thank you, Chairman. We also want to hear 
from the other panel. Just let me make a follow-up on two 
issues.
    One, the conversation with my colleague from Idaho in terms 
of the increase in tariff rate quotas. Is it fair to say you 
are looking at that now? I mean, it is something you look at 
all the time and you are looking at right now?
    Mr. Penn. I look at it all the time, yes, sir.
    Senator Coleman. My concern there is, and if I look back at 
the pattern, I think we have seen increases in foreign sugar 
imports this year and am concerned about the continuation of 
that. So my question would be, do you consult with the sugar 
producers before you make that determination? I mean, you are 
involved in a conversation with folks out there to kind of get 
their sense of what is happening in the market?
    Dr. Penn. Yes, Senator. This is not a shy industry, as you 
know. I don't have to get on the phone and call and elicit 
their views. They make them known to me. They ask you to make 
your views known to me. I hear from everybody. We get ample 
information. We do consult, and I don't mean to be flip about 
this. This is important business. We do our best to get all of 
the factual information that we can. We assess it. We have a 
great team at USDA who analyze all of this, and in the end, we 
have to try to do what we think is best and to try to balance 
this as the Congress directed us to do in the statute.
    Senator Coleman. I believe their perspective is there is no 
shortage in the marketplace and I just urge you to continue to 
have that conversation with the cane and beet producers as you 
go about this process. I think it is important.
    Let me just add to the discussion about the energy, and I 
will be very candid, Dr. Penn. In my sense, some early 
discussion was a less than enthusiastic kind of a view of sugar 
to ethanol for a range of reasons. Studies are underway. The 
future is energy. It is out there. Obviously, there are issues 
about cost. I would think from a technology perspective, we 
already see the answer. Look what Brazil does. Look what others 
around the world do. So the issue obviously, there are lots of 
program costs, et cetera, so I share the perspective of the 
ranking member, who talked about the program we have on energy 
and I just want to end by thanking the chairman, who doesn't 
have a lot of sugar in Georgia but has really been a major 
force in generating this discussion. I just want the chairman 
to know that I really appreciate that.
    So let us continue this focus on energy. I think there are 
great possibilities out there, and in the end, possibility the 
ability to put less pressure on trade. If sugar isn't an issue 
in trade, in fact, if sugar from other countries can go into an 
energy program, it wouldn't then have an impact on our domestic 
market there. So I just urge us to keep moving forward with a 
very open mind. Thank you.
    The Chairman. Thank you, Senator Coleman. As long as you 
are going to say nice things, you can have another 5 minutes, 
if you wish.
    [Laughter.]
    The Chairman. Senator Dayton?
    Senator Dayton. Thank you, Mr. Chairman.
    I apologize for missing your statement, Dr. Penn. I had 
some Minnesota constituents and this was the only time they 
could meet.
    I would just say that it is peanuts and sugar combined that 
make peanut M&Ms and I have single-handedly upheld the price of 
both commodities by my purchases over the last number of years.
    I thank you also, Mr. Chairman, for your interest in this 
broad array of programs that go beyond your own State. You have 
been extraordinary in doing so. I thank you very much. But I 
enjoyed the products we got from the peanut industry last week, 
in addition to the peanuts you provide us, as well. I think we 
should revisit that subject on a regular basis.
    Dr. Penn, if I missed this, again, because I wasn't here, I 
apologize, but if you could refresh my memory, what is the--and 
I glanced at your testimony--the 2002 farm bill established the 
basic structure of the current sugar program and then, as I 
recall, there was some part of the CAFTA agreement that the 
Secretary pledged an additional aspect to the program, an 
increment to the program. Could you tie that in, please?
    Dr. Penn. Yes, sir. The 2002 farm bill has a so-called 
import trigger that says that if you import more than 1.532 
million tons of sugar, then you can't reduce the domestic 
marketing allotment. You can't reduce the amount of sugar that 
domestic growers are allowed to market. That is a key supply 
control feature, so it would make the program unmanageable for 
the most part if you couldn't do that. So there was some 
concern that when we honor our minimum import commitments under 
the WTO, then we add 120,000 tons from the CAFTA-DR countries, 
that we would exceed that trigger. After extensive discussions 
with several members of this committee, the Secretary gave 
assurances that we would not let any of the 120,000 tons of 
sugar from the CAFTA-DR countries in any way affect the 
operation of the program so that growers were not entitled to 
the benefits that the Congress intended.
    Senator Dayton. Has the Secretary had to act to do so? As I 
recall, there was a price tag associated with that. Has any of 
that had to be expended?
    Dr. Penn. No, it has not, and it is because we have had 
just the opposite situation. Rather than having too much sugar 
in the U.S. market, we have not had enough for a while and we 
have had to scramble to try to find sugar from foreign sources 
to bring to the market rather than to try to keep sugar out.
    Senator Dayton. And what is the cause of that domestic 
situation, sir?
    Dr. Penn. It has been largely a combination of demand and 
supply factors, but the hurricanes were probably the most 
disruptive, influencing the sugar cane crop and also refining 
capacity in the U.S., closing refineries in the New Orleans 
area.
    Senator Dayton. Looking at Chart No. 1 attached to your 
statement, I am recalling back when some of these issues were 
raised with the world price then quoted at $6 to $8 and the 
domestic price $20 to $22, approximately. Now, the world price 
has spiked up considerably and actually is not that far below 
the U.S. world price. What has driven the world price up so 
significantly?
    Dr. Penn. It has been a combination of factors. We have 
seen some stimulation in demand for sugar around the world, and 
then we have seen a series of short crops in some of the major 
producing and exporting countries. Their supplies have been 
reduced somewhat. And, of course, our supply has been reduced 
here. We have imported additional amounts of sugar beyond what 
we would have traditionally imported. And then a new factor is 
energy prices. With $70 a barrel petroleum, you get a lot more 
interest in using sugar cane to produce ethanol than you do to 
produce sugar for human consumption. So there has been a 
competition there that has reduced the supply of sugar 
available to the world market. So there have been just a lot of 
uncertainties that have been created. The world market price, 
as you note, is at a 25-year high now.
    Senator Dayton. It is hard to predict the future, but is 
this an aberration or do you see the demand changes that you 
just described affecting the price for the considerable future?
    Dr. Penn. I have watched this market for a long, long time 
and this is an aberration, I believe. However, I don't think we 
are going to see six-cent-a-pound sugar again or maybe even 
ten-cent-a-pound, because as I indicated in my statement, there 
are other structural changes that are happening in the world 
market. The European Union is reforming the sugar regime in the 
Common Agricultural Policy. That means it is going to be 
putting far less subsidized sugar into the world market, so 
that should have a bullish effect on the world market.
    Senator Dayton. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, and Dr. Penn, we appreciate your 
testimony here this morning. As we move through this process of 
review, looking toward the next farm bill, we look forward to 
staying in touch with you. I thank you for coming this morning 
and thank you for your presentation.
    Dr. Penn. Thank you, Mr. Chairman.
    The Chairman. I now ask that our second panel come forward. 
We have Mr. John C. Roney, Director of Economics and Policy 
Analysis, American Sugar Alliance, Arlington, Virginia. He is 
accompanied by Mr. Wallace Ellender, the Chairman of the 
National Legislative Committee of the American Sugar Cane 
League from Bourg, Louisiana. He is also accompanied by Mr. 
Steve Williams, President of Red River Valley Sugarbeet Growers 
Association and President of American Sugarbeet Growers 
Association in Fisher, Minnesota.
    We also have Dr. Margaret Blamberg, Executive Director of 
the American Cane Sugar Refiners' Association from Brooklyn, 
New York; Mr. Robert Peiser, President and CEO, Imperial Sugar 
Company in Sugar Land, Texas; Mr. Joe Goehring, Director of 
Commodity Operations, the Hershey Company, Hershey, 
Pennsylvania; and Mr. Mrinal Roy, General Overseas 
Representative, Mauritius Sugar Syndicate and Mauritius Chamber 
of Agriculture, Grosvenor Gardens House, London, United 
Kingdom.
    Ladies and gentlemen, we appreciate you being here, and Mr. 
Roney, we will start with you for any comments you wish to make 
and we will come down the row this way.

 STATEMENT OF JOHN C. RONEY, DIRECTOR OF ECONOMICS AND POLICY 
    ANALYSIS, AMERICAN SUGAR ALLIANCE, ARLINGTON, VIRGINIA; 
   ACCOMPANIED BY WALLACE ELLENDER, III, CHAIRMAN, NATIONAL 
   LEGISLATIVE COMMITTEE, AMERICAN SUGAR CANE LEAGUE, BOURG, 
  LOUISIANA; AND STEVE WILLIAMS, PRESIDENT, RED RIVER VALLEY 
    SUGARBEET GROWERS ASSOCIATION, AND PRESIDENT, AMERICAN 
        SUGARBEET GROWERS ASSOCIATION, FISHER, MINNESOTA

    Mr. Roney. Thank you, Mr. Chairman, for inviting me here 
today. I am accompanied today by two of our farmers. Steve 
Williams is a third generation beet farmer from Fisher, 
Minnesota. Steve is President of the American Sugarbeet Growers 
Association, with 10,000 beet farmers nationwide and a survivor 
so far of excessive rains in his region last year. Dickey 
Ellender is a fifth generation cane farmer from Bourg, 
Louisiana. Dickie leads the Legislative Committee of the 
American Sugar Cane League and is a survivor so far of 
Hurricanes Katrina and Rita that ravaged Louisiana cane country 
last year. Steve and Dickie will be happy to respond to your 
questions specific to their crop or region.
    Mr. Chairman, members of the committee, the policy that you 
provided our industry in the 2002 farm bill is working well. It 
is working well for American taxpayers. It is working well for 
American consumers. And it is giving American sugar farmers the 
chance to survive.
    The sugar industry recommends the Congress sustain this 
remarkably successful policy in the next farm bill. U.S. sugar 
policy ensures that American sugar farmers derive all the 
returns from the marketplace and not from the government, and 
it attempts to provide farmers a stable price horizon.
    The policy is simple. USDA offers non-recourse loans to 
sugar producers and it is required to avoid loan forfeitures 
and taxpayer costs. It has two tools to balance supply and 
demand and maintain market prices adequate to avoid loan 
forfeitures. It manages imported supplies through our tariff-
free quota system. We are the world's second-largest sugar 
importer. It manages domestic supplies through our marketing 
allotment system. Farmers can plant and process as much cane 
and beets as they wish, but if USDA determines that they have 
produced more than the market needs, the producers must hold 
that sugar back from the market and store it at their own 
expense. U.S. sugar policy thus places the burden of balancing 
supply and demand on the producers and not on the government.
    How successful has U.S. sugar policy been? Consumers and 
taxpayers have been huge beneficiaries. American consumers 
enjoy some of the lowest and most stable sugar prices in the 
world. Consumers in the rest of the developed world pay 30 
percent more for their sugar than American consumers do. The 
2005 average retail price for sugar was 43 cents. What is 
amazing is that this is the same price sugar retailed for in 
1990. It is even the same price sugar retailed for in 1980, 26 
years ago.
    What is even more amazing is that consumer prices remained 
this stable in a year when American sugar farmers and 
processors faced an unprecedented series of natural disasters, 
drought in the West, excessive rains in the upper Midwest, and 
three catastrophic hurricanes in Louisiana and Florida. In the 
wake of these weather problems, USDA and the industry took 
immediate effective steps to avoid a serious supply 
interruption. USDA allowed producers to release onto the market 
the half-million tons of sugar they had been required to store 
to balance the market. USDA more than doubled imports. And cane 
refiners damaged by the hurricanes worked frantically to care 
for their workers and get their operations up and running 
again. None of these actions cost U.S. taxpayers a dime.
    Despite sugar policy's continued success, even after being 
tested by last year's natural disasters, some would like to 
change the policy. U.S. commodity policy changed in 1996 for 
most programs. Commodity prices have been allowed to fall, with 
government providing payments to keep farmers afloat. Food 
manufacturers and retailers have been the biggest 
beneficiaries. They get the cheapest possible raw materials 
from reliable American farmers. Then, by not passing the 
savings along to consumers, they increase their profit margin. 
The taxpayer costs of subsidizing food manufacturers this way 
has totaled over $200 billion since 1996.
    A conversion to the income support approach for sugar would 
be another boon for the food manufacturers, but it would cost 
taxpayers $1 to $2 billion per year and consumers would derive 
no benefit. During this time of severe budget constraints and 
tightening limits on payments to farmers, where would the money 
for a new high-cost U.S. sugar policy come from? Would Congress 
reduce benefits for other crop farmers to finance a new payment 
program for sugar? What happens to sugar farmers already at 
their payment limits for other crops? And what happens to sugar 
farmers when that money runs out?
    American sugar farmers have not had a support price 
increase since 1985 and the survivors have come through a 
nightmare of natural disasters in 2005. Through it all, they 
have supplied American consumers dependably and well and they 
have raised more money for the U.S. Treasury than they have 
received. We ask the committee not to entertain the food 
manufacturers' suggestion we yank the price stability out from 
under the program and place an added burden on U.S. taxpayers. 
We respectfully urge the committee to continue the remarkably 
successful U.S. sugar policy in its current form. Thank you.
    The Chairman. Thank you.
    [The prepared statement of Mr. Roney can be found in the 
appendix on page 52.]
    The Chairman. Dr. Blamberg?

 STATEMENT OF MARGARET BLAMBERG, EXECUTIVE DIRECTOR, AMERICAN 
      CANE SUGAR REFINERS' ASSOCIATION, BROOKLYN, NEW YORK

    Dr. Blamberg. Mr. Chairman, members of the committee, I 
appreciate you inviting me to be here today. My name is 
Margaret Blamberg and I am the Executive Director of the 
American Cane Sugar Refiners' Association. Our association 
represents all but one of the cane refiners in the United 
States and we are strong supporters of America's no-cost sugar 
policy.
    Last summer, this policy faced the biggest test Mother 
Nature has ever unleashed on our industry, and by avoiding a 
supply disaster of epic proportions, America's no-cost sugar 
policy passed that test with flying colors. Let me explain.
    On August 29, Hurricane Katrina ripped through New Orleans, 
and for Domino Sugar, that is when refining took a back seat to 
rebuilding and recovering. In one fatal swoop, Katrina brought 
Domino's Chalmette sugar refinery to its knees. Nine feet of 
murky water crept into factory buildings. Sugar destined for 
grocery shelves dissolved into two feet of sticky goop. Roofs 
were ripped apart, windows shattered. The electrical 
infrastructure was destroyed. Ground-level machinery no longer 
functioned.
    When Katrina's winds and waters stopped pounding the plant, 
Chalmette became more than just a sugar refinery. It was a 
sanctuary to more than 250 evacuees left homeless by the 
hurricane. It was a command center for the government rescue 
operations. It became the largest collection of FEMA trailers 
in St. Bernard Parish, a mini-city that became known as Chateau 
Domino, where hundreds of workers and their families still 
live.
    Instead of talking about raw sugar prices during staff 
meetings, Chalmette executives set about figuring out how to 
feed employees, or how to get kids back to school, or where to 
put a makeshift laundromat or mobile cafeteria. During the 
disaster, Domino paid its employees full wages. The company put 
people ahead of profits, and putting people first paid off.
    Even though many said that Chalmette would never reopen, 
its 300 workers wouldn't take no for an answer. In a testament 
to their determination, the wrecked refinery was rebuilt in 
time for the Christmas baking season, and today, it is 
operating at pre-hurricane capacity.
    But this is not a story just about Domino. While this 
massive recovery effort was underway, a remarkable thing was 
happening in the U.S. sugar market. Despite losing 20 percent 
of America's cane refining capacity for 4 months, grocery 
shelves remained fully stocked and candy factories kept on 
running. That is because of sugar policy. No-cost sugar policy 
gives the USDA the flexibility it needs to meet demand during 
times of emergency by tapping an industry-funded sugar reserve 
and by increasing imports.
    Think about it. When Hurricane Katrina wiped out a chunk of 
America's oil refining capacity, prices skyrocketed. But when 
the same hurricane wiped out a chunk of America's sugar 
refining capacity, retail prices barely budgeted.
    But the story doesn't end there. Mother Nature wasn't 
finished. There was Rita and then there was Wilma and floods 
drenched Hawaii. It was the worst year the sugar industry ever 
had and it could have been the perfect storm for disaster. But 
chaos never came because of our country's sugar program and 
because of our country's sugar refineries.
    In years of healthy crops, refineries supplement domestic 
supplies with imported raws. When hurricanes or droughts 
strike, more foreign raws can be tapped.
    One word of caution. The USDA tried to speed fresh supplies 
by permitting sizable imports of refined sugar, bypassing U.S. 
refineries. This strategy was counterproductive and actually 
slowed down the process. U.S. refineries are the best source of 
high-quality sugar. This was a hard lesson learned for many of 
our customers and is an experiment that the USDA should not 
repeat.
    In the coming months, this committee will be lobbied by 
large industrial users looking to turn the no-cost sugar 
program into one with a hefty price tag. They are looking to 
boost their profits on the backs of farmers and taxpayers and 
they are looking to give foreign countries control over our 
kitchens. This is a recipe for disaster. Feeding ourselves is 
the first rule of homeland security.
    We ask you to extend the existing sugar program. It is 
important for consumers, for our producers, and for America.
    The Chairman. Thank you.
    [The prepared statement of Dr. Blamberg can be found in the 
appendix on page 66.]
    The Chairman. Mr. Peiser?

 STATEMENT OF ROBERT A. PEISER, PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, IMPERIAL SUGAR COMPANY, SUGAR LAND, TEXAS

    Mr. Peiser. Mr. Chairman, thank you. My name is Robert 
Peiser. I am the President and CEO of Imperial Sugar Company, 
which operates two major cane refineries located in Savannah, 
Georgia, and Gramercy, Louisiana. I am pleased to offer this 
testimony to the committee on behalf of Imperial's 809 
employees in Texas, Louisiana, and, I might add, in Georgia, 
because the subject matter affects those employees plus all of 
our customers who get our product on a local level and all of 
those companies regionally who support our operation in those 
areas.
    I am going to come about this a little bit differently. As 
requested by the committee, I am going to address specifics as 
to what is working and what is not working in the sugar 
program. First, let me talk a minute about Imperial.
    We are an important element of agriculture in this country. 
Our cane refineries produce approximately 14 percent of the 
nation's refined sugar needs. With all due respect to Dr. 
Blamberg, who said she represents all but one of the cane 
refinery operations, there are only three, so I guess I could 
say that we represent all but two of the cane operations in 
this country.
    [Laughter.]
    Mr. Peiser. Our largest facility, which is located in 
Savannah, represents about 9 percent of the sugar refining 
capacity. The Louisiana facility is slightly less. We are much 
different than the rest of the industry in that we are the only 
non-integrated company in the industry, so we buy our sugar 
from independent suppliers, be they domestic or--producers, be 
they domestic or foreign.
    Historically, our Savannah refinery has bought most of its 
sugar from Florida, but as that industry has integrated over 
the years and increased its refining capacity, we have relied 
more and more exclusively on foreign sugar. As a result, from 
2006 onward, we would expect to obtain all of our raw sugar 
from foreign sources.
    In Louisiana, we are quite different and we rely mostly 
domestic production to obtain our sugar in Louisiana. We are 
proud of our long-term association with the growers. We are 
very supportive of the growers and need a strong growing 
community to support our operation in the State.
    So we are far from anti-grower. The situation that we find 
ourselves in in Savannah is a fact of circumstances as the 
industry has changed.
    Let me say clearly and unambiguously that I think the sugar 
program is working, but it has some things that need to be 
changed, as well, to make it more efficient.
    So, first, what is working about the program? First, I want 
to applaud the USDA's sugar program professionals. They have 
done a tremendous job in the face of constant crisis and work 
very hard and, I think, do a very good job.
    Second, marketing allotments have generally worked in 
controlling domestic overproduction, although it comes at a 
high administrative cost and really doesn't work for cane 
refineries. In fact, we are often frustrated as we access 
supplies of sugar on an efficient basis.
    Third, the re-export program in the sugar program remains a 
bright spot in sugar policy because it allows cane refiners to 
secure incremental business and provide us the flexibility of 
sourcing non-quota sugar to solve many short-term supply 
issues.
    Plus, the recent removal of shipping pattern restrictions 
allows less sugar to flow easily into this country. Up until 
this year, shipping patterns that were part of our program 
really tend to inhibit our ability to obtain raw sugar.
    Fifth, the USDA's administration of the program as it 
pertains to organic sugar is very important to meet the 
explosive needs in the organic marketplace and I applaud those 
efforts.
    As successful as the program has been, there are several 
areas where it has not been working. First, the support price. 
The differential between the support price of raw sugar and the 
support price of white sugar is no longer wide enough to 
support operations of independent refiners when both of those 
prices are at support levels. As you know, cane refining is a 
very energy-intensive business. As the price of energy has 
risen, the differential between those two have made it 
difficult and will make it difficult in the future to sustain 
cane refinery operations when both of those parameters are at 
their support levels.
    Second, while marketing allotments are useful, the import 
trigger that Dr. Penn mentioned earlier could very well become 
a problem as more and more imports come into this country, 
either with CAFTA or NAFTA, and we would suggest that those 
marketing import triggers be removed or raised in light of the 
dynamics of the market.
    Third, the current TRQ allocations among the various 
countries that actually import sugar into this country is an 
anachronism. It is archaic. It was developed in the 1970's 
during a different era. There are many sugar exporting 
countries or countries that have those allegations that no 
longer ship sugar to the United States or many that don't ship 
as much as they are allowed and so we need to look at the 
allocation process within the TRQ.
    We also need to look at the timing of the announcement of 
the annual TRQ to make sure there is a good supply of sugar 
into this country.
    We should look at import limitations, which tend to stifle 
the growth of sugar refiners and participate in the growth, and 
we need to look at the marketing allocations in general as 
refiners need to have more raw sugar to efficiently support its 
operation.
    The theme of our business really is to get enough, 
sufficient raw material, convert it efficiently, and distribute 
to our customers. That is what we are all about and we are all 
about getting more raw sugar into our refineries to be able to 
service the marketplace.
    Mr. Chairman, on behalf of Imperial and its employees, I 
thank you for receiving our views today and I look forward to 
working with the committee to find a solution to the issues 
that face us.
    The Chairman. Thank you.
    [The prepared statement of Mr. Peiser can be found in the 
appendix on page 68.]
    The Chairman. Mr. Goehring?

 STATEMENT OF JOE GOEHRING, DIRECTOR OF COMMODITY OPERATIONS, 
     THE HERSHEY COMPANY, ON BEHALF OF THE SWEETENER USERS 
               ASSOCIATION, HERSHEY, PENNSYLVANIA

    Mr. Goehring. Thank you. Mr. Chairman and members of the 
committee, thank you for this opportunity to testify at this 
oversight hearing on the U.S. sugar program. My name is Joe 
Goehring. I am Director of Commodities Operations for the 
Hershey Company and I am testifying today in my capacity as a 
past chairman of the Sweetener Users Association.
    As sugar users, we want and need a strong and healthy 
domestic sugar industry, including beet and cane producers, 
processors, and independent cane refiners. We see some real 
problems in the design of the current sugar program, but that 
doesn't mean we advocate that the United States eliminate its 
sugar policy. Instead, we should come together as an industry--
growers, processors, refiners, and users alike--to arrive at a 
consensus on the best government policy to meet everyone's 
needs and to serve the public interest. Our organization has 
proposed exactly that to our friends in the producer and 
processor community and we are gratified by their preliminary 
response and we hope they will agree that such an exercise will 
be constructive.
    Compared to government support policies for other 
commodities, the sugar program is different in several 
respects. Two of the most important are our import quotas and 
marketing allotments. Few other commodity programs rely on 
import quotas and virtually none rely on marketing allotments.
    The turbulent sugar markets of the past 9 months have 
highlighted some deficiencies in the current program. 
Obviously, the sugar program did not cause last year's 
hurricanes. Markets would have reacted no matter what policies 
would have been in place. The question is whether the current 
sugar program reacted well to sudden shocks, and unfortunately, 
it did not.
    For example, even after the hurricanes had done significant 
damage to the Louisiana sugar cane crop and had closed a major 
cane refinery, there was still perfectly good sugar that 
processors were willing to sell and industrial users were more 
than willing to buy but which could not be legally sold because 
of the allotment system. Eventually, USDA did act to free up 
the sugar, and I want to commend USDA for the many actions they 
took in the wake of the hurricanes to make some sugar available 
to the market. But in a tight market, it shouldn't be necessary 
for the Federal Government to give buyers and sellers 
permission to enter into commercial transactions. One of the 
fundamental problems with current sugar policy is that it 
interposes the government between buyer and seller, often to 
the detriment of market needs.
    USDA also increased import quotas a number of times in the 
past year, and again, we have appreciated their actions. But 
here, too, there have been problems, not problems of USDA's 
making, but problems that are inherent in a quota system. For 
example, USDA sought to increase imports of refined sugar, the 
kind that we manufacturers buy and use, to account for the 
temporary closure of the Louisiana cane refinery. 
Unfortunately, a sizable amount of that sugar entered 
ostensibly as refined sugar was, in fact, product that required 
substantial further refining simply because of the definitions 
that the Customs Service uses in administering the quotas. It 
is a technical issue that is covered in more detail in my 
testimony, and I won't belabor it, but the result for users was 
less supply of refined sugar than USDA intended and less than 
the market needed.
    I cited two problems that occurred in a tight market and I 
don't want to leave the impression that the sugar program works 
fine except in a tight market. It doesn't. In fact, the history 
of the sugar program over the past 25 years has more often been 
a history of surplus domestic production rather than shortage. 
Surplus domestic production is not in the long-term interest of 
the industry and should not be a policy goal any more than 
shorting a market should be.
    Looking briefly toward the future, Mr. Chairman, we believe 
that there are even more compelling reasons to revise the 
current sugar program. First off, domestic sugar usage is flat 
and close to a tenth of domestic sugar demand is being filled 
by imported sugar-containing products. The incentive to expand 
these imports is directly related to the usually wide spread 
between U.S. and world sugar prices.
    In a related phenomenon, the structure of the current sugar 
program has been associated with the loss of thousands of 
manufacturing jobs. This was documented in a recent Commerce 
Department study. Trade policy factors, including an open 
border with Mexico in less than 2 years, the prospect of a Doha 
Round agreement that will require higher sugar import quota and 
also call for reductions in so-called Amber Box subsidies, like 
the sugar price support program, strongly suggests the need to 
think about alternative sugar policies.
    Mr. Chairman, we know that there will be future 
opportunities to make more detailed recommendations for the 
next farm bill. We will not attempt to do so now. We prefer to 
work toward an industry consensus of growers, processors, cane 
refiners, and users which will provide the optimum policy 
solution for all stakeholders going forward. We believe such a 
consensus would be welcomed by this committee and we look 
forward to working with you as you develop the next farm bill. 
We thank you for this opportunity.
    The Chairman. Thank you very much, Mr. Goehring. In 
response to your last comment, at our hearing last week on the 
peanut program, that is exactly what happened in 2002. As we 
all know, there had been somewhat of the same type of friction 
there that maybe we can see has been in the sugar industry.
    Mr. Goehring. Absolutely.
    The Chairman. I hope that we can do exactly as you say, 
have all segments of the industry come together with a very 
positive program for us.
    Mr. Goehring. Mr. Chairman, we approach this with an open 
mind. I was part of the peanut work that was done on the last 
farm bill and would like nothing more than to be able to arrive 
at a consensus with all members of the industry.
    The Chairman. Very good.
    [The prepared statement of Mr. Goehring can be found in the 
appendix on page 76.]
    The Chairman. Mr. Roy?

   STATEMENT OF MRINAL ROY, GENERAL OVERSEAS REPRESENTATIVE, 
MAURITIUS SUGAR SYNDICATE AND MAURITIUS CHAMBER OF AGRICULTURE, 
        GROSVENOR GARDENS HOUSE, LONDON, UNITED KINGDOM

    Mr. Roy. Mr. Chairman, members of the committee, I am 
deeply honored to have been invited to testify to this hearing 
of the Senate Agriculture Committee on the U.S. sugar program 
and to present the views of the traditional sugar quota holders 
and exporters under the U.S. tariff rate quota on raw sugar.
    I am appearing before the Senate committee in my capacity 
as General Overseas Representative of the Mauritius Sugar 
Syndicate. The Mauritius Sugar Syndicate is a private sector 
international marketing organization of the sugar industry of 
Mauritius. I was, prior to my present post, I was the Chief 
Executive Officer of the Mauritius Sugar Syndicate and 
therefore was responsible to sell sugar in our markets, 
including the United States. I am also currently the Chairman 
of the ACP London Sugar Group, which represents the 18 
countries in Africa, the Caribbean, and Pacific which sell 
sugar under the sugar protocol to the E.U. The ACP group also 
includes 13 countries which currently hold allocations under 
the U.S. TRQ.
    My testimony will underline the importance of sugar for 
Mauritius, the key role of the U.S. sugar program as a vector 
of trade-driven development in the developing country quota 
holders, and the imperative of continuing the U.S. sugar 
program and its benefits for the future.
    Mauritius is a small island of 1,860 square kilometers in 
the Indian Ocean east of Madagascar, the size of the State of 
Rhode Island or Fairfax County in Virginia. Despite its small 
size, Mauritius ranks among the ten top exporters of sugar, 
exporting between 500,000 to 600,000 tons of sugar.
    A total of 40 countries, all but three of them are 
developing, have access to the U.S. sugar market under the TRQ. 
By providing the guarantees of long-term access, remunerative 
price levels and stable price levels, and predictable revenue, 
the U.S. sugar program has contributed to the sustainable 
development of these countries through grade, not aid. The key, 
however, is the combination of market access coupled with the 
value of the remunerative price of this market access. Without 
market access without value, it is meaningless, especially 
against a background of rising trade costs to deliver the sugar 
to distant markets.
    I would also like to respond to the contention--this was 
raised earlier in the morning--that the U.S. sugar program 
harms consumers and costs jobs because it maintains the market 
price at a higher level than the world market price. The world 
market price is not a valid benchmark for the value of sugar as 
it is a residual market.
    An International Sugar Organization study carried out among 
100 counties in June 2003, covering the period 1996 to 2002, 
concluded that 76 percent of the sugar which is produced is 
actually consumed in the countries where it is grown. It also 
concluded that the average world domestic price at retail level 
was $610 per ton, which means 27.67 cents per pound, 
significantly more than the support price in the U.S. sugar 
program or the New York Number 14 prices, and more than twice 
the average world price during the last decade. Most sugar 
industries of the world, in fact, sustain their long-term 
viability through principally sales to their captive higher-
priced domestic markets. In short, the world price is 
essentially irrelevant to any evaluation of the operation of 
the U.S. sugar program.
    Attached to my written testimony is a recent article I 
wrote for the 24 February 2006 education of Agra Europe on the 
E.U. sugar regime reform from the ACP perspective. I would like 
to request that this article be incorporated in the record of 
this hearing.
    It has been suggested that the U.S. should reform its sugar 
program because the E.U. is already reforming its regime. This 
is a non-sequitur. When the E.U. sugar reform is complete, the 
E.U. will still produce twice the tonnage that is currently 
produced by the United States. In fact, the E.U. production, 
which is currently about 90 million, will have to go down to 40 
million, which is twice the U.S. production. And it will have a 
support price which is higher than the U.S. support price. In 
short, even after the reform, the E.U. sugar regime will be at 
higher benchmarks than the U.S. sugar program, so there is no 
justification for reforming the U.S. sugar program because the 
E.U. are doing so.
    At the same time, however, the E.U. sugar reform price 
risks the further impoverishment of the E.U. developing country 
quota holders and will probably drive several of the ACP 
countries out of the sugar industry completely. Already, one of 
the countries, St. Kitts, has announced its decision to cease 
production after 360 years. This, in turn, will add to the 
serious unemployment problem, deprive these countries of much-
needed export revenues, and create new barriers of economic 
development to these vulnerable countries. The U.S. support 
price, which is lower than the E.U. price after the 36 percent 
price cut, is already at the minimal sustainable level and 
cannot be reduced without causing similar damage to developing 
country quota holders other than DRQ.
    In conclusion, Mr. Chairman, for the past 24 years, the 
U.S. sugar program has provided much-needed access to the U.S. 
market for 40 traditional suppliers, most of whom are 
developing countries, at stable and remunerative prices. The 
predictable export revenues generated by these exports through 
the U.S. market have contributed to the economic development of 
these countries through trade, not aid. From our perspective, 
the U.S. program has been very successful and should be 
extended so that it can continue to provide meaningful trade 
opportunities at remunerative prices which contribute to the 
sustainable development of numerous developing countries across 
the world while providing the U.S. with a broad safety net of 
reliable supplies to the U.S. market, and we have seen that 
when there was this catastrophe last year. Extension of the 
U.S. sugar program will also be consistent with the goal of the 
Doha Development Round of encouraging development through 
trade.
    I rest my testimony, Chairman. Thank you.
    The Chairman. Thank you, Mr. Roy.
    [The prepared statement of Mr. Roy can be found in the 
appendix on page 84.]
    The Chairman. I thank all of you. Unfortunately, I have 
been called by the leader to an immigration meeting that has 
just started and I am going to have to run. Senator Lugar has 
generously agreed to chair the remainder of the hearing. Before 
I leave, I want to say a special welcome to you, Mr. Ellender, 
because I understand that one of your uncles, Allen Ellender, 
left the sugar cane farm many years ago down in South Louisiana 
and came and walked the halls of the Senate. He was here for 
about 35 years, I understand, 18 of which he served as chairman 
of this committee. We appreciate all of our predecessors who 
went before us, but most especially those who were involved in 
the great industry of agriculture, so we wish to issue you a 
very special welcome.
    Mr. Ellender. Thank you.
    The Chairman. Senator Lugar?
    Mr. Ellender. Thank you, Mr. Chairman. I understand that 
you were also high school educated in Louisiana.
    The Chairman. Don't hold that against me.
    [Laughter.]
    The Chairman. That is exactly right.
    Senator Lugar [presiding]. Thank you very much, Mr. 
Chairman, for allowing me to continue this very important 
hearing.
    I congratulate you, too, Mr. Ellender, and your family. I 
did not want to interrupt the course of earlier testimony to 
intrude with this history, but I am delighted the chairman has 
done so. We had, during a period of time when I was privileged 
to serve as chairman of the committee, a history written of the 
committee which lists all the chairmen, something about their 
tenure, and so this is available to our members to have that 
heritage. We know about your family and we appreciate you.
    Let me just ask this general question because earlier on, I 
suggested that the price of sugar in the United States 
apparently, on the charts that the USDA presented, was lower 
than the world price. Mr. Roy has testified that for a variety 
of reasons, the world price is irrelevant, that essentially, as 
I gather, this oversimplifies it. There are so many countries 
intruding into the sugar market to support either their 
citizens, their industry, whoever that may be involved, that 
this is a situation honeycombed with all sorts of protective 
mechanisms, defensive mechanisms, or some would say proactive 
mechanisms, depending upon what euphemism you want to place on 
all this. It really almost requires a computer study to punch 
in all of the data and to figure out who is doing what to whom 
in the process of this.
    What I am curious about is as this committee begins to 
examine the program again, and you need not answer this 
immediately, but for the record, if any of you know of 
reputable studies that get into the weeds for 40 countries or 
however many are involved so that we get some idea really of 
where the price lies, anywhere, under any circumstances, quite 
apart from distortions that may come. Otherwise, we are in a 
situation in which the politics of this are, in part, if the 
E.U. doesn't move, we don't move. If WTO doesn't happen, we 
really have to be on guard against the rest of the world or 
whoever the malefactors are. As a relative amateur in this 
thing, I don't know who all the malefactors are. I am sure 
there are a lot out there and we certainly want to protect the 
American people against all of this.
    But here within the economy, however, Mr. Goehring, you 
mentioned from the standpoint of Hershey and the industry of 
sugar users that, in fact, there are problems, if you are 
consumers of Hershey bars or whatever else, for consumers. Now, 
very rapidly, others have testified they are not so sure about 
you. They think maybe you are taking advantage of this program 
at Hershey or elsewhere, charging the American people more for 
Hershey bars and that is, in fact, where they are paying the 
money, not to the sugar people but to the users of the sugar. 
Where justice lies in that argument, once again, is very 
difficult to tell.
    We always hope in a competitive market economy that somehow 
these things are sorted out, but what I am gathering is you are 
saying in a world economy, it is not that simple. Things are 
not sorted out. And indeed, I have argued and some have argued 
recently that in the area of energy, for example, if over 75 
percent of all the reserves as well as the current production 
are controlled by governments, not by supply and demand, that 
if ExxonMobil has 3 percent of the market, we can all beat on 
ExxonMobil, but the other 97 percent is somewhere else, maybe 
with Vladimir Putin, maybe others who are, in fact, setting the 
price, or even deciding not to go into the reserves.
    These are important arguments to try to get a hold of 
something. Now, obviously, it would be ideal if the panel here 
today, learned as you are, came to a consensus, came to this 
committee and really divests of all of the judgments or the 
parochial arguments or the protection of whoever else in our 
constituencies who feel compelled to do. To some extent, I 
think that has occurred with the peanut group, not entirely. 
There were questions raised there on storage issues, for 
example, and price finding issues, which seems to be very 
difficult to obtain in the peanut business, likewise, quite 
apart from the sugar business.
    I think probably this debate as we get into the farm bill 
will take two courses, one of which is that there is a very 
sophisticated consensus in which we appreciate that there have 
to be balances between users and suppliers and the need to have 
peanut farmers and production in our country and a degree of 
protection against all predators elsewhere if they are really 
making it difficult for us, or we will get into the old 
bromides, let us protect ourselves unless we have WTO. WTO, 
probably we are not going to have.
    Or we can say, kick the can down the road. Why have a big 
debate in 2007? Postpone it to 2008, or try 2009 or any other 
time, because it is not easy to get consensus of this committee 
or this body, or to conference with the House, particularly on 
contentious issues where many members of the House and the 
Senate have particular constituencies. It might come to a corn 
farmer or soybean farmer like me. Now listen, Lugar, don't get 
too harsh with regard to this because after all, perhaps, we 
can all, if we are thoughtful about this, reach consensus, not 
necessarily at the expense of any of our growers, but perhaps 
somebody else.
    With all that in mind, just let me sort of explore for a 
second, is the consumption of sugar worldwide increasing? In 
other words, with the wealth of nations, we hear from the oil 
people that certainly there are a lot more consumers of that 
product, we are led to believe, in fact, in the whole energy 
group. A certain dynamism now is involved in the growth of 
India and China, but leaving aside one-third of humanity 
involved there, even in our country, despite all the 
constraints. But I am curious, is that true for sugar as a 
commodity worldwide, worldwide demand? Does anybody have any 
sense of that? Yes, Mr. Roney?
    Mr. Roney. Yes, Senator. World sugar consumption has been 
rising consistently, even slightly in excess of the rate of 
population growth, because of rising incomes in developing 
countries. And the fact that consumption has grown more rapidly 
than production in the last couple years is a big factor in the 
reason that the world sugar price has doubled.
    Senator Lugar. To what extent--maybe the fuel business in 
Brazil is so novel to that country that you really can't gauge 
that, but still, 52 percent of the Brazilian sugar crop is a 
lot of sugar, a lot of money. So I am wondering to what extent 
do you think the consumption is on the food side as opposed to 
the energy side. Do you have any feel for that?
    Mr. Roney. Senator, Brazil is the shining example and by 
far has the largest cane ethanol industry in the world. It has 
been built on 30 years of government programs, both to 
subsidize production and then more recently to mandate 
consumption. So they have encouraged the industry in that way 
and it has made sugar virtually the byproduct of the Brazilian 
cane industry.
    So each year when you see more demand absorbed by ethanol, 
that can diminish the amount of sugar available for the world 
market, and I think that has been another factor this past 
year. Historically, any time there has been a little bit of an 
increase in world demand, Brazil has shifted some cane from 
ethanol to sugar and filled that demand and kept the world 
price low. But their ethanol demand within Brazil is so high 
now because of the popularity of their flex-fuel cars that they 
can barely meet domestic ethanol demand. So they continue to 
increase their cane output, but at this moment, they couldn't 
increase the sugar side rapidly enough to prevent the world 
price from rising.
    But this continues to be a very interesting dynamic because 
Brazil is, by far, the world's biggest player in the world 
sugar market. They export about 18 million tons per year. That 
is up from two million tons just a decade ago. The question has 
been, can they expand ethanol and cane and sugar simultaneously 
and the jury is still out on that.
    But with the increased world demand for ethanol, what we 
are seeing in a number of countries is governments stepping in 
and instituting programs to encourage cane ethanol. But it does 
take government involvement, and that is what we are seeing in 
every ethanol program, including the U.S. corn ethanol program, 
around the world. It does take government involvement and 
encouragement, some subsidy to some degree, to encourage the 
investment to make that happen, to make it economical.
    Senator Lugar. You lead into my next question, and that is, 
hypothetically, would it be a good policy for the U.S. 
Government to give assistance to the sugar industry to produce 
ethanol? We have a gamut of programs which we take seriously in 
this country, not that we are going to become energy 
independent, but that a much larger percentage than the low 
single digits is going to have to be from alternative sources 
or we are not credible with regard to the rest of the world. We 
are going to be in bad trouble.
    I am not trying to suggest arguments for any of this panel, 
but what is sauce for the goose might be sauce for the gander. 
If you are serious about ethanol and you have a lot of sugar 
cane, you have got some possibilities and they are ones that 
might be more attractive to the American people than the 
discussion we are having this morning, which might be 
characterized by some editorial writers as a fairly parochial 
industry-centered situation involving Senators who are equally 
involved in the same industry.
    But sort of breaking out of the pack, one of the reasons 
why the Brazilian thing is fairly attractive is the flexible-
fuel cars can go either way. If sugar is up and oil is down, 
the car uses the oil or the petroleum-base. If it is the other 
way around, use the other. You begin to have a different 
dynamic in that situation than anywhere else in the picture.
    I suppose I would argue that the energy dollars and monies 
and so forth are huge in comparison with whatever we are 
talking about today in sugar, and so I am just trying to 
suggest, even as you come together with a consensus program, 
think about this if you can to where this is all headed as 
opposed to simply the old problems of the candy maker refers 
the refiner or versus the grower, beets and cane, exquisitely 
down to the last decimal point whether beets get the money or 
cane or so forth.
    Let me yield for a moment to my colleague before I get 
carried away with enthusiasm.
    [Laughter.]
    Senator Coleman. Thank you, Mr. Chairman. I appreciate the 
discussion. This was an issue which was raised when we dealt 
with CAFTA and I think it is very fair to say that--and if I 
say something that is incorrect, please, I would have the panel 
correct me--but there is a lot of concern among the industry. 
Right now, there is a no-cost program and so the idea of even 
ethanol, by the way, there is a subsidy in ethanol. But as I 
think the testimony has been very clear here, Brazil has got a 
30-year history of subsidy across the board. Half of the 85 
pumps in America, Mr. Chairman, are in our State, in Minnesota. 
We have 400 to 500. That is half in the country. And so you 
have got to spread out infrastructure, and so you have got a 
country that has been really a marvel.
    I would just raise two issues. I just want to follow up on 
this discussion. We haven't even begun to deal with the energy 
needs of China and India. I mean, there is a possibility down 
the road of the U.S. and Brazil working together to export 
ethanol to China. I met with Hu Jintao and I raised the energy 
issue with him. And so we still have to deal with this issue, 
and I don't want to move away from it.
    Mr. Williams is part of a country in Northern Minnesota 
that went through tremendous flooding, and I suspect that in 
the absence of this program, that I don't know whether he or 
some of his neighbors would be in business or would be worried 
about being in business today. So I don't want to move away, 
and we are going to get back to some of those questions, but I 
just want to follow up on what you said.
    I would hope the industry would have an open mind, 
understanding, again, there is almost an article of religious 
faith, a no-cost program, and if we do anything to challenge 
that no-cost program, we will somehow lose the support in 
Congress or the support in this country. I would note, and I 
think if I may comment for the record, that I do have some 
processors in Minnesota who do want to change the program, 
folks in Southern Minnesota and some others. I visited with 
them. They would like to change the program. They have a 
different perspective than perhaps my friends in the ASA. So, 
on the record, it is not unanimity, but I think it is fair to 
say, across the board, there is this concern about we don't 
want to cost anything. But I just want to echo your comments, 
Mr. Chairman, in that regard.
    If I can, if I have the floor, I hope everyone reads all of 
Mr. Roy's testimony, your written testimony. It goes in much 
further than what you talked about.
    I mean, what we hear again and again, and we can lay out 
the phrases, we have got a program here that works well, that 
is at no cost, that is stable, and I hope that we don't forget 
that as we go through.
    Can I just ask, can we follow up on the energy question, 
because the panel has not commented. Can we get your 
perspective on your vision about the prospect of a sugar or 
beet or cane to ethanol program? Is there an openness on the 
part of the ASA and others to take a close look at that? Does 
anybody want to respond?
    Mr. Roney. Senator, from the point of view of the American 
Sugar Alliance, we are certainly open to that. We see that the 
future for U.S. energy policy is very much tied to ethanol. We 
see every opportunity for sugar to be a part of the 
biofeedstock mix that goes into ethanol. But we would also 
emphasize that we do need to hold on to our domestic policy 
until we have the reform in the world market that Senator Lugar 
has talked about and to maintain that kind of price stability. 
We see a sucrose ethanol program as potentially complementary 
to the program that we have now for sugar for food.
    But certainly, we are open to ideas and thoughts on that, 
and with the acknowledgement, of course, that this would 
involve a government program of some sort, that this is not 
necessarily something that we can jump into economically and 
expect to be able to compete with the uncertainty of world 
ethanol and U.S. ethanol prices.
    Mr. Peiser. Senator, if I can add, it is very difficult to 
argue with the use of ethanol and sugar into ethanol given what 
is going on in this country today and the world. And indeed, I 
would think if there is an alternative use for sugar, you might 
get some less parochial discussions about other public policy 
questions from growers who have only one use today. So I think 
the balancing of their product to service more than just one 
master, I think would be quite useful.
    Having said that, I think we all have to recognize that 
there is a very, very tight balance of supply and demand in 
this country even before the hurricanes, and I think everybody 
would say that it was a pretty good equilibrium throughout the 
country, certainly some regional differences, but generally, it 
was a decent equilibrium. It was probably a little too much 
capacity for a while, but as you may know, several refineries 
had closed, two in the last couple of years, and that is what 
has created this very tight balance between supply and demand.
    So any program that is put forward to find an alternative 
use of this crop has to recognize that tight balance and has to 
recognize that there needs to be other ways of creating supply 
for the consumption demands in this country, because without 
that, you could have clearly not a sufficient supply of sugar 
to satisfy consumers in this country.
    Senator Coleman. Mr. Goehring, is it fair--by the way, I 
looked at the data and I understand the concern about not only 
relocations in the industry, but there has also been a drop in 
the wholesale price of sugar from 1996 to 2004. Those prices, 
as I understand it, the wholesale price of sugar dropped 20 
percent from 1996 to 2004. That is when you had most of your 
relocations. I suspect that even with sugar at the world price, 
that folks who relocate elsewhere are not coming back to the 
U.S. Is there a way to truly assess the impact of this program 
on relocations in your industry?
    Mr. Goehring. You know, I think it is different for each 
individual company, but I can speak for the Hershey Company. 
The vast majority of our production is located in the United 
States, Senator, although since the 1960's, we have produced in 
places like Canada and Mexico. We are constantly trying to 
evaluate what products ought to be made where, and, of course, 
input costs such as sugar are a major part of our decision 
process. Recently, because of the disparity between the U.S. 
price and access to a world sugar price, people who produce, 
for example, hard candies have been moving production outside 
the U.S. where they can get access to the cheaper-price sugar.
    Senator Coleman. On a personal note, Mr. Williams, because 
I know at the same time we are having this conversation, I have 
been talking to the mayors in Roseau and Crookston and all 
about flooding in your neck of the woods, not too far from 
Fisher, some of those communities there. Could you talk a 
little bit about the program and the impact it has, because we 
have had a lot of discussion here about catastrophe and yet 
prices remain pretty stable. So the American consumers in that 
sense have benefited in spite of what you would see distorting 
market factors. Can you talk on a personal level about that?
    Mr. Williams. Thank you for the question, Senator. This 
program is very important to the growers that I represent, but 
not only to the growers but the communities, because these 
plants located around the country are located mostly in small 
towns and they provide good union jobs. If these plants are 
lost, there is no one to replace--there is no businesses to 
replace these lost jobs. They also need a lot of support 
industries, small businesses, and through the revenue they 
provide, through the economics that they provide, they provide 
a lot of opportunities for small business and small business 
jobs.
    Where I am from in the Red River Valley of North Dakota and 
Minnesota, sugar beets provide over $3 billion of annual 
economic activity. There just is nothing up there to replace 
that activity and those jobs in Northwestern Minnesota and 
North Dakota. So this is very important, not only to me as a 
grower, my growers around the country, it is also very 
important to my banker because we put a tremendous investment 
into this crop and also a tremendous investment into actually 
owning the plants. Every sugar beet processing plant in the 
U.S. is now owned by the growers, as of last year.
    So there are tremendous value-added ag industries that help 
their communities and help their growers and they provide a 
low-calorie, 15-calorie product for consumers at a fair price 
and a good supply, on-time supply for our customers, and we 
think that the program works extremely well for growers and for 
the U.S., not to mention it does not cost the taxpayers any 
money. So thank you for the question, Senator.
    Senator Coleman. Thank you, Mr. Chairman.
    Senator Lugar. Thank you very much, Senator Coleman.
    Let me ask this question, which has not intruded yet in the 
hearing. Given the articles or even larger studies by many 
people interested in nutrition and health, many advise less use 
of sugar. I wonder whether that has affected any of your 
markets, either as persons who produce products or as people 
who produce sugar at all. Is there a trend of that sort, or by 
and large, in your judgment, the American people are ignoring 
that and love sugar products anyway, despite the controversy, 
say, at the school lunch program in which now soft drinks are 
not going to be provided in elementary school situations, 
largely because of obesity studies of young people, far from 
old people? Where does that fit into this situation, demand for 
the product?
    Mr. Peiser. Senator, it is a very good question and I am 
sure Mr. Goehring has something he would like to say, as well. 
But I don't think people argue that people should eat less 
sugar but should do it in moderation, just like everything 
should be done in moderation. There is a lot of confusion in 
the country about sugar and sugars and the distinction between 
sucrose and fructose, and the debate over the school lunch 
program particularly as it relates to soda really relates to 
fructose, since there really is no sucrose in colas. 
Unfortunately, this industry, the sugar industry, gets lumped 
together quite often in that debate and it is very important to 
distinguish between the two.
    Mr. Goehring. Yes, Mr. Senator, there is clearly an 
interest by the American people out there about nutrition and I 
think it is growing. We have seen various dietary trends over 
the past 30 years. Clearly, from our industry's standpoint, we 
say that confectionery products ought to be part of a balanced 
diet and not exclusively or overused. We have had trends in the 
1970's and more recently with the Atkins diet where the sugars 
and the carbs were not considered very good. It seems to have 
rebounded from those very low levels of consumption and 
declines in consumption and it is probably a more balanced type 
of demand right now.
    Senator Lugar. Let me ask Mr. Peiser, you used the word 
tight balance in discussing the sugar situation in our country 
in recent months and all. If you were to play the devil's 
advocate, someone would say, well, why in the world was there a 
tight balance? After all, there is sugar all over the world, in 
40 countries. Mr. Roy has testified that a great number of them 
gain really their development sustenance from the fact that 
they have a part of this situation. So why was the balance so 
tight?
    I understand all the rudiments that have been discussed 
here today and the questions raised about USDA. Were they sort 
of fudging the standards a bit, inviting a little bit of sugar 
in here at that particular point? But arguing once again as the 
devil's advocate, why shouldn't the USDA say, you know, we can 
relieve this in a hurry. As a matter of fact, there is no need 
for tightness whatsoever. Let us reassure the whole public. Let 
us reassure the world that, by golly, there is a lot of sugar 
out there. Now, what is wrong with that point of view?
    Mr. Peiser. I think the balance of different constituents' 
interests is very important here and everybody has somewhat of 
a different point of view, and you are right, everybody is a 
little bit parochial, but all the parochial interests tend to 
look at the public good.
    If you went back several years ago, and I don't think you 
have to go back more than two or three, the balance was, in 
fact, tight. The refining capacity in this country was quite a 
bit bigger than it is today. Because of the difficulties of the 
independent refiners being able to create a margin that made 
sense, several refineries closed. Domino closed their refinery 
in Brooklyn. We closed our refinery in Sugar Land, Texas. That 
is what has created the tight balance, and both of us closed 
that because we couldn't make money there. Notwithstanding 
everybody's parochial interests, I think everybody has to make 
a little bit of money.
    The desire to open up the borders to create more supply in 
this country certainly serves some interests. It might not 
serve others. So we are sitting here saying we don't mind some 
increase in importation of sugar to create a little bit more of 
a leeway because it is clear that any shock to the system is 
difficult to absorb. But talking about consensus of interests, 
if we go too far, we are probably hurting some other 
constituents too much. So we support the whole notion of a 
consensus among all the various groups.
    We are interested in obtaining more raw material to make 
our factories efficient and to be able to service the customers 
that we have in our local regions. It is a very regional 
business. You can have surplus sugar out West that doesn't help 
the people in Georgia and North Carolina who rely on our 
refineries. So there is a balance. We would support some 
increase in imports to be able to provide more raw material for 
us. At the same time, we recognize the issues that others face 
and I think there has to be a balanced approach.
    Senator Lugar. Senator Coleman has spent a lot of time in 
his role as subcommittee chairman in Foreign Relations talking 
about CAFTA and Latin American trade. One of the issues that 
always arises when we discuss trade openings with our friends 
in Central or South America is sugar. Sometimes this is solved 
by a so-called sugar carve-out or compensation or what have 
you. But at the same time, it is apparent here that the overall 
interests of the United States in the stability of our 
hemisphere and the rise of nations that are very close to us is 
a very important consideration and sugar is not always an 
obstacle to this, but sometimes it looms very heavy on the 
horizon in almost any trade negotiation.
    My hope is, once again, there is some thought while we are 
reaching consensus domestically, that some thought be given to 
our worldwide security. That case has been made by some of you 
today, that this is a security issue, and I accept that. But 
security is broader, perhaps, than perhaps that first 
definition, and without knowing what the balance is, I would 
just say that probably we have been inhibited in terms of our 
outreach to our hemisphere and we are paying a certain price 
for that now.
    I won't go into political analysis. Left-of-center 
governments sort of routinely coming on, populist risings and 
so forth--sugar is not the whole of it, and in some cases it 
may be our benign neglect of the area in which we have not 
indicated we cared that much. But now we do care. Senator 
Coleman cares a lot and so do I and so do other members of this 
committee.
    Without, once again, asking you to reformulate, what should 
be the position of Costa Rica, Nicaragua, or what have you, to 
take recent examples, leaving aside the very big issue with 
Brazil? I agreed to do an op-ed piece that appeared in the 
Miami Herald yesterday with the Brazilian ambassador just 
simply trying to say we care about Brazil. Brazil is really 
very important, particularly in the midst of perhaps Venezuela, 
Bolivia, others, and this is the world in which we live, sugar 
people and all the rest of us.
    I don't mean to be obsessed about the issue. I am sort of 
looking for reasons why people in this world might want to use 
more sugar, and I keep coming back to the fact that it is 
probably in the energy situation and even accept the fact that 
in order to get sugar on some sort of a par with corn over 
cellulosic ethanol or with what have you. We may need to think 
about that, as opposed to having the same argument that we 
usually have among interest, parochial or not.
    Mr. Goehring. Senator Lugar, speaking from the sugar 
sweetener users' standpoint, we would be open to all those 
types of ideas and trying to reach a consensus with the rest of 
the industry.
    Mr. Roney. Senator, I might just provide two quick 
thoughts. One is that I think that the market did work 
remarkably well this past year by doubling the imports. I mean, 
when our production dropped, our program was set up in a way 
that the foreign countries that do have surplus sugar were able 
to send that sugar----
    Senator Lugar. Good point.
    Mr. Roney [continuing]. To the U.S. in large volume an we 
maintained stable consumer prices.
    I would also caution in terms of the potential for free 
trade or opening our market, throwing our market open to world 
trade, we know enough about the sugar industry to realize that 
of the 38 countries that supply us with sugar now, 37 of them 
would be harmed and there would be one beneficiary, Brazil, 
because sugar is a byproduct to its cane industry and they 
produce it virtually oblivious to price and have really the 
benefit of 30 years of ethanol subsidies and built up that 
industry. I believe it would be in a position to inundate our 
market to the detriment of all those other developing 
countries.
    So I think this has been a dynamic in the world sugar 
industry that is very pronounced and that is not fully 
understood yet, but it is something that developing countries, 
I think, understand, that we understand, and we are certainly 
seeing the effects in the E.U. of their drop in prices, as Mr. 
Roy mentioned. It is potentially devastating to quite a number 
of developing countries and will harm them more than it will 
help them.
    Senator Lugar. I would invite you, Mr. Roney, or others 
just to back up those points and help the committee understand 
what the effects are on the other 37 countries, you know, who 
they are--we have a glimpse of that today--and why what you say 
has validity, if, in fact, this may be a another whole set of 
circumstances while we are trying to balance interests to try 
to think through really where everybody does lie in the world, 
in addition to vis-a-vis our growers or our processors here.
    I suspect that you are right. This is a worldwide issue. I 
suspect that probably all of you are right, that some of the 
E.U. negotiators, if not predatory, are unreasonable on these 
issues. But we probably need to understand their issues, 
likewise, to be better negotiators as opposed to just simply 
throwing in the towel and saying, you are obtuse, and so as a 
result, we don't change. We just kick the can down the road. 
That is less and less satisfying, even though from the 
standpoint of the work of the Congress, given lots of other 
things to do, temporarily, often it is expedient. Let us not 
discuss sugar this year. Let us try something else.
    I applaud the chairman for wanting to discuss sugar well in 
advance. We are not really in the throes of the farm bill. USDA 
hasn't made their very first recommendation. I hope they will 
make one someday and suggest their own views, really, of how 
this might work out.
    Mr. Peiser. Senator, with all due respect to Mr. Roney, the 
system this year barely worked.
    The Chairman. Barely worked.
    Mr. Peiser. Barely worked. There were some plants of our 
customers that closed from time to time because of the 
unavailability of sugar. We came within hours at some times of 
running out of raw material. We all are very lucky that it 
might not have been worse. There was a heavy reliance on 
Mexico. We were fortunate that there was enough sugar that 
could be exported from Mexico. Often, however, it didn't come 
in in the right specifications of quality. It didn't come in in 
the right bags. When you try to change the system that quickly, 
from a very strict set of parameters to one that is a lot 
looser, there are logistics issues that don't work well.
    So what I heard Dr. Penn say earlier was that he would like 
to see a little more flexibility in the program. We are a 
supporter of the program. I don't want to give anybody the 
impression that we don't support the program. But we do support 
more flexibility in the program and we do support a way of 
making sure that there is a sufficient amount of raw material 
so that the refining capacity in this country can be fully 
utilized.
    Senator Lugar. Senator Coleman, do you have some final 
questions?
    Senator Coleman. No. I appreciate this hearing. It has been 
very helpful and certainly we have more work to be done, but 
clearly, as Mr. Williams indicated, and I believe we used the 
word parochial, Mr. Chairman. When I have an industry that it 
is $3 billion of the economy plus tens of thousands of workers, 
not just those in the factories but those in the towns and 
others, to me, that is not parochial. That is doing your job 
representing the people you are supposed to represent. So these 
are important interests here and let us figure out how to move 
it forward.
    Mr. Goehring. Senator Lugar, could I make one small point 
here?
    Senator Lugar. Sure.
    Mr. Goehring. I would like to respectfully disagree with 
some of the statements that Mr. Roney made in the sense that 
the price of sugar today and the wholesale price is at a very 
high level. It is at the highest point that we have seen in 25 
years. So we have not really seen stable prices over the past 
three or 4 years, and especially since the hurricane. 
Industrial users are paying very high prices for sugar today.
    Senator Lugar. Yes, sir, Mr. Roy?
    Mr. Roy. If I may, I just wanted to share perhaps the 
experience of Mauritius as far as energy, using sugar for 
energy. We principally use bagasse through co-gen projects. We 
currently are supplying 20 percent of our requirements in 
energy through bagasse and we have recently examined the 
possibility of ethanol. As you know, before, ethanol was not 
very cost effective because the price of oil was the way it 
was. But today, the problems with ethanol, because ethanol, you 
can make that from molasses, so there is no need for you to 
divert cane juice.
    But the problems you have with ethanol is that the revenue 
that you get out of it is not that much. You have a tremendous 
problem of disposal of waste, vinasse. You have got to treat 
it. It is very costly to do that. And third, and this is an 
issue we are looking at today, that you could get ethanol 
imported at such a low price that whether it is worthwhile to 
make the capital investment to do ethanol, because as you know, 
ethanol, you can also do, and this was said this morning, from 
other more interesting inputs, such as corn. So these are the 
issues one must look at with ethanol when one looks at it. 
Thank you, Chairman.
    Mr. Ellender. Mr. Chairman, Mr. Peiser talked about 
doubling the price. I received roughly 20 cents a pound on the 
raw price for my product last year. This year, I received 
roughly 21 to 22, so on my side, it didn't double. Even with my 
Louisiana education, I can figure that 20 to 22 cents doesn't 
double.
    [Laughter.]
    Mr. Ellender. The market, the program almost didn't work. 
Dr. Penn made the comment that we went through a tumultuous 
period in South Louisiana, and for anyone in South Louisiana, 
that is quite an understatement over the last year with Katrina 
and Rita, and the Florida people experienced Wilma, also. So 
despite three Category 3 to 5 storms hitting directly our sugar 
industry, the sugar still worked.
    Senator Lugar. We thank each one of you for the longevity 
of your experience this morning. It is a hearing that is very 
helpful to us. The original papers that the chairman made a 
part of the record in full as well as your testimony are 
informative to us and to our other colleagues and our staffs 
who will read them. We look forward to more consultation with 
you as you proceed and wish you well in your proceeding.
    Having said that, the hearing is adjourned.
    [Whereupon, at 12:15 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                              May 10, 2006



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                              May 10, 2006



      
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                         QUESTIONS AND ANSWERS

                              May 10, 2006



      
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