[Congressional Record Volume 141, Number 187 (Monday, November 27, 1995)]
[Senate]
[Pages S17536-S17537]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         DOMESTIC SUGAR POLICY

  Mr. CRAIG. Mr. President, I find it necessary today to set 
the record straight on the issue of domestic sugar policy. My remarks 
are in reference to comments made on November 17, 1995, by my good 
friend from Nevada, Senator Reid, and on November 18, 1995, by my 
colleague from New Hampshire, Senator Gregg.


                 Everyone Benefits From Family Farmers

  First, let me tell you about the significant importance of sugar to 
my State of Idaho; 1,800 family farms raise sugar beets on an annual 
basis. These farms combine to grow over 200,000 acres and produce over 
5 million tons of sugar beets. Sugar beets are the third largest crop 
in Idaho after potatoes and wheat.
  Sugar-beets are also important to the communities where these family 
farmers live. Farmers generate sales at local businesses for their 
vehicles, fuel, farm implements, irrigation materials, fertilizer, and 
other inputs.
  These sugar-beet farmers are also efficient. Of the 31 countries 
around the world that produce beet sugar, the U.S. beet-sugar industry 
is the second lowest cost producer. While these farmers are efficient, 
they need the stability of U.S. sugar policy to compete against unfair 
subsidies and trade practices used by foreign countries.
  Sugar beets provide direct employment opportunities in Idaho 
communities. There are three processing facilities in Idaho--plus one 
in nearby Nyssa, OR--owned by the Amalgamated Sugar Co., that combine 
to pay in excess of $45 million in salary and wages to their employees. 
There are 1,200 people employed year round and at the seasonal peak 
total employment approaches 4,000 people.
  The Amalgamated Sugar Co., also pays $50 million annually to the 
truck and rail transporters of raw beet sugar and the finished 
products.


                          Erroneous GAO Report

  My colleagues cited an erroneous figure of $1.4 billion in annual 
consumer costs. This figure is based on an April 1993 General 
Accounting Office report. The U.S. Department of Agriculture recently 
admonished the GAO report for its flawed estimates, omitted data and 
ambiguous results.
  In an October 24, 1995, letter, Under Secretary Gene Moos wrote that

       Some data were used incorrectly and important data and 
     sugar market issues were not considered . . . Based on this 
     world price estimate and an average U.S. sweetener price over 
     1992-1994, a more normal price period, it can be shown using 
     GAO's methodology, that there are no costs to domestic users 
     and consumers.

  Mr. Moos continues:

       The estimated effects of the U.S. sugar program are highly 
     sensitive to expected world prices if global sugar trade is 
     liberalized. GAO's analysis, in my judgement, does not 
     adequately consider the complexities and dynamics of the U.S. 
     and global sugar markets.

  The erroneous GAO results have been misinterpreted by my colleagues. 
First, the mistaken $1.4 billion cost is not a payment to beet or cane 
producers. Sugar is not like the wheat or corn program; sugar farmers 
do not receive a Government payment. Rather, sugar growers pay a 
marketing assessment on their sugar that goes directly toward deficit 
reduction. Over the course of the Balanced Budget Act of 1995, the 
sugar assessment will provide $287 million in deficit reduction.
  Mr. President, at the conclusion of my remarks, I ask that the text 
of the letter from Mr. Moos of USDA to Representative Patsy Mink 
regarding the erroneous GAO report be printed in its entirety.


                      World and U.S. Sugar Prices

  To fully understand the selling price of sugar here and abroad, my 
colleagues need additional insight and information.
  It is important to realize that the world sugar market is very 
volatile due to the small quantities traded and large number of 
countries with protectionist policies. According to USDA, all 110 
countries producing sugar subsidize their sugar production, 
consumption, and/or trade in some way.
  The world price of sugar has ranged from more than 60 cents per pound 
in 1974 and more than 40 cents per pound in 1980 to less than 3 cents 
per pound in 1985.
  This world price does not correspond with the world cost of 
production. In fact, a 1994 Landell Mills study showed that the world 
price average of 8.4 cents per pound between 1982-92 and the average 
cost of production was estimated at 17.5 cents per pound during the 
same period.
  This obvious presence of a world dump market does not and would not 
allow foreign needs to meet domestic demands at the suggested lower 
price. U.S. consumers use about 9 million tons of sugar each year, 
which is equal to more than a third of the total sugar traded on the 
world market each year.


                           Program Extension

  The gentleman from New Hampshire also took issue with the fact that 
the sugar program was extended for 7 years. Mr. President, for the 
record I would like to note that all agricultural commodities were 
extended for 7 years. Yes, every single commodity in the ag title of 
the Balanced Budget Act. This includes not only sugar, but wheat, 
cotton, rice, peanuts, corn, and barley.
  I would point out that the Balanced Budget Act of 1995 was designed 
to achieve a fiscal balance by 2002 and thus most, if not all, of the 
bill's provisions were approved in 7-year time-frames.


                       Record of Committee Review

  For the record, I would also like to review the process of hearings 
and committee markups that the sugar section of the bill underwent 
prior to final inclusion. To suggest that the sugar program slipped 
into the bill is an insult to the members of the Senate Agriculture 
Committee.
  Last December, the Agriculture Committee chairman, Senator Lugar, 
asked 53 questions about domestic agriculture and rural policy that 
began an extremely comprehensive schedule of committee hearings. Eight 
full committee hearings were held between March and June to form the 
foundation of the 1995 agricultural legislation. Four subcommittee 
hearings were also held in May and June. In addition, I personally 
chaired a field hearing in Pocatello, ID, on August 15 to thoroughly 
review farm policy, including 

[[Page S 17537]]
sugar. In addition, the full committee participated in 2 days of 
lengthy debate in late September prior to final approval of the bill.


                  Sugar Program Passes the Reform Test

  In closing let me briefly review the significant reform submitted as 
a result of the thorough committee process and recently approved by the 
Congress in section 1107 of the Balanced Budget Act.
  The sugar program of the future is definitely not the sugar program 
of the past. Consistent with the other ag policy changes, the sugar 
program contributed to deficit reduction and was rewritten to more 
closely respond to market signals.
  Sugar program reform included the removal of marketing allotments, a 
shift to recourse loans, an increased assessment, and a penalty that 
effectively lowers the loan rate by a penny.
  In past years, sugar production was controlled by a system of 
marketing allotments. This bill removes those production controls. The 
Government will no longer tell farmers where and in what quantity they 
can raise sugar. This major reform signifies the end of sugar-supply 
management.
  A recourse loan provision will now apply to the sugar program. Other 
commodities, and previously sugar, utilized a nonrecourse loan program. 
This meant the Government had no means of recovering a defaulted loan 
except collection of the commodity used as collateral. The new sugar 
program will not allow that risk to the Federal Government. This is 
significant to farmers, because it eliminates any guarantee of previous 
minimum payments.
  The most significant reform provision is a new penalty on any sugar 
that is forfeited to the Government. This 1-cent penalty effectively 
lowers the loan rate by a penny. That occurs because the loan holders 
will lower the sales price of their sugar to avoid paying the newly 
instated penalty.
  There are significant real life effects of a 1-cent decrease in the 
sugar loan rate. The average Idaho farmer raises 128 acres of sugar 
beets according to the latest data. The USDA says they will average 25 
tons of sugar beets per acre this year and, given the national average 
extraction rate, this means they will produce 6,924 pounds of refined 
sugar on each acre they harvest in Idaho.
  In Idaho, like most of the rest of the areas where sugar beets are 
grown, the farmer has a contract with the company that processes the 
sugar beets and it provides that the farmer will get 60 percent of the 
value of the sugar he produces.
  Thus, the farmer's share of 1-cent reduction is 60 percent, Six-
tenths of a cent a pound times 6,924 pounds per acre equals $41.55; 
$41.55 loss per acre times the average Idaho farmer's 128 acres equals 
$5,318.40.
  Let me repeat, a 1-cent reduction in the value of sugar per pound 
will cost the average Idaho farmer $5,318.40.
  That $5,318.40 is very often the difference between profit and loss 
for many farmers even during prosperous, let alone difficult, economic 
times in rural America.
  Unfortunately, there is no guarantee that the loss to producers would 
be passed on as savings to consumers.
  A 1-cent reduction might seem minimal to those not familiar with the 
program, but it is not.
  Mr. President, in closing, I ask that my colleagues consider my words 
carefully and come to appreciate the reforms that have been made to the 
domestic sugar program. I also want to commend the other members of the 
Senate Agriculture Committee that combined to craft sugar policy that 
this Congress can be proud to point to as an example of market driven 
reform. Most importantly, I offer my gratitude to the farmers and 
ranchers from across this country that continue to produce a bountiful, 
safe, and reasonably priced food supply.
  The text of the letter follows:

                                    Department of Agriculture,

                                 Washington, DC, October 24, 1995.
     Hon. Patsy T. Mink,
     House of Representatives, Rayburn House Office Building, 
         Washington, DC.
       Dear Congresswoman Mink: Thank you for your letter of July 
     26, 1995, concerning the General Accounting Office (GAO) 
     report that stated that the U.S. sugar program costs domestic 
     users and consumers an average of $1.4 billion annually and 
     GAO's July 1995 analysis that the sugar program cost the 
     Government an additional $90 million in 1994 for its food 
     purchase and food assistance programs.
       In my opinion, GAO's April 1993 report was flawed in its 
     estimates. Some data were used incorrectly and important data 
     and sugar market issues were not considered. Based on GAO's 
     methodology, but by selecting prices in different time 
     periods, the results are more ambiguous. Depending on the 
     timeframe, one may contend that the domestic sugar program 
     either costs or benefits U.S. users and consumers.
       GAO's estimate of $1.4 billion annually was based on an 
     assumption of a long-run equilibrium world price of 15.0 
     cents per pound of raw sugar if all countries liberalized 
     sugar trade. GAO added a transportation cost of 1.5 cents per 
     pound of raw sugar to derive a landed U.S. price (elsewhere 
     in the report GAO stated that the transportation cost 
     adjustment should be 2.0 cents per pound.) To derive a world 
     price of refined sugar of 20.5 cents per pound, GAO added a 
     refining spread of 4.0 cents per pound.
       GAO compared its constructed U.S. sweetener price with its 
     derived world price. However, GAO constructed the U.S. price 
     for the 1989-1991 period during which 1989 and 1990 were 
     unusually high price years for U.S. refined sugar. This 
     exaggerated the difference between the so-called world 
     derived price and the U.S. sweetener price. By selecting a 
     period of world price spikes, such as 1973-1975, GAO's 
     analysis would show an annual savings to domestic users and 
     consumers of $350 to $400 million.
       Clearly, the expected world price of raw sugar with global 
     liberalization is critical to any analyses of the effects of 
     the U.S. sugar program. In 1993, the Australian Bureau of 
     Agricultural and Resource Economics (ABARE) estimated that 
     sugar trade liberalization in the United States, European 
     Union, and Japan alone would result in an average world price 
     of 17.6 cents per pound of raw sugar--2.6 cents per pound 
     higher than GAO's derived world price.
       Based on the ABARE analysis and using a transportation cost 
     of 1.75 cents per pound, which more accurately reflects 
     global transportation costs to the United States, plus a 
     refining spread of 4.27 cents per pound (Landell Mills 
     Commodities Studies, Incorporated), a world price of refined 
     sugar is estimated at 23.6 cents per pound. Based on this 
     world price estimate and an average U.S. sweetener price over 
     1992-1994, a more normal price period, it can be shown using 
     GAO's methodology, that there are no costs to domestic users 
     and consumers.
       The estimated effects of the U.S. sugar program are highly 
     sensitive to expected world prices if global sugar trade is 
     liberalized. GAO's analysis, in my judgment, does not 
     adequately consider the complexities and dynamics of the U.S. 
     and global sugar markets.
       With respect to the effects of the U.S. sugar program on 
     Government costs of its food purchase and assistance 
     programs, an independent analysis by the Economic Research 
     Service (ERS) estimates the cost at $84 million based on the 
     difference between U.S. and world refined sugar prices in 
     1994. However, just as for the GAO analysis, different 
     effects could be estimated by using other time periods when 
     the price gap between U.S. and world prices was smaller. 
     Moreover, with global liberalization, the price gap would 
     narrow because of the dynamics of adjustment which were not 
     considered in the ERS analysis.
           Sincerely,

                                                  Eugene Moos,

                                      Under Secretary for Farm and
     Foreign Agricultural Services.

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