The U.S. Sugar Regime: Options for Reform David Blandford Penn State University German Marshall Fund Luncheon Washington, DC. November 16, 2005

Two scenarios examined Focus on impact of duty-free imports of sugar from Mexico from 2007/08 Low imports – increase in duty-free imports of roughly 200,000 short tons High imports – increase in duty-free imports of sugar of over 1.3 million short tons (use of HFCS in Mexican beverages is a key factor) Note: all the numbers for future years (FY2006 – 2015) are projections not forecasts!

U.S. sugar prices: the two scenarios

Bottom line… A significant increase in imports from Mexico would mean that the sugar program could not operate on a no-cost basis Would a shift to a “standard” commodity program be feasible? Key elements - elimination of marketing allotments, reduction in loan rates, use of direct payments

Parameters for the standard program scenario CaneBeets Loan rate12 cents/lb cents/lb. Direct payment3 cents/lb.3 cents/lb.* Target price20 cents/lb.20 cents/lb.* Base area1 mil. acres1.497 mil. acres Program yield4.27 tons/acre3.22 tons/acre* *Except for loan rates, beet sugar provisions are expressed in raw sugar equivalents. Counter-cyclical payment rates for both cane and beet sugar are determined by the following formula: max(0, (Target price - Direct payment rate - NY raw sugar price)

Sugar and sweetener prices (high import assumption FY average) BaselineScenario% Difference Raw cane sugar (cents/lb.) Refined beet sugar (cents/lb.) Retail sugar (cents/lb.) HFCS (cents/lb.) Sugar cane/ton$25.33$ Sugar beets/ton$37.08$

Producer returns ($) (high import assumption FY average) BaselineScenarioDifference Cane market value/ harvested acre Cane DP/base acren.a.218 Cane CCP/base acren.a.17 Cane LDP/harv. acren.a.00 Beet market value/ harvested acre Beet DP/base acren.a.164 Beet CCP/base acren.a.13 Beet LDP/base acren.a.18

Sugar payments (high import assumption FY average, mill. $) CaneBeetsTotal Direct payments Counter-cyclical payments Loan deficiency payments 023 Total sugar payments * * With no payment limitations; $224 million with payment limitations?

Government outlays (high import assumption FY average, mill. $) Total New sugar payments 521 Change in sugar storage & loan costs -176 Change in corn CCPs +16 Net of above362* With no payment limitations; $64 million with payment limitations? Approximate “break-even” direct payments gives net cost of $100 million

The full AFBF sugar study can be found at Environment and natural resources Community economic development Food and agricultural systems