1. New Trade Agreements: Implications for U.S. Sugar P. Lynn Kennedy Louisiana State University

2. Sugar Program Price Support Loan Program Tariff-Rate Quota (TRQ) Import System

3. Price Support Loan Program The U.S. sugar program provides for the USDA to make loans available to processors of domestically grown sugar cane at a rate of 18¢/lb, 22.9 ¢/lb in relation to refined sugar. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

4. Price Support Loan Program Marketing Assessment has been repealed. Loan Forfeiture Penalties have been eliminated. ERS/USDA The 2002 Farm Bill

5. Price Support Loan Program “Loans are taken for a maximum term of 9 months and must be liquidated along with interest charges by the end of the fiscal year in which the loan was made.” ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

6. Price Support Loan Program The loans are Non-recourse. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

7. Price Support Loan Program The 2002 Farm Act requires the USDA, “to the maximum extent possible”, to operate the U.S. sugar loan program at “no cost to the Federal Government”. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

8. Price Support Loan Program As another way to guarantee that the sugar loan program operates at no cost to the Federal Government, the USDA is required “to establish flexible marketing allotments for sugar producers”. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

9. Price Support Loan Program “The overall marketing allotment quantity is divided between refined beet sugar (54.35%) and raw cane sugar (45.65%).” Hawaii and Puerto Rico share 325,000 STRV. Other relevant states quantities are determined through an evaluation of past marketings, current ability to market sugar, and past processing levels. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

10. Price Support Loan Program “The USDA’s authority to operate sugar marketing allotments is suspended if the USDA estimates that sugar imports for domestic human consumption will exceed 1.532 million STRV,” effectively reducing the overall allotment quantity. ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar

11. Tariff-Rate Quota (TRQ) Import System “A tariff rate quota (TRQ) is a two-tiered tariff for which the tariff rate charged depends on the volume of imports.” “A lower (in-quota) tariff is charged on imports within the quota volume.” “A higher (over-quota) tariff is charged on imports in excess of the quota volume.” ERS/USDA

12. Tariff-Rate Quota (TRQ) Import System “In the Uruguay round of the GATT, the U.S. agreed to make available for import a minimum quantity, 1.256 million STRV, of raw and refined sugar each marketing year (October to September)”. “Included in this amount is a commitment to import at least 24,251 STRV of refined sugar.” ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

13. Tariff-Rate Quota (TRQ) Import System “The raw cane sugar TRQ is allocated to 40 countries based on a representative period (1975-81) when trade was relatively unrestricted.” “An additional allocation is made available to Mexico to satisfy NAFTA obligations.” ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

14. Potential Free Trade Agreements US-Mexico (NAFTA) Central American Free Trade Agreement (CAFTA) Free Trade Area of the Americas (FTAA) South African Customs Union (SACU) AustraliaThailand

15. Total Sugar Production 1000 MT Total Exports 1000 MT Australia50233907 Central America38312309 North America13747404 South Africa25591300 South America3345116683 Swaziland628285 Thailand69005250 2003/2004 Centrifugal Sugar Statistics Source: FAS/USDA

16. FY 2005 TRQ Allocation in Metric Tons Source:www.ustr.gov Australia87402 Central America 350635 North America (Mexico only) 7258 South Africa 24220 South America 292519 Swaziland16894 Thailand14743

17. NAFTA and US-Mexico Sugar Relations Original provisions of NAFTA specified: –Mexican exports limited to no more than net production surplus of sugar, but at least 7,258 MTRV duty-free –Duty-free access limited to 25,000 MTRV in year 1-6; 150,000 MTRV in year 7, increasing by 10% per year –Maximums could be exceeded if Mexico achieved, or was projected to achieve, net surplus production status for two years ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

18. NAFTA and US-Mexico Sugar Relations Side-Letter specified: –Net surplus producer status determined by sugar production and sugar and HFCS consumption –Duty-free access limited to 25,000 MTRV in year 1-6; 250,000 MTRV through 2007; ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

19. NAFTA and US-Mexico Sugar Relations

20. “The NAFTA specifies a declining high-tier tariff schedule for raw and refined sugar over the transition period to duty-free sugar trade in calendar year 2008.” “The economic incentive for Mexico to export high-tier tariff raw sugar exists if a price threshold is less than or equal to the U.S. sugar price.” ERS/USDA Briefing Room – Farm Commodity Policy: Sugar Program Provisions

21. Free Trade Area of the Americas Proposed at 1994 Summit of the Americas Largest free market in the world Consists of 800 million consumers Unite 34 countries with a $13 trillion aggregate GDP Latin American imports of US goods increased 137% between 1990 and 2000 Source: USTR Fact Sheet: Free Trade Area of the Americas

22. 2003 U.S. FTAA Key Area Proposals Consumer and Industrial Goods AgricultureServicesInvestment Government Procurement Most recent Summit held in November 2003 Source: USTR Fact Sheet: Free Trade Area of the Americas

23. South American Sugar Trade Potential Brazil – World’s #1 sugar producer –2003/2004 Expected Raw Sugar Production – 340-350 MMT –2002 Raw Sugar Export Value –$ 1.1 billion –Russia is their largest sugar importer. –On a yearly basis, the U.S. imports between 100,000 and 200,000 MT. ERS/USDA Sugar and Sweeteners Outlook 2003

24. U.S.-Central American Free Trade Agreement Negotiations concluded December 2003 between U.S., El Salvador, Guatemala, Honduras, Costa Rica and Nicaragua. The Dominican Republic* recently became a member. Tariff elimination and phase out periods based upon industry specifics upon implementation Would allow for the expansion of an already flourishing $1 billion dollar U.S. export market Source: FAS/USDA Fact Sheet: U.S. Central America Free Trade Agreement *Dominican Republic information gathered from FAS/USDA, US and Central American Free Trade Agreement

25. 2001 Central and South American Trade Balance for Sugar, Total (Raw Equivalent) Value in $1,000 Central America South America 20002001 % Change 20002001 Sugar Imports 13,56720,40350.4%182,858235,64028.9% Sugar Exports 416,375488,02217.2%1,603,4732,705,02768.7% Trade Balance 402,808467,61916.1%1,420,6152,469,38773.8% Source: FAOSTAT Database

26. Central American Sugar Trade Potential CAFTA countries produce 2.4 times the quantity of sugar consumed domestically. The agreement could expand current export opportunities (FAS/USDA Nicaragua Sugar Annual 2003). Sugar is a very important export commodity for Central American countries. CAFTA negotiations have contained issues related to rules of origin, common tariffs, the net exporter category, and free access (FAS/USDA Honduras Sugar Annual 2003). CAFTA countries’ sugar exports total 1.5 million yearly. Currently under 10% arrives in the U.S. (NDSU Extension Service Won Koo).

27. Current CAFTA Sugar Provisions At onset: extra 90,000 tons to U.S. Over 15 years: extra 130,000 tons Continued increases in U.S. imports of sugar could eventually begin to affect U.S. sugar production. Koo, Impacts of U.S.-Central America Free Trade Agreement on U.S. Sugar Industry

28. US-Australia Negotiations Completed February 2004 Ranked 13 th in Receipt of US Exports 2 nd FTA between the US and a Developed Nation Duty-Free: US Ag Exports greater than $400 million Special Considerations made to protect the Dairy and Beef USTR – US and Australia Complete Free Trade Agreement (February 8, 2004)

29. Australian Sugar Situation 2001/2002 MY –Cane Sugar Production totaled 4,610,000 metric tons. –Total Exports totaled 3,447,000 metric tons. –Total Imports totaled 5,000 metric tons. “Independent Assessment of the Sugar Industry” published in 2002 chronicled the country’s contention with difficult growing seasons from 1999-2002 –Problems Included Low prices Diseases Inclement Weather Conditions ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003

30. Australian Sugar Situation Recommendations led to the creation of a A$150 million 4-year assistance program Assistance Program Consisted of –Collection of A$100 through a 3 cent/lb. levy on domestic sugar sales over the course of 5 yrs. Exports are not included. 939,000 tons of domestic sugar is included. Imports are not exempt. It does not include “raw sugar used for refined exports.” –Income support –Interest rate subsidies on new loans –Regional projects –Exit assistance program for interested farmers ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003

31. US-Thailand February 2004 Congress Receives Objectives of US-Thailand FTA TIFA (Trade and Investment Framework Agreement) signed in October 2002 Potentially Improve ASEAN Trade Relations Ranked 16 th in Imports of US Farm Products Reduce Existing Barriers in the Thai Market USTR – USTR Notifies Congress of Intent to Initiate FTA Negotiations with Thailand (February 12, 2004)

32. Thailand Sugar Situation 2001/2002 MY –Cane Sugar Production totaled 6,397,000 metric tons. –Total Exports Totaled 4,290,000 metric tons. –No imports during this market year. Three Tier Quota System –Quota A – Domestic Consumption 1.85 million tons white sugar 1.85 million tons white sugar –Quota B – Long-Term Export Commitments 800,000 tons raw sugar 800,000 tons raw sugar –Quota C – Export Sales Can only be filled after A and B ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003

33. US-South African Customs Union (SACU) Continues Efforts Started with the African Growth and Opportunity Act (AGOA) Includes Botswana, Lesotho, Namibia, South Africa, and Swaziland Initiated in June 2003 Increase Foreign Direct Investment Due to Linkage with Developed Nation USTR – Background Information on the US-SACU FTA (June 2, 2003)

34. SACU Sugar Provisions Specifically concerned with Import Access of Sugar Large portion is designated to Swaziland Places a limit on Swaziland sugar Sales Amount is estimated at 260,000 metric tons. 2000 Agreement with the Southern African Development Council (SADC) ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003

35. Additional U.S. Sugar Imports Estimated World Raw Sugar Price 1 Percent Change Estimated U.S. Raw Sugar Price 2 Percent Change (MT)($ / MT)(¢ / lb)(%)($ / MT)(¢ / lb)(%) 0 25,000 50,000 75,000 100,000 150,000 200,000 300,000 400,000 500,000 750,000 1,000,000 1,500,000 2,000,000 3,000,000 169.72 169.77 169.81 169.86 169.90 169.98 170.06 170.25 170.42 170.59 171.03 171.46 172.33 173.23 174.77 7.70 7.71 7.72 7.73 7.74 7.76 7.78 7.82 7.86 7.93 - 0.03 0.05 0.08 0.10 0.15 0.20 0.31 0.41 0.51 0.77 1.02 1.54 2.06 2.97 505.39 501.35 497.35 493.37 489.37 481.79 474.05 458.95 444.44 430.19 396.68 365.35 309.83 261.58 185.36 22.92 22.74 22.56 22.38 22.20 21.85 21.50 20.82 20.16 19.51 17.99 16.57 14.05 11.87 8.41 - -0.80 -1.59 -2.38 -3.17 -4.67 -6.20 -9.19 -12.06 -14.88 -21.51 -27.71 -38.70 -48.24 -63.32 1 World raw sugar prices estimated at 78.5 % of world refined prices (1998-2002 average). 2 U.S. raw sugar prices estimated at 85.0% of U.S wholesale refined prices (1998-2002 average). Source: Sugar and Sweetener Situation and Outlook Yearbook, USDA, June 2003.

36. Implications ProducersConsumersGovernment