Sugar Program Making Cookies Costlier Proving Hard to Kill

U.S. sugar policy, a source of conflict that predates the American Revolution, is drawing fire for raising consumer prices as lobbyists and lawmakers rally to defend a system that restricts the sweetener’s supply.

A program that limits imports and props up prices for less than 5,000 growers survived a challenge today from Pennsylvania Republican Senator Pat Toomey during the farm-bill debate. Supporters from cane- and beet-producing states last week defeated New Hampshire Democrat Jeanne Shaheen’s effort to phase out sugar support altogether by a 50-46 margin.

The near-successful assault against the decades-old policy shows even well-entrenched farm programs are vulnerable to lawmakers concerned about the economy and budget this year, said Tom Earley, a sugar analyst with food research firm Agralytica, formerly Promar International, in Alexandria, Virginia.

“This is one of the most intrusive, anti-market policies that we have,” Earley said. “If our producers are as efficient as they claim, we do not need this program.”

Sugar, grown in about 120 countries, is used in everything from HJ Heinz Co. (HNZ) ketchup to Kraft Foods Co. (KFT) snack cakes, and has generated political controversy for centuries.

Colonial Conflict

The British Sugar Act of 1764 restricted trade in Colonial America, fanning the flames of rebellion. Since 1934, the U.S. government has regularly raised the sweetener’s price by controlling its supply. The approach, once commonly used for crops from wheat to tobacco, has been discarded for most commodities as producers rely more on exports to feed profits.

Not so with sugar. About three-quarters of all U.S. consumption is grown domestically, and the country isn’t a major exporter. Cane-growing Brazil is responsible for about two- fifths of global shipments, followed by the beet-growing European Union, and Australia and Thailand. U.S. import access is controlled by a quota system in which purchases beyond a level based on trading patterns from 1975 to 1981 are heavily taxed.

Each of the four major sugar exporters has its own tariffs, along with other subsidies, as global trade in the sweetener remains highly regulated. “The sugar market is the most grossly distorted market in the world,” making protections necessary for U.S. farmers, said Philip Hayes, spokesman for the Arlington, Virginia-based American Sugar Alliance, a collection of grower groups in 16 states.

The tight relationship between sugar and the U.S. government has made sweetener the most lobbied food crop in Washington.

Big Spenders

The U.S. Sugar Beet Association was the biggest farm-lobby spender in 2011, with $1.8 million in contributions, and five of the top 10 lobbyists were sugar companies or trade groups. Moorhead, Minnesota-based American Crystal Sugar Co. is the biggest agribusiness campaign contributor this election cycle, giving $1.4 million, more than four times as much as Monsanto Co. (MON), according to the Center for Responsive Politics.

Because import restrictions limit competition, U.S. prices tend to be higher than the world market, which snack-food and beverage companies say hurts their profits and costs jobs. World futures prices were 44 percent higher than domestic over the past three years through June 18, according to data compiled by Bloomberg.

Eliminating the program would lower raw U.S. sugar prices as much as 34 percent and save consumers up to $3.5 billion annually, about $9 to $11 a person, according to an Iowa State University study last year.

‘Hidden Tax’

“This is a hidden tax on every consumer,” said Jennifer Cummings, spokeswoman for the Coalition for Sugar Reform, a Washington-based organization that includes the U.S. Chamber of Commerce, the National Association of Manufacturers and trade groups from the food and beverage industry. “We’re up against entrenched interests on this issue, but we think when we outline the cost to consumers and jobs, that’s a compelling argument.”

Senator Shaheen last week called sugar-supply management an “outdated program” that “puts American companies at a competitive disadvantage.” Her amendment would have eliminated the entire program, including import quotas. Toomey’s measure, which he called “modest” in today’s floor debate, lost with 53 votes in opposition. It would have kept the quota system while making it easier for countries to shift their allocations within it.

It also would have ended other aid for producers, such as a 2008 requirement that the government buy excess sugar to make into ethanol. Toomey said the amendment would have saved taxpayers money and protected jobs.

Bipartisan Opposition

Both the Toomey and Shaheen efforts were defeated by a bipartisan coalition of lawmakers centered in cane and beet states including Republican Senator Marco Rubio of Florida, a potential vice-presidential candidate, and Senate Budget Committee Chairman Kent Conrad, a Democrat from North Dakota.

“I strongly urge a ‘no’ vote,” said Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat, on the Senate floor in response to Toomey. Changing sugar policy would actually cost U.S. jobs, she said, as cheap sweetener would harm the domestic industry, she said. “If we’re importing cheap sugar at a point where we undermine American jobs, what have we gained?” she asked.

Passage Expected

The Senate may pass the farm bill late today or tomorrow, after disposing of dozens of proposed amendments, Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat, said today in a conference call with reporters. The House Agriculture Committee will then draft its version of the bill for that chamber’s consideration, she said.

In the House panel, the fight to protect sugar is led by ranking Democrat Collin Peterson of Minnesota, whose district includes the headquarters of American Crystal, his second- biggest campaign donor during more than two decades in Congress. Peterson has said the current sugar program will not change in the House bill.

The depth of support in the Senate may embolden House challenges, said Gary Blumenthal, president of World Perspectives Inc., an agricultural researcher in Washington. “It’s not like in the past, when sugar had all the votes lined up. The sugar groups have to be working extra hard right now.”

Sugar-program supporters have one card they’ve played effectively in the past, Blumenthal said. Because a supply- management approach raises farmer income without spending government money, it’s not considered a budgetary expense.

Lawmakers are planning to cut subsidies for corn, cotton and other crops to reduce the deficit. The sugar program, meanwhile, is estimated to cost the government nothing between now and 2022, according to the Congressional Budget Office. Current policies are attractive because they come at no net cost to the taxpayer, said Hayes from the Sugar Alliance.

“If you look at why Congress is reforming policy, it’s to save money. That’s the whole reason,” he said. Besides, he added, “does anyone really believe that the large candy companies are going to pass on savings with cheaper candy bars?”

The bill is S. 3240.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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