Free trade pressures the sugar industry

Americans eat a lot of sugar. A teaspoon with morning coffee or a cup for that pumpkin pie recipe, it all adds up to 60 pounds of refined sugar a year for the average consumer.

"The unknown aspect about Mexico is really the dngerous thing about sugar."

Refined sugar is made from sugar cane or sugar beets. Sugar cane is grown in the south. Beets grow best in the Midwest. Minnesota and North Dakota lead the nation in sugar beet production. American Crystal Sugar President David Berg says the price rarely changes.

"I ask my friends, 'What did you pay for gasoline last time you bought it?' And they know to a tenth of a cent what they paid for gasoline," says Berg. "Then I ask them what they paid for sugar, and they have no idea. This has worked for the consumer to the extent if you don't know what you're paying for sugar it must be pretty cheap."

Protecting American farmers is nothing new. Congress first imposed taxes on imported sugar more than 200 years ago.

The sugar program has many detractors who say consumers would pay less for sugar without a farm program. The world sugar price is volatile, but often lower than the U.S. market. That's because other countries also subsidize their sugar production.

The sugar program restricts sugar imports from other countries. That helps prop up the price of sugar for U.S. producers. If sugar falls below a set price per pound, the government buys the sugar. So farmers are guaranteed a minimum price.

Import quotas have kept prices up. The government has rarely been forced to buy sugar. But the cost to taxpayers could change under the new farm bill. The reason is the North American Free Trade Agreement. Starting in January, NAFTA eliminates all tariffs on Mexican sugar.

North Dakota State University Agricultural Economist Skip Taylor, says the U.S. is an attractive market for Mexican sugar producers because the price is so much higher than the world market.

"The unknown aspect about Mexico is really the dangerous thing about sugar," says Taylor.

Mexico may threaten the U.S. sugar industry in the future, but not in the next couple of years.

"Currently Mexico does not have excess sugar to import into to the United States, and with their sugar industry it doesn't look like they will in the future unless they convert their soft drink industry to corn syrup," says Taylor.

That would be a huge change for a country that now uses sugar to sweeten soft drinks. Analysts say it's the only way Mexico would have lots of excess sugar to export.

The Congressional budget office predicts Mexican sugar will cost taxpayers $1.2 billion over the next ten years. That's because Mexican imports will drive down the price of sugar, forcing the government to buy excess sugar from U.S. growers.

In response, Congress added an ethanol provision to the sugar program. It would require the government to buy excess sugar and sell it for ethanol production.

NDSU economist Skip Taylor says there's just one problem.

"Sugar is way too expensive to make ethanol out of. Brazilian sugar, sugar cane, is priced at about eight cents a pound, our sugar is priced at 21 cents a pound. We cannot make ethanol out of sugar. It's just too expensive," explains Taylor.

Everyone agrees. No one is making ethanol from sugar in the U.S. But Cong. Collin Peterson who chairs the House agriculture committee, says sugar can be blended with corn to make ethanol. He says it's a way for the government to recover some of anticipated costs of supporting U.S. sugar growers in the future.

Peterson says he's not convinced the government will ever need to buy excess domestic sugar. He says it's unclear if Mexico will produce enough sugar to sell large amounts in the U.S.

And Peterson says more countries, like Brazil and Thailand are making ethanol from sugar.

"That's one of the unknowns. How much sugar is going to be diverted to ethanol? The more sugar that's diverted the more the world price goes up and the less pressure there is on the U.S. Program," says Peterson.

If the world sugar price goes up the government likely won't have to buy sugar from U.S. producers under the sugar program.

Peterson sees politics as a greater threat to sugar beet growers in Minnesota and North Dakota. He says if a new farm bill isn't passed, the president could force cuts in U.S. sugar production. The NAFTA agreement that allows Mexican sugar into the U.S., also gives the president authority to cut domestic production.

Peterson says it's unclear if sugar beets or sugar cane would take the biggest hit.

"It starts a fight within sugar. It starts a fight between cane and beets and that's what they want," says Peterson. "They want sugar divided. If they get sugar divided, then they can take them apart."

Congress wants to protect the sugar industry from the uncertainty of free trade. The Bush administration wants to let free trade decide who survives.

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