"The Department of Agriculture should stop being obsessed with sugar."
America’s sugar import system is a clever economic arrangement. Devised by the economists of the United States Department of Agriculture, it seeks to achieve two desirable objectives.
One objective is to establish and maintain order in the flow of sugar exports to the U.S. from a host of participants in one of the largest segments of world commodities trade; this is important from the standpoint of geopolitics because most of the significant sugar producers are Third World countries that rely on sugar exports for their foreign-currency needs.
The second objective of the USDA’s sugar import system – an objective that is not readily apparent to non-economists – is to protect the U.S. sugar industry from foreign sugar producers able to operate on the basis of lower production costs, e.g., lower wages. The sugarcane producer from California and the sugarbeet producer from Montana are not able to compete with the lower-cost sugar producers of Brazil, Thailand, and Kenya.
The US sugar import system is a quota-cum-premium-price system. Every year the USDA establishes a global total for US sugar imports after deducting estimated domestic production from estimated domestic consumption. The estimated total sugar import requirement is then distributed among the countries wishing to export sugar to the US Obviously, countries that have large sugar industries – for example, Brazil and Mexico – are candidates for big shares of the global import total, but other criteria are observed by the USDA in deciding how big a share, or quota, a particular foreign country gets. The state of a country’s relations with the US is a very important consideration, and so is a country’s record of reliability as a supplier.
The beauty of the US sugar import system is that a foreign country is guaranteed a share of the US sugar market and its sugar sales to the US are paid a set price that is considerably higher than the prices prevailing in the world market. This large premium is in effect the price that the US is willing to pay foreign sugar exporters for refraining from outcompeting America’s sugar producers.
When the Laurel-Langley Agreement was in force, i.e. the 20-year period beginning July 4, 1954, this country enjoyed one of the largest slices of the annual US sugar import pie. Upon the expiry of the Agreement, the Philippines lost its preferential status under the annual US Sugar Act and its share of the premium-price US sugar import total decreased correspondingly. The bulk of this country’s sugar production ceased to be classified as “A” (for export to the US) sugar. Today the export tonnage that is paid the US premium price is now much smaller.
The US market has ceased to be the premium market for domestically produced sugar. Thanks to the steadily increasing rise in domestic-market prices caused by the recurrently precarious balance between production and consumption – this country’s population is believed to have surpassed 110 million – the domestic market has become the premier market for Philippine sugar producers.
That being the case, the Department of Agriculture should stop being obsessed with “A” sugar and should, instead, pay greater attention to the domestic sugar supply situation. It is no longer “A” sugar that commands premium prices; it is now in the domestic market that such prices are found. This is the Philippine sugar industry’s new normal.
That the Secretary of Agriculture and his people are having difficulty adjusting – or are not inclined to adjust – to the fact that the domestic market is now the premium market is indicated by the DA order allocating 7 percent of crop-year 2020-2021 production for export to the US. Though the order has since been rescinded for domestic-supply reasons, rumors are rife that DA is still considering classifying 74,000 metric tons (MT) as “A” sugar. This does not make any sense. The 74,000 MT should be reclassified as “D” sugar and consigned to the domestic market, where it will be paid premium prices.