Sugar prices soared to nearly $0.21 a pound on the New York futures exchange last month, a surge of 80 percent since the start of the year, and the highest level since 1981. Meanwhile, sugar stocks have slumped, leading to huge concern among food manufacturers, as other commodity prices are also high at a time when recession-squeezed consumers are closely watching their food spend.
In a letter to Agriculture Secretary Tom Vilsack dated August 5, several large food manufacturers, including Kraft, General Mills and Hershey, as well as industry bodies such as the Grocery Manufacturers Association, said that if the situation continues “our nation will virtually run out of sugar”, and urged the USDA to increase imports.
But the USDA has ignored this appeal, setting import quotas for fiscal year 2010 at the minimum of 1,231,497 short tons raw value (STRV). It also boosted the domestic sugar production quota to 9,235,250 STRV, although this is unlikely to affect overall supply, considering that domestic production is expected to fall short of this amount.
Monitoring supply
“Using the most recent available data, the announced OAQ [overall allotment quantity] level is expected to permit domestic sugarcane and sugar beet processors to market all of their fiscal year 2010 sugar production,” USDA said.
It added that cane sugar production was likely to “fall significantly short of its allotment”.
The department said: “USDA believes the domestic market will require additional supplies of sugar during fiscal year 2010 and will closely monitor stocks, consumption, imports, and all sugar market and program variables on an ongoing basis.”
US sugar policy was set with the 1981 Farm Bill and works on the principle that supply should not exceed demand. In order to achieve this, the government can restrict the amount of sugar that American sugar farmers can sell, restrict the amount that the US will buy to the level required by trade obligations, and divert excess sugar to ethanol production. The idea is that sugar prices should remain stable, but this has not been the case.
While the system has come under criticism from food manufacturers, the American Sugar Alliance, a trade organization which represents sugar cane and beet farmers, has accused industry of trying to “flood the sugar market with subsidized imports so they can increase corporate profits.”
Mexican sugar is the only sugar which is not subject to import restrictions in the US, as it is protected by the North American Free Trade Agreement.