Sugar prices hit a 27-year high in August this year, when they had surged 80 percent since the start of the year. Meanwhile, sugar stocks have slumped, leading to widespread concern among food manufacturers, as other commodity prices are also high at a time when recession-squeezed consumers are closely watching their food spend.
Despite pleas from industry to increase sugar import quotas in an effort to drive down prices, the US Department of Agriculture (USDA) announced last month that it would set import quotas at the minimum level required under World Trade Organization agreements, prompting Promar to put together a report on the issue. Entitled Responsible Management of the Sugar Program Requires A Quota Increase, it urges the USDA to act promptly to boost quotas.
“Failure to act in a timely manner risks locking in high sugar costs for consumers and for food and beverage manufacturers for another year,” it said.
The report claims that although the USDA has said it will “monitor stocks, consumption, imports, and all sugar market and program variables on an ongoing basis,” stocks need to be boosted now in order to ease prices. In particular, it points to global supply problems – due to adverse weather conditions in India and Brazil, the world’s two largest sugar suppliers – that could exacerbate price uncertainty unless quotas are increased quickly.
“When there is a tight world sugar market, one cannot assume that six months from now there will be uncommitted sugar readily available for sale to the United States,” it said. “…Therefore, it is important that USDA act promptly to increase US sugar import quotas to signal quota countries that they should reserve appropriate quantities for the US market.”
Sugar stocks have hit unprecedented lows, and have been steadily creeping lower each year. Industrial users recommend a 15.5 percent stock to use ratio, the report said, but this year the ratio has slipped below 12 percent.
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.”