New Trade Agreements:
Implications for U.S. Sugar
P. Lynn Kennedy
Louisiana State University
Sugar Program
Price Support Loan Program
Tariff-Rate Quota (TRQ) Import System
Price Support Loan Program
The U.S. sugar program provides for the
USDA to make loans available to
processors of domestically grown sugar
cane at a rate of 18¢/lb, 22.9 ¢/lb in
relation to refined sugar.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Price Support Loan Program
Marketing Assessment has been repealed.
Loan Forfeiture Penalties have been
eliminated.
ERS/USDA The 2002 Farm Bill
Price Support Loan Program
“Loans are taken for a maximum term of 9
months and must be liquidated along with
interest charges by the end of the fiscal
year in which the loan was made.”
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
Price Support Loan Program
The loans are Non-recourse.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Price Support Loan Program
The 2002 Farm Act requires the USDA, “to
the maximum extent possible”, to operate
the U.S. sugar loan program at “no cost to
the Federal Government”.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Price Support Loan Program
As another way to guarantee that the
sugar loan program operates at no cost to
the Federal Government, the USDA is
required “to establish flexible marketing
allotments for sugar producers”.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Price Support Loan Program
“The overall marketing allotment quantity
is divided between refined beet sugar
(54.35%) and raw cane sugar (45.65%).”
Hawaii and Puerto Rico share 325,000
STRV.
Other relevant states quantities are
determined through an evaluation of past
marketings, current ability to market sugar,
and past processing levels.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Price Support Loan Program
“The USDA’s authority to operate sugar
marketing allotments is suspended if the
USDA estimates that sugar imports for
domestic human consumption will exceed
1.532 million STRV,” effectively reducing
the overall allotment quantity.
ERS/USDA – Farm Bill 2002: Analysis of Selected Provisions: Sugar
Tariff-Rate Quota (TRQ) Import System
“A tariff rate quota (TRQ) is a two-tiered
tariff for which the tariff rate charged
depends on the volume of imports.”
“A lower (in-quota) tariff is charged on
imports within the quota volume.”
“A higher (over-quota) tariff is charged on
imports in excess of the quota volume.”
ERS/USDA
Tariff-Rate Quota (TRQ) Import System
“In the Uruguay round of the GATT, the
U.S. agreed to make available for import a
minimum quantity, 1.256 million STRV, of
raw and refined sugar each marketing
year (October to September)”.
“Included in this amount is a commitment
to import at least 24,251 STRV of refined
sugar.”
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
Tariff-Rate Quota (TRQ) Import System
“The raw cane sugar TRQ is allocated to
40 countries based on a representative
period (1975-81) when trade was relatively
unrestricted.”
“An additional allocation is made available
to Mexico to satisfy NAFTA obligations.”
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
Potential Free Trade
Agreements
US-Mexico (NAFTA)
Central American Free Trade Agreement
(CAFTA)
Free Trade Area of the Americas (FTAA)
South African Customs Union (SACU)
Australia
Thailand
Total Exports
1000 MT
Australia
Total Sugar
Production
1000 MT
5023
Central America
3831
2309
North America
13747
404
South Africa
2559
1300
South America
33451
16683
Swaziland
628
285
Thailand
6900
5250
3907
2003/2004 Centrifugal Sugar Statistics
Source: FAS/USDA
FY 2005 TRQ Allocation in Metric Tons
Source:
www.ustr.gov
Australia
87402
Central America
350635
North America
(Mexico only)
South Africa
7258
South America
292519
Swaziland
16894
Thailand
14743
24220
NAFTA and US-Mexico Sugar Relations
Original provisions of NAFTA specified:
– Mexican exports limited to no more than net
production surplus of sugar, but at least 7,258
MTRV duty-free
– Duty-free access limited to 25,000 MTRV in
year 1-6; 150,000 MTRV in year 7, increasing
by 10% per year
– Maximums could be exceeded if Mexico
achieved, or was projected to achieve, net
surplus production status for two years
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
NAFTA and US-Mexico Sugar Relations
Side-Letter specified:
– Net surplus producer status determined by
sugar production and sugar and HFCS
consumption
– Duty-free access limited to 25,000 MTRV in
year 1-6; 250,000 MTRV through 2007;
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
NAFTA and US-Mexico Sugar
Relations
300,000
250,000
200,000
150,000
Original
Side-Letter
100,000
2006
2004
2002
2000
1998
1996
0
1994
50,000
NAFTA and US-Mexico Sugar Relations
“The NAFTA specifies a declining high-tier
tariff schedule for raw and refined sugar
over the transition period to duty-free
sugar trade in calendar year 2008.”
“The economic incentive for Mexico to
export high-tier tariff raw sugar exists if a
price threshold is less than or equal to the
U.S. sugar price.”
ERS/USDA Briefing Room – Farm Commodity Policy: Sugar
Program Provisions
Free Trade Area of the Americas
Proposed at 1994 Summit of the Americas
Largest free market in the world
Consists of 800 million consumers
Unite 34 countries with a $13 trillion
aggregate GDP
Latin American imports of US goods
increased 137% between 1990 and 2000
Source: USTR Fact Sheet: Free Trade Area of the Americas
2003 U.S. FTAA Key Area
Proposals
Consumer and Industrial Goods
Agriculture
Services
Investment
Government Procurement
Most recent Summit held in November 2003
Source: USTR Fact Sheet: Free Trade Area of the Americas
South American Sugar Trade
Potential
Brazil – World’s #1 sugar producer
– 2003/2004 Expected Raw Sugar Production –
340-350 MMT
– 2002 Raw Sugar Export Value –$ 1.1 billion
– Russia is their largest sugar importer.
– On a yearly basis, the U.S. imports between
100,000 and 200,000 MT.
ERS/USDA Sugar and Sweeteners Outlook 2003
U.S.-Central American Free Trade
Agreement
Negotiations concluded December 2003
between U.S., El Salvador, Guatemala,
Honduras, Costa Rica and Nicaragua. The
Dominican Republic* recently became a
member.
Tariff elimination and phase out periods based
upon industry specifics upon implementation
Would allow for the expansion of an already
flourishing $1 billion dollar U.S. export market
Source: FAS/USDA Fact Sheet: U.S. Central America Free Trade Agreement
*Dominican Republic information gathered from FAS/USDA, US and Central
American Free Trade Agreement
2001 Central and South American Trade
Balance for Sugar, Total (Raw Equivalent)
Value in $1,000
Central America
South America
2000
2001
%
Change
2000
2001
%
Change
Sugar
Imports
13,567
20,403
50.4%
182,858
235,640
28.9%
Sugar
Exports
416,375 488,022
17.2%
1,603,473
2,705,027
68.7%
Trade
402,808 467,619
Balance
16.1%
1,420,615
2,469,387
73.8%
Source: FAOSTAT Database
Central American Sugar Trade
Potential
CAFTA countries produce 2.4 times the quantity of sugar
consumed domestically. The agreement could expand
current export opportunities (FAS/USDA Nicaragua
Sugar Annual 2003).
Sugar is a very important export commodity for Central
American countries.
CAFTA negotiations have contained issues related to
rules of origin, common tariffs, the net exporter category,
and free access (FAS/USDA Honduras Sugar Annual
2003).
CAFTA countries’ sugar exports total 1.5 million yearly.
Currently under 10% arrives in the U.S. (NDSU
Extension Service Won Koo).
Current CAFTA Sugar Provisions
At onset: extra 90,000 tons to U.S.
Over 15 years: extra 130,000 tons
Continued increases in U.S. imports of
sugar could eventually begin to affect U.S.
sugar production.
Koo, Impacts of U.S.-Central America Free Trade Agreement on U.S.
Sugar Industry
US-Australia
Negotiations Completed February 2004
Ranked 13th in Receipt of US Exports
2nd FTA between the US and a Developed
Nation
Duty-Free: US Ag Exports greater than
$400 million
Special Considerations made to protect
the Dairy and Beef
USTR – US and Australia Complete Free Trade Agreement (February 8,
2004)
Australian Sugar Situation
2001/2002 MY
– Cane Sugar Production totaled 4,610,000 metric tons.
– Total Exports totaled 3,447,000 metric tons.
– Total Imports totaled 5,000 metric tons.
“Independent Assessment of the Sugar Industry”
published in 2002 chronicled the country’s
contention with difficult growing seasons from
1999-2002
– Problems Included
Low prices
Diseases
Inclement Weather Conditions
ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003
Australian Sugar Situation
Recommendations led to the creation of a A$150 million 4-year
assistance program
Assistance Program Consisted of
– Collection of A$100 through a 3 cent/lb. levy on domestic sugar
sales over the course of 5 yrs.
Exports are not included.
939,000 tons of domestic sugar is included.
Imports are not exempt.
It does not include “raw sugar used for refined exports.”
–
–
–
–
Income support
Interest rate subsidies on new loans
Regional projects
Exit assistance program for interested farmers
ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003
US-Thailand
February 2004 Congress Receives
Objectives of US-Thailand FTA
TIFA (Trade and Investment Framework
Agreement) signed in October 2002
Potentially Improve ASEAN Trade
Relations
Ranked 16th in Imports of US Farm
Products
Reduce Existing Barriers in the Thai Market
USTR – USTR Notifies Congress of Intent to Initiate FTA Negotiations with
Thailand (February 12, 2004)
Thailand Sugar Situation
2001/2002 MY
– Cane Sugar Production totaled 6,397,000 metric tons.
– Total Exports Totaled 4,290,000 metric tons.
– No imports during this market year.
Three Tier Quota System
– Quota A – Domestic Consumption
1.85 million tons white sugar
– Quota B – Long-Term Export Commitments
800,000 tons raw sugar
– Quota C – Export Sales
Can only be filled after A and B
ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003
US-South African Customs Union
(SACU)
Continues Efforts Started with the African
Growth and Opportunity Act (AGOA)
Includes Botswana, Lesotho, Namibia,
South Africa, and Swaziland
Initiated in June 2003
Increase Foreign Direct Investment Due to
Linkage with Developed Nation
USTR – Background Information on the US-SACU FTA (June 2, 2003)
SACU Sugar Provisions
Specifically concerned with Import Access
of Sugar
Large portion is designated to Swaziland
Places a limit on Swaziland sugar Sales
Amount is estimated at 260,000 metric
tons.
2000 Agreement with the Southern African
Development Council (SADC)
ERS/USDA Sugar and Sweeteners Outlook/SS-236/January 31, 2003
Additional
U.S. Sugar
Imports
(MT)
0
25,000
50,000
75,000
100,000
150,000
200,000
300,000
400,000
500,000
750,000
1,000,000
1,500,000
2,000,000
3,000,000
1
2
Estimated
World Raw
Sugar Price 1
($ / MT)
169.72
169.77
169.81
169.86
169.90
169.98
170.06
170.25
170.42
170.59
171.03
171.46
172.33
173.23
174.77
Percent
Change
(¢ / lb)
7.70
7.70
7.70
7.70
7.71
7.71
7.71
7.72
7.73
7.74
7.76
7.78
7.82
7.86
7.93
(%)
-0.03
0.05
0.08
0.10
0.15
0.20
0.31
0.41
0.51
0.77
1.02
1.54
2.06
2.97
Estimated U.S. Raw
Sugar Price 2
($ / MT)
505.39
501.35
497.35
493.37
489.37
481.79
474.05
458.95
444.44
430.19
396.68
365.35
309.83
261.58
185.36
(¢ / lb)
22.92
22.74
22.56
22.38
22.20
21.85
21.50
20.82
20.16
19.51
17.99
16.57
14.05
11.87
8.41
Percent
Change
(%)
--0.80
-1.59
-2.38
-3.17
-4.67
-6.20
-9.19
-12.06
-14.88
-21.51
-27.71
-38.70
-48.24
-63.32
World raw sugar prices estimated at 78.5 % of world refined prices (1998-2002 average).
U.S. raw sugar prices estimated at 85.0% of U.S wholesale refined prices (1998-2002 average). Source: Sugar and Sweetener Situation and
Outlook Yearbook, USDA, June 2003.
Implications
Producers
Consumers
Government