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Statement of Jack Roney


Director of Economics and Policy Analysis,
American Sugar Alliance


Testimony Before the Full Committee
of the House Committee on Ways and Means

April 21, 2005


The American Sugar Alliance is grateful for the opportunity to provide testimony
for this important hearing. The ASA represents the 146,000 American farmers,
workers, and their families in 19 states, engaged directly and indirectly in the
growing, processing and refining of sugarbeets and sugarcane. The U.S. sugar
industry generates nearly $10 billion in annual economic activity.

Background on U.S. and World Sugar Markets

In some states, sugar is the most important cash crop, or among the most
important. Sugar accounts for 44% of crop receipts in Louisiana, 37% in Wyoming,
24% in Hawaii, and 10-20% in Idaho, Minnesota, Florida, North Dakota, Montana,
and Michigan.

American sugar growers and processors are among the most efficient in the world,
and, like other American farmers, we would welcome the opportunity to compete
globally on a level playing field, free of government intervention (Chart 1).
Like other American farmers, we can compete against foreign farmers, but we
cannot compete against foreign government subsidies and predatory trading
practices.

The world sugar market is the world’s most distorted commodity market, because
of a vast, global array of subsidies. Subsidized growers overproduce and dump
their surpluses on the world market for whatever price it will bring. As a
result of all this dumping, the so-called world sugar price has averaged barely
half the world average cost of producing sugar for the past 20 years (Chart 2).
The ASA supports correcting this distorted dump market through genuine global
sugar trade liberalization.

Only Path to Sugar Trade Liberalization: WTO

There is a right way and a wrong way to achieve global sugar trade
liberalization.

The right way: The World Trade Organization (WTO) – all countries at the
table; all programs and all subsidies on the table. The ASA has supported
sugar trade liberalization in the WTO since the initiation of the Uruguay
Round of the GATT in 1986.

The wrong way: Bilateral and regional free trade agreements (FTAs), where
markets are wrenched open without addressing any foreign subsidies. The
Administration has rightfully declared it will not address any support
programs or subsidies in FTAs. Yet it has effectively negotiated away the U.S.
sugar support program in the CAFTA.

Virtually every FTA ever completed around the world excludes import-access
mandates for sugar. Sugar import mandates are excluded from the U.S.-Canada
portion of the NAFTA; from the Mercosur agreement among four South American
sugar producing countries, including Brazil; from the European Union’s (EU)
trade agreements with South Africa, with Japan, and now with Mercosur; from
Mexico’s FTAs with other Latin American countries and with Japan; from Japan’s
pending agreements with Thailand and with the Philippines. Sugar was excluded
from the U.S.-Australia FTA, which USTR touted as a “state of the art” agreement
that gained the U.S. immediate duty-free access for 99% of its exports to
Australia, and which Congress passed easily.

The only exceptions: Sugar market-access mandates were included in the
U.S.-Mexico portion of the NAFTA, and those provisions have been mired in
controversy ever since, and in the CAFTA, whose fate in the Congress is highly
uncertain.

The ASA’s recommendation to the Administration has been long-standing and
unambiguous: Reserve sugar negotiations for the WTO, where genuine trade
liberalization can occur.

CAFTA Dangers to U.S.Sugar, U.S. Economy, WTO Process

The U.S. sugar industry adamantly opposes the CAFTA and respectfully suggests
that this Committee do the same. The potential benefits for the U.S. economy
simply do not outweigh the definite risks. The possible benefits are tiny: The
entire GDP of the six countries is about the same as New Haven, Connecticut’s.
At serious risk are American jobs in sugar and a host of other sectors.

The government’s own analysis, by the International Trade Commission (ITC),
predicts that at the end of the 15-year implementation period, the U.S. trade
deficit with the CAFTA region will have increased, not fallen, to $2.4
billion. (“U.S.-Central America-DominicanRepublic Free Trade Agreement:
Potential Economywide and Selected Sectoral Effects,” Investigation No.
TA-2104-13, August 2004.) Other ITC findings from the same study:

Job losses in the sugar sector will be 38 times greater than job loss in
the next most harmed sector, textiles. ITC also predicted American job
losses in electronic equipment, transport equipment, oil, gas, coal and
other minerals.
The U.S. already has 100% duty-free access for wheat exports to the CAFTA
countries.
The U.S. already accounts for 94% of the small CAFTA market’s grain
imports; and 95% of soybean imports.
The U.S. gets immediate tariff-free access only for prime and choice cuts
of beef. With 40% of the CAFTA population earning less than $2 per day,
the demand for such expensive cuts of beef cannot be great.

FTAs such as the CAFTA distract from, and harm, the progress toward genuine
trade liberalization in the WTO.

For example, after the CAFTA countries have spent years negotiating special
access to the United States, the world’s biggest market, why should these
countries cooperate in Geneva to provide the same access to the U.S. for the
rest of the world?

The FTA approach risks fragmenting the world economy into to a matrix of
trading blocs, each with its own tariff wall around it to protect the
subsidies within. Only in the WTO can we address both the tariff walls and
the subsidies within.

Opposition to the CAFTA is widespread.

The American public correctly perceives that CAFTA dangers outweigh the risks.
Polls indicate a majority of Americans opposes the CAFTA, including
pluralities of Republicans, Democrats, and Hispanics.

Opposition extends to labor, environmental, textile, human rights, and
faith-based organizations, both here and in the CAFTA countries.
Some national farm groups oppose CAFTA, some others are split. American
farmers have grown understandably skeptical that the promises of trade
agreements and other efforts to expand U.S. exports far exceed actual
performance. In 1996, the U.S. achieved a record agricultural trade surplus of
$27.3 billion. In 2004, 11 years into the NAFTA, 10 years into the Uruguay
Round Agreement on Agriculture, and 9 years after the 1996 Freedom to Farm
Bill reduced commodity prices to encourage more exports, our ag trade surplus
has plummeted to zero (Chart 3) – despite the weaker dollar that made our
exports more competitive. Our ag imports have skyrocketed under these
agreements; our exports have been essentially flat.

The CAFTA promises more of the same, particularly in the near term. U.S.
import concessions are frontloaded – concentrated in the early years of the
agreement – and CAFTA-country import concessions are backloaded, to the final
stages of the 15-year implementation period.

As the Congressmen from sugar-producing states know, if the CAFTA passes, it
will have devastating effects on the U.S. sugar industry. Our farmers know
their industry and their policy well, and have examined the CAFTA provisions
soberly and carefully. We regard the CAFTA as a fully genuine, life-or-death
issue. Our farmers, whose livelihoods are at stake, are insulted when USTR
trivializes the potential harm from this agreement with cutesy, misleading
estimates such as the amount of additional access in teaspoons per consumer or
production per day.

We are already one the world’s most open sugar markets. Past trade-agreement
concessions have made us the world’s fourth largest net importer. We are
required, under WTO concessions, to import 1.256 million short tons of sugar per
year from 41 countries, essentially duty free, whether we need the sugar or not.
The six CAFTA countries are already our largest duty free supplier, accounting
for 27% of our WTO-required imports. In addition, we are required under the
NAFTA to import up to 276,000 short tons per year of Mexican surplus sugar
production, again, whether we need the sugar or not.

Unfortunately, U.S. sugar consumption has declined in recent years, rather than
grown. As a result, every additional ton of sugar we are forced to import from
foreign countries is one ton less that struggling American sugar farmers will be
able to produce or sell in their own market.

U.S. sugar policy is unique. It is the only U.S. commodity policy designed to
operate at no cost to taxpayers. During this time of enormous federal budget
pressures, American sugar farmers are proud to have a program with no budgetary
costs (Chart 4).

Congress in the 2002 Farm Bill provided an inventory management approach for
sugar and a mandate for the Administration to operate the program at no cost by
avoiding sugar loan forfeitures. The Administration has two tools to balance the
domestic market: the WTO-legal tariff-rate import quota and domestic marketing
allotments. Basically, USDA forecasts U.S. sugar consumption, subtracts required
WTO and NAFTA imports, and sets the remainder as the American sugar producers’
share of their own market. With a large part of our market guaranteed to foreign
suppliers, American sugar farmers – taxpayers, businessmen, and cooperative
owners – must line up behind the foreign farmers for access to their own U.S.
market. If we produce more sugar than our marketing allotment, our producers
store the excess at their own expense, not the government’s expense, until that
sugar is needed.

Congress stipulated that if imports exceed 1.532 million short tons – the sum of
the WTO commitment of 1.256 million short tons and the NAFTA/Mexico commitment
of up to 276,000 short tons – USDA would lose its authority to administer
marketing allotments and sustain no-cost sugar-program operation. In effect, the
Congress was saying: Though American sugar producers are among the world’s most
efficient, we have already ceded to foreign producers over 1.5 million short
tons of the U.S. market. Let’s reserve the remainder of the U.S. market for
American farmers, rather than giving our market away, piecemeal, to foreign
producers in FTAs (Charts 5, 6).

American sugar producers are currently storing at their own expense about
600,000 tons of surplus sugar, and many are reducing acreage, idling or shutting
down mills – many of them farmer owned – to absorb the oversupply. Sugar prices
have been flat or depressed for some time – the raw cane sugar support price has
been the same 18 cents per pound for 20 years now, since 1985; prices in 2004
averaged 11% lower than in 2003 (Charts 7, 8). Unlike other program crops, sugar
farmers receive no income support from the government to compensate for low
market prices. This allows scarce federal dollars to be directed toward
assisting farmers of export crops.

Sugar farmers, meanwhile, are making wrenching adjustments to survive, or just
going out of business. Fully a third of all U.S. beet and cane mills and
refineries have closed just since 1996, 30 plants in total (Chart 9).

As independent beet processors and cane refiners have gone out of business, beet
and cane farmers, desperate to retain outlets for their beets and raw cane
sugar, have organized cooperatively to purchase those operations. Beet farmers
now own 94% of U.S. beet processing capacity and cane farmers own 57% of U.S.
cane refining capacity (Chart 10).

This vertical integration has helped to increase efficiency, but growers have
literally mortgaged the farm to stay afloat and are deeply in debt. Since sugar
farmers derive 100% of their return from the marketplace and none from
government payments, they are more dependent on, and more vulnerable to, market
forces than other farmers. Sugar farmers are generally unable to switch to other
crops because of their commitment to supplying beets and cane to the processing
mills they now own. This makes sugar farmers all the more vulnerable to the type
of market disruption the CAFTA would be likely to cause.

Sugar farmers based their investment decisions on the promise in the 2002 Farm
Bill of volume and price levels that would enable them to remain in business and
repay their loans. The CAFTA, and other FTAs, now threaten to break that
promise.

Low, Steady U.S. Consumer Prices for Sugar

The low producer prices for sugar over the past several years have been a
hardship for sugar farmers and caused considerable job loss as mills have
closed. Unfortunately, consumers have seen no benefit from the low producer
prices for sugar. Though wholesale sugar prices in 2004 averaged 11% lower than
the previous year and 20% less than in 1996, consumer prices for sugar in the
grocery store have risen modestly; and, sweetened product prices have continued
a steady rise, at least with the overall rate of inflation (Chart 11).

Nonetheless, American consumers are getting a great deal on the sugar they
purchase, with low, steady prices. U.S. retail sugar prices are essentially
unchanged since the early 1990’s. And new figures from LMC International show
that the foreign developed-country retail sugar price averages 30% higher than
the United States.’ EU average prices are 35% higher than the United States’,
and retail sugar prices in Australia and Canada, which claim to be exposed to
world dump market sugar, are virtually the same as prices here (Chart 13).
(“Retail and Wholesale Prices of Sugar around the World,” LMC International Ltd,
Oxford, England, April 2005.)

Taking into account developing countries, and varying income levels, LMC
discovered that sugar here is about the most affordable in the world. In terms
of minutes of work to purchase one pound of sugar, only tiny Singapore is lower;
the world average is four times higher than the U.S. And, our expenditure on
sugar as a percent of per capita income is the lowest in both the developed and
the developing world (Charts 13, 14).

World Average Wholesale Prices are Double Dump Market Levels
In the same survey, LMC also examined wholesale refined prices and found that
the global average is 22 cents per pound – double the world dump market average
price for 2004 – and about the same as the United States’. This reinforces the
meaninglessness of the world dump price. Globally, the vast majority of sugar is
sold in domestic markets at price levels that are, on average, double the world
dump market price and similar to the United States’ (Chart 15).
It is worth noting that LMC found wholesale prices in Mexico to be 5 cents
higher than the United States’ 23 cents per pound, and Canada’s price to be just
2 cents lower. This contradicts notions that U.S. candy manufacturers are moving
to these countries for lower sugar prices. Other factors are far more important
in those decisions. For example, the same candy company that paid average wages
in Chicago of more than $14 per hour now pays an average of 56 cents per hour in
Juarez, Mexico (Chart 16).

CAFTA: Short and Long-term Dangers to U.S. Sugar Market

Despite the fact that our market is already oversupplied, and despite the fact
that the six CAFTA countries already supply more than a fourth of our
guaranteed duty-free imports, the proposed CAFTA more than doubles the five
Central American countries’ duty-free access to the U.S. market, an increase of
111%. With an additional, smaller concession to the Dominican Republic,
additional imports would total 120,000 short tons in the first year, growing to
169,000 short tons per year in year 15, and an additional 2,910 short tons per
year forever after (Chart 17).

The CAFTA poses serious short-term and long-term dangers to the U.S. sugar
industry.

In the short term, the CAFTA sugar market-access concessions – on top of
import commitments the U.S. has made already in the WTO, to 41 countries, and
in the NAFTA, to Mexico – will prevent the USDA from administering a no-cost
U.S. sugar policy, as Congress directed it to in the 2002 Farm Bill, and will
badly further oversupply the U.S. sugar market.

The additional concessions will trigger off the marketing allotment program
that permits USDA to restrict domestic sugar sales and balance the market.
Absent marketing allotments, surplus U.S. sugar – the 600,000 tons producers
are currently holding off the market and storing it at their own expense –
would cascade onto the market and destroy the price.

Contrary to USTR’s misleading claims, there is no “cushion” – no amount of
additional import access Congress intended to make available in FTAs. The
difference between recent actual imports and the 1.532-million-ton trigger
has already been allocated to Mexico under the NAFTA. Mexico has not
recently had the surplus sugar available to send to the U.S. But surplus
Mexican sugar may soon become available again, with improved crops and with
the successful conclusion of sweetener-trade discussions with Mexico that
Members of Congress from sugar and corn states strongly support.
We find it disturbing that USTR would ignore commitments made in past
agreements in order to promote new agreements.

2. In the longer term, the CAFTA is the tip of the FTA iceberg.
Behind the CAFTA countries, 21 other sugar-exporting countries are lined up,
like planes on a tarmac, waiting to do their deal with the U.S. and, no doubt,
expecting no less access than already granted to the CAFTA countries.
Combined, these 21 countries export over 25 million tons of sugar per year,
nearly triple U.S. sugar consumption. Obviously, the precedent the CAFTA
concession would set will make it impossible for the U.S. sugar industry to
survive future agreements (Charts 18, 19).

The U.S. is pushing to complete the Panama, the Andean, and the Thailand FTAs
this year. The South Africa Customs Union FTA and the Free Trade Area of the
Americas are on hold, but still very much on the Administration’s FTA agenda.
All these involve major sugar producers and exporters.

Conclusion

In conclusion, Mister Chairman, the dangers of the CAFTA to the U.S. economy
outweigh the risks. We respectfully urge that this Committee reject the CAFTA,
and focus U.S. trade liberalization efforts instead on the WTO, where there is a
genuine potential for progress.

The CAFTA would devastate the U.S. sugar industry. We are, therefore, expending
all possible resources and energy to urge Congress to defeat this ill-conceived
agreement.

Thank you.


 

 

Promoting the Principles of Genuine Free and Fair Trade