Price Gap Puts Spice in Sugar-Quota Fight


By CAROLYN CUI

The gap between what Americans and the rest of the world pay for sugar has reached its widest level in at least a decade, breathing new life into the battle over import quotas that prop up the price of the sweet stuff in the U.S.

For years, U.S. prices have been artificially inflated by import restrictions designed to protect American farmers. That has kept the price well above the global market.

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But in recent days, the difference between the two has ballooned, giving new impetus to U.S. sugar processors and confectioners to step up their long campaign to pressure the government to increase import limits.

Attention to sugar prices, and the dwindling supply of sugar left in U.S. warehouses, has intensified in the lead up to April 1, after which the U.S. Department of Agriculture can review and change the import quotas, which now stand at 1.3 million metric tons.

Sugar users have long been vocal critics of the quotas but have failed to convince the government to change the limits. The quota has remained unchanged since it was first imposed in 1990, except for two temporary increases after Hurricane Katrina in 2005 and a major refinery explosion in 2008.

While the chances of an overall increase this year appear slim, it is widely expected that the USDA might shift quotas away from countries that hold quotas but are no longer exporting sugar and reallocate the quota to countries able to export sugar. Even this small, fine-tuning change will be a major step for the sugar growers and users, who have been in the battle for decades.

The current sugar quotas are based on trade statistics from the 1970s. Countries such as Jamaica and Haiti haven’t been sending raw sugar to the U.S. for years because their production is mainly used internally. That meant imports came in at about 1.2 million tons, 180,000 tons below the official quota.

Analysts think the USDA is likely to reallocate these idle quotas after April 1—a practical solution to pacify the tension between users and growers. If it takes effect, it would effectively narrow the price gap, as more sugar will be taken off the world market and enter the U.S. Growers haven’t come out against the idea of reallocation of the quotas, but they are against an overall increase in total imports.

According to the Farm Bill passed in 2008, the USDA can reassess market supply and demand conditions and determine whether additional imports are needed as early as April 1. A USDA spokesman said the government is monitoring the market and would make “adjustments during the year, as needed, to ensure an adequate supply of sugar for the domestic market.”

While global prices have slumped 34% since Feb. 1 from 29-year highs, U.S. prices have fallen far less. U.S. prices last week traded at their highest level relative to the global price since 1999, reaching 17.32 cents a pound, more than twice the historical average of around 8 cents, according to the IntercontinentalExchange Inc., an Atlanta-based electronic exchange of energy and agricultural commodities.

About 85% of the sugar consumed by Americans grows domestically, with the rest imported from about 40 countries under a quota-allocating system and Mexico, which isn’t bound by the program under a free-trade treaty. Within the quota, exporters get higher prices paid by U.S. buyers but are subject to stiff tariffs once that limit is exceeded.

Imperial Sugar Co., the country’s second largest buyer of sugar behind Domino Foods Inc., wants the government to almost double the quota to 2.2 million tons, Patrick Henneberry, the company’s senior vice president, said in an interview.

“We are always concerned when supplies are artificially constrained,” Mr. Henneberry said.

The Sugar Policy Alliance, an industry group of sweetener users including giant food makers General Mills, Inc., Kraft Foods and The Hershey Co., wrote to Congress last month, urging lawmakers to press Secretary of Agriculture Tom Vilsack to relax the quotas.

“USDA has not recognized the seriousness of the situation,” Lawrence Graham, chairman of the alliance, wrote.

The current price is “almost unheard of, even under this protectionist policy,” Mr. Graham wrote.

That followed a plea by the companies last summer, when they told Mr. Vilsack that the quotas put the nation in danger of running out of sugar.

Adding to pressure on food companies, U.S. wholesale refined sugar prices were up more than 50% in February from a year ago, according to Milling and Baking News.

Sugar growers have used their lobbying muscle to fend off any increase in quotas for decades.

The efforts by big brands to ease imports are just an attempt to “boost profits,” according to Phillip Hayes, a spokesman for the American Sugar Alliance, a trade group of cane and sugar-beet farmers.

On Friday, U.S. raw-sugar prices closed at 35.02 cents a pound, a premium of 15.35 cents to the global price of 19.67 cents. At these levels, it is becoming almost economical to import sugar, even with the payment of a tariff of 15.36 cents a ton and freight, said Tom Earley, executive vice president of Promar International, a food and agriculture consulting company.

The gap shows how “distorted” the U.S. market is, Mr. Earley said.

Sugar has been on a rollercoaster over the past eight months. Global raw-sugar prices doubled and shot up to a 29-year high on Feb. 1, as bad weather curbed production in Brazil and India, the world’s two biggest producers.

In recent weeks, global sugar tumbled as the supply situation in Brazil and India improved. But U.S. prices only dropped slightly, mainly because of the tight government controls on imports.

Companies say they are still concerned that sugar supplies may run out before September, when new crops will come onto the market.

In its latest report, the Agriculture department projected that the domestic market will be left with 38 days worth of consumption by the end of September, down from 49 days in the previous year.

This will be the lowest sugar stocks in at least 15 years, says Robert Lindon, executive vice president of Connell Commodities, a Naperville, Il.-based advisory firm for food companies.

“It is not a sustainable level for the industry,” he says.

—Timothy W. Martin contributed to this article.

Write to Carolyn Cui at carolyn.cui@wsj.com

One Response to Price Gap Puts Spice in Sugar-Quota Fight

  1. Bill Dawson says:

    I do not understand where these numbers come from. My family is in the sugar cane growing business in Louisiana. We do not get anywhere near $.35 per pound. We get about $.21 per pound? You quoted a number of $15.35 cents per ton tariff? If that is correct it is only $.0001 per pound?

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