RPT-Big sugar takes on Bush govt in trade pact row

SignOnSanDiego

By Sophie Walker
REUTERS

11:11 a.m. May 19, 2005

WASHINGTON – America's sugar industry is taking on the U.S. government in a fight over a trade pact with central America – and the betting is that the Bush administration will blink first.

Sugar, with its massive lobbying power, is not quite David taking on Goliath. But it is one of the smaller corners of U.S. agriculture, forecast to generate $4 billion in cash receipts against $222 billion for the farm industry overall in 2005.

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The battle is over CAFTA, the U.S.-Central American Free Trade Agreement which may go to a vote in Congress soon. The pact would open up the tightly controlled U.S. sugar market to more imports from Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

"We see it as a life and death issue," said Jack Roney, policy director at the American Sugar Alliance (ASA). "Every ton of CAFTA sugar that we're forced to import is one ton less we can produce. We are already holding half a million tons off the market and storing it at our expense."

Washington has been riveted by the rare sight of the agricultural community falling out amongst itself – corn, livestock and some textile producers have all backed CAFTA – as well as by the warnings rumbling down from some top Republicans who until now were allies of the sugar industry.

TIP OF THE ICEBERG

The battle goes beyond the implications of one trade deal.

"CAFTA is the tip of the iceberg," Roney said. Some 21 other sugar exporting nations are in line for similar trade pacts with the United States, he said.

"Our fear is that if CAFTA passes, these other countries will demand and expect no less than what we gave to the CAFTA countries," he said. "Then we are on a path to handing over most of the U.S. sugar market to subsidized farm producers."

Some economists say the current federal sugar program, comprising loans to processors to support the U.S. price and a tariff-rate quota import system, is overdue for an overhaul.

"By U.S. standards, sugar is the most highly protected agricultural industry," said Gary Hufbauer, senior fellow at the Institute for International Economics in Washington.

The world price of sugar ended at 8.5 cents per pound Thursday. The U.S. sugar price was 22 cents. "The tariff equivalent now of the quota barriers is 160 percent," Hufbauer said, versus an average U.S. agricultural tariff of 3 percent.

Extra sugar imports under CAFTA would bring in an amount equal to roughly 1.2 percent of U.S. sugar consumption.

Deputy Secretary of State Robert Zoellick, who as trade representative excluded sugar from a 2004 pact with Australia, said U.S. sugar farmers opposing CAFTA may pay a price when Congress starts work on a new farm subsidy law next year.

"Everyone knows that the sugar industry got a sweet deal in this arrangement. If that isn't good enough, then maybe the overall sugar program is something that all the agriculture community is going to have to examine," Zoellick said.

Roney dismissed Zoellick's comments.

"We're talking about our demise if CAFTA passes. So the threat of some future policy revisions is fairly inappropriate given that we would not be around to reform," Roney said.

FALLING CONSUMPTION

The United States is the world's fifth largest sugar producer. The crop is about evenly divided between sugarbeets grown in 12 northern states and sugarcane in four southern ones.

Sugar consumption plummeted in the mid-1980s as U.S. drinks makers switched to cheaper high fructose corn syrup. Although prices recovered, consumption nosedived again from 2001 as Americans switched to artificial sweeteners and low-sugar products amid doctors' warnings of an obesity crisis.

"Sugar is the last quota-protected agricultural product that we have. (They) have to look down the road and see how the industry can be successful in the future with a different set of policy options," said Bob Stallman, president of the American Farm Bureau Federation (AFBF).

Of the 50 states belonging to the AFBF, four filed an internal dissent over the federation's official backing for CAFTA.

"I have expressed to the sugar industry the current policy puts them at odds with the rest of American agriculture," Stallman said.

CAFTA contains provisions to help sugar farmers adjust. One of these is compensating Latin countries, perhaps through cash payments, for not shipping sugar to the U.S.

"We don't know how (the mechanism) could be applied to future free trade agreements and how great the cost might be if we're having to compensate a large number of countries for not shipping their sugar," ASA's Roney said. "Better that we just not grant this access in the first place."

Cane and beet farmers have been joined by producers of high fructose corn syrup, which include Iowa corn farmers and Archer Daniels Midland. The sugar lobby gave $20 million to politicians in the last 4-year election cycle, Hufbauer said.

"The sugar lobby may spin stories about desperate farmers and all the jobs that will be lost," said Hufbauer. "The reason (Congressmen) listen so attentively is the sugar lobby money."

Sugar's fight is helped by lawmakers in both parties who say CAFTA's labor and environmental standards fall short.

An aide to Ohio Democrat Sherrod Brown said Thursday that at least 190 Democrats and 30 Republicans were lined up to vote against CAFTA – enough for a defeat.

Minnesota Democrat Collin Peterson, minority leader on the House Agriculture Committee said: "I've told the White House I think the only way they're going to be able to move this is if they take sugar out."

"Short of that, I don't know how they have any chance."