Focus 580; Sugar As A Commodity And United States Sugar Policy

A little bit earlier this summer after quite a lot of debate Congress passed the Central American Free Trade Agreement cafe as it's generally known would take down trade barriers between the United States and six other countries Costa Rica the Dominican Republic El Salvador Guatemala Honduras and Nicaragua. This was something that the Bush administration had been arguing for for a long time making the argument that by making it easier to trade and exchange goods between the United States and these countries it would be both good for American industry and manufacturers who could more easily sell there and also for Americans who would have the opportunity to buy the products coming from these countries. It was also the case that some industries here in the United States opposed kaftan and argued very strongly against it raising concerns about competing with lower priced goods that would be coming from these countries into the United States one of the industries that spoke loudly against Capital was the textile industry and the other was the sugar industry concerned about imports of cheaper sugar. And the fact that at least as they argued it.

Americans who grew Canaan and sugar beets and people who worked in the sugar industry would be hurt by kaftan. Also this debate was taken as an opportunity by by some people who had perhaps long standing concerns about America's sugar policy to take some shots at what they call Big Sugar and argue in fact that Americans were paying more than the world price for sugar and that those profits were going into the pockets of the people in the industry. Well this morning in this part of focus 580 will try to talk a little bit about sugar not in a nutritional sense as we sometimes do but as a commodity and talk about us sugar policy. And our guest with the program is Patrick Westhoff. He's a program director with the Food and Agricultural Policy Research Institute and a research associate professor in the Department of Agricultural Economics at the University of Missouri. He grew up in Iowa on his family's dairy farm. As his academic training in the areas of political science and Latin American Studies and also in

egg economics he served before going to Missouri he served four years as the chief economist for the Democratic staff of the U.S. Senate Committee on Agriculture Nutrition and forestry. He also served in the Peace Corps in Guatemala back in the late 70s and early 80s. He's joining us this morning by telephone. And as we talk questions comments from people who are listening are certainly welcome. The only thing we ask of callers is that people. Try to be brief in their comments. We ask that so that we can keep the program moving and get in as many people as possible but questions are certainly welcome. If you're here in Champaign-Urbana where we are the number is 3 3 3 9 4 5 5. We do also have a toll free line so if you would be listening around Illinois and Indiana some of those places where the signal will travel naturally and if it would be a long distance call use our toll free line that's 800 to 2 2 9 4 5 5 and of course anybody listening on the internet as long as you're in the United States you may also use the toll free line. So once

again here in Champaign Urbana 3 3 3 9 4 5 5 and toll free 800 to 2 2 9 4 5 5. Professor West Office low. Thanks very much for talking with us live to be here and certainly appreciate it. One thing that I want to talk about right at the beginning and that confuses me a good deal has to do with the price of sugar and the prices the relative prices that people in other countries pay and that Americans pay. And as I said in a lot of the stories that were written about American sugar policy in regards to Cafe. People made the point that Americans were paying something over the world price for sugar and they said that was because of the kind of import controls and price supports that are paid to the American producers. Now if you do something like goat as I did go to the website of the American Sugar Alliance which is an organization that represents people who

grow cane and sugar beets and also the people who work and processing and refining and so forth you will see something very different in fact on their website it says right now that U.S. retail sugar prices are 22 percent below developed country average. So I hoping this is this is not so complicated a question that we can't discuss it in a way that people can get but I guess my question is So what's the truth about American sugar prices. It is complicated but let's see if you were here. The world price of sugar is what people refer to as the price that the Brazilians Australians and others have are selling sugar in the market without any substitute on a special arrangements that pressure is very low usually on the order of about 10 cents a pound. Domestic prices in this country offer so much time for sugar is usually around 20 cents a pound so very much higher than that price. Once the sugar Alliance folks my view my point to everything again the average price of developing countries which include prices in European Union

Japan and elsewhere which also have very protective policies for the sugar industry. So the price in Europe the president has much higher than it is here. To take an average of all developed countries that would give you a price of even higher than the US press. So it sort of depends on how it is what you're counting and how it is you count that if you added that if you looked at the price did an average of the world price then indeed you would say that yes Americans pay more but if you say compared just the United States with Britain or with France or with Japan then American sugar prices would be. Are they competitive with the the developed country prices are they actually average on the average or less. On average they would be less than the prices in Europe or Japan. What what ultimately goes into the price that Americans pay for sugar at a guess here I'm interested in going to this question of the price supports for sugar import controls. If

indeed we are paying more than the world than the average world price for sugar Why is that the case. Well part of it was something you mentioned earlier we do have restricted imports of sugar. The world price again the price of Brazil etc. would sell the sugar for is on the order of 10 cents a pound. We charge a very large tariff on any imports above a certain amount so if we want to import more than what's called Archer for a quota of sugar in a given year the tariff on the sugar is on the order of like 15 cents a pound. So the very little of fact almost no sugar moves above that level of it. Tariff so the only sugar we import is within this tariff or a quota that keeps our domestic supplies somewhat limited and on top of that we have a price support program that keeps the pressure from falling too far. So all those things come together to mean that our domestic pressure is very tougher to get below 18 cents a pound for Russia for all sugar never. And most of the sugar that's consumed in the United States is produced in the United States.

Yes we would consume about 10 million tons of sugar a year in this country of that amount roughly 80 and a half million tonnes be produced mystically. Do we does the United States export sugar. We export a very tiny amount of sugar on the order of a couple hundred thousand times a year much less than we import. Is this a big industry in the United States if you take a look at all of the rape various people that are employed all the way from those people they grow sugarcane and sugar beads and people who work in the factories and every everybody that you can associate with the production of sure not what you go on and make with that but just the the stuff that comes in those bags that we go down to the grocery store and buy. Right if you look just at the form level side of this we have roughly 2 billion dollars a year in cash receipts going to sugar cane sugar cane sugar beet farmers in this country that the roughly one percent of all the cash receipts in American agriculture. So it's not a huge part of American agriculture but it's not a negligible part either. If you want to look at the upstream industries yes we have lots of people employed in making various sugar dating

products and selling those in stores around the country. Well just to stay with the size of the industry was it one percent that's not very much but if you take a look at the kind of influence that the industry has in being able to argue for and perhaps secure policies that benefit. Is this an industry that has power in Washington. It is an industry that has done a very good job of arguments against an issue no question about it. One of the things I was interested in talking about was what the price of sugar means for American consumers and I'm thinking back to something that was here a story in the state of Illinois. Not all that long ago and that concerned the fate of the candy maker Fannie Mae and which had operated in Chicago for a long long time. And essentially they went to business somebody else picked up the name and the product to carry it on although it's nothing like it was and in some of the stories that were written about what happened

with Fannie Mae there was commentary generally about the fact that the city of Chicago at one time was a pretty big candy producer and there were some very large companies producing mass producing large amounts of candy and that over time that as an industry and an employer in Chicago had really declined. It was some of what happened is that they had actually some of these companies that actually moved their production out of the United States and had moved to Canada and a lot of the reporting said that at least as it was coming from the the candy makers they said well the big problem was the price of sugar that they couldn't survive with the price that they had to pay. And so either they closed down or they moved their production someplace else. And I think the people in the sugar industry their response was Well this doesn't have anything to do with the price of sugar this is about labor and what they're doing. The reason that if they're going to relocate their factory outside the United States it's not because sugar is expensive it's because the labor is cheaper. And it seems that the two sides here went back and forth on that. Can you say something about the relationship

between the price of sugar and the industries that then use that sugar and do something with it. Sure and I think it's clearly the case that the price of sugar paid by manufacturers here is indeed higher than it would be in some other countries that would provide manufacturing in the country a bit of an advantage. But I think it's also correct to point out that it's a relatively small part of the cost of most sugar containing products. So obviously things like labor cost do make a huge difference as well so I guess in that sense both sides of the argument have a least some merit because both those factors are at play. It is true if you look at our overall trade balance or containing products as recently as about 1995 we were roughly self-sufficient entertaining products we would import export about Sam about. We're now importing about 600000 tons more than we export of their products. And does that is that this this perhaps this combination of the two things labor costs and the cost of the materials that

has driven some what had been U.S. based production outside of the United States. Yeah growth are factors now. If you're just comparing 1995 to today the relationship between US prices and Rob Price is really no different today than it was 10 years ago. So that would have caused the change that would have occurred over the last 10 years. But clearly it is a factor in the overall cost of producing. Can you name the products. So I guess just it to resolve this though is back on this point of the relative. The relative contribution that your labor cost and your sugar costs play while they're both in there it sounds as if you're saying that if you say if you had asked which of those was more important that probably would be the cost of the labor. Slightly more important or somewhat more important than the cost of the sugar you're going to probably depends on the product but for a lot of guys and it's most probably true. Let me introduce again I guessed for this part of focus 580 We're talking with Patrick west off. He is the program is a program director with the Food and Agricultural Policy Research Institute. And he's also a research associate professor

in the Department of Agricultural Economics at University of Missouri. And we're talking this morning about sugar sugar as a commodity and talking a bit about U.S. sugar policy. Sins are welcome we have somebody here standing by and ready to go others are certainly welcome to call if you're here in Champaign Urbana where we are 3 3 3 9 4 5 5. We do also have a toll free line that was good anywhere that you can hear us and that is eight hundred to 2 2 9 4 5 5. The caller here is in Indiana on our toll free line. Hello 0 2 questions first one if I'm not mistaken I remember the sugar thing going on since I was in grade school when the early 50s so the second question basically responds to. Can you give a history of the in and outs of all this stuff. If you can. And secondly who do we export sugar to and why. Is it tied up with some kind of Trade Agreement or is it a calm country we'd like to be on our

side so we sort of feed them things that you know would help out their economy or exactly hwat. Thanks a lot. OK. We've had a sugar policy is going to be for a very very long time. It has been fairly stable over the last about 20 years or so no more We've had the what's called a loan rate for sugar that provides kind of a minimum price for sure if the price try's fall below the level the government agrees to buy up whatever surplus or might be on the market at different times we've had or not had marketing allotments as well that try to control the domestic supply. We've got limitations on imports for quite some time as well. That doesn't mean that the policy's been constant forever we had a time in the early 1980s where there was no principle. For them for example and we had actually shortages here in this country impressions are very high due to the imports are due to you just to supply the domestic marketplace over time our production has increased relative to our consumption while we are still a net importer of sugar. We don't import nearly as large a proportion of our total consumption as we would have say in the 1980s when I think

especially so there are some changes that have occurred but in general the policy has been fairly stable over the last 20 years. I would say in terms of our exports again our exports are relatively small and I want to come away thinking we're a bigger exporter of sugar. Quite surprising to some folks and one of our major markets for sugar last year is actually Mexico of all places. We often think of Mexico as being a possible issue of a country that could become an export it wasn't sugar in the future. The last year they had a bit of a shortage in their own domestic market bottom of some in Russia. That seems again I guess I'm surprised to hear that given that I would expect that the people in Mexico if they wanted to buy sugar could go somewhere else in the world perhaps somewhere in Central America for example and buy sugar for less than what they could buy it for in the United States. And they did by someone on Twitter last year as it wasn't just us or do they purchase think it was a relatively modest amount for the most part the U.S. is still employed Richard.

Well let's talk with someone else here. Next is another India. Callers on our toll free line. One for why on hello say I have a question regarding a recent kaftan. Yes it relates to sugar. The general impact on the core sweetener industry. Do you anticipate your gas changes any reduction or any competition was the result of cafe with corn sweetners. United States sure the there will be some increase in U.S. imports of sugar from Central America because of the agreement on the order of a hundred thousand tons a year growing a bit over time. That's relatively small compared to total consumption of 10 million tons a year of domestic sure. So are probably not talking about big changes in sugar prices and therefore certainly not very large changes in high fructose corn syrup prices currently you know have seen us use price quite a bit lower than surer than a mystic market most of the sugar

piece of sealskin we use in this country is for soft drinks. It's pretty much taken over the entire soft drink market and so until and unless we saw a very large change your prices you probably wouldn't see much of an impact on the HFCS market. OK so so don't you. Much much reduction in one you know I would not expect much of an effect on corn prices last year Parker interposes unpleased. OK thank you. All right thanks for the COA Let's talk with somebody in Belgium over near Danville number one. Hello. Around your your previous caller just touched some on the question's going to have a net that's the specter of what corn high fructose corn syrup. In relation to the corner sugar prices and stuff now you support the prices of sugar and we also support to a lesser degree the agricultural aspects of corn. Can you describe what the competition between these two groups must be you know it's interesting as you know the poses that have have arrived over time. If you've gone back in

two or 10 or 15 years ago you would have found the corner's tree being very very interested in Gervasi. Because there they saw incorrectly so that what happened with high fruit dose corn syrup depended very much want to have more sugar. But as time went on we came to the point were HFCS pretty much took over the entire soft drink market. And there really is practically no sugar being used or measurably for producing soft drinks anymore in this country. So it's almost as if it's two separate markets anymore and the price of HFCS you know tends to run about 13 cents a pound while the raw sugar price is about you know 20 cents a pound. So there's just not a lot of competition head to head in and markets for sweeteners if you can use your gypsy as you do if you can use HFCS you sure. Now that isn't to say that that corn farmers don't care about your policy if you were to actually completely free out the sugar market and not through the price of sugar in this country for all the way to the Brazilian price you know then you would start having a big effect on HFCS as well. And the two are not really interchangeable.

They are interviews again you could use sugar and soft drinks in many countries still do use sugar in soft drinks Mexicans still use insurance offerings. But given current prices there's not much reason to do so. So right now as I stand now each of us are very much taken over the market could talk about T-bills wieners we haven't really come up with a way of making HFCS Indigo table sweeter yet so it has now that hasn't taken that market of Oh yeah that's what I was referring to the HSC doesn't seem to be making much of an inroad into the actual granular sugar. That's right that's right there are some you know in some processes where there is indeed some substitution so I don't get carried away here and say there's no substitution between the two but there's not a lot right now. Thank you very much Carol and thanks for the call other questions are welcome. 3 3 3 9 4 5 5 toll free 800 to 2 2 9 4 5 5. Well I'm glad the caller the previous caller raised this question about corn sweetener because it certainly was something I was interested in talking about and looking at these two industries because as you say in the past while they might

have been seen or seen each other as competitors that in every survey was my understanding the people who were in the business of producing corn sweeteners were certainly and were supportive of a sugar policy because it maintained the price at a certain level and it made it possible even for them to underprice their product and still make money. That's right I mean if you're producing corn sweeteners you don't want the pressure to fall too low right. But no it doesn't. We do that kind of relationship that existed there in the past just doesn't they. Again just to go back to what you said now it seems the pretty people who produce corn sweetener just because they've become so dominant in a certain sector of sweetener use. They don't care what happens with the price of sugar anymore. Well you know they don't care if it's just a small change we're talking about is pretty much changing the pressure by a penny or two doesn't make a lot of difference. If you were to bring sugar prices all the way down to the real price level then to be a big deal. Now we were talking about sugar you know perhaps taking back some of the soft drink market that would be a big deal if you were to get rid of all policies. But that doesn't seem to be on the cards anytime

soon. We are near the midpoint of the show let me just for the benefit of anybody who's tuned in here recently. Very quickly introduce Again our guest Patrick west off he's a program director with the Food and Agricultural Policy Research Institute at the University of Missouri he's also a research associate professor in the Department of Agricultural Economics at the University of Missouri. Questions are certainly welcome 3 3 3 9 4 5 5 toll free 800 to 2 2 9 4. 5 5 as I said back to the beginning of the program the folks here in the in the sugar industry in this country were concerned about caffeine and the possibility that it would open the door to imports of cheaper sugar from outside the United States and that would be bad for them and bad for their industry. And as you noted one of the things that will happen with CAFE is that we talked about in the in the past that there had been restrictions on the amount of sugar that could be imported and that what will happen now is that over. It sets now a newer ceiling for sugar imports. And that

over a period of time that will go up year year by year over the years. That's right. And given though given how much sugar we produce and how much sugar we consume. Will the increase in importance from these countries from the captive countries truly well that have do you think much of an impact on the American sugar industry. Well of course if you're a U.S. sugar producer every you know I want some sugar coming from other countries as sugar is an ounce of competition you don't want to have. So there is some effect on prices and some effect on production levels in this country. It gets a bit complicated because we have a sugar allotment system here as well. And out of the way that system is set up under normal circumstances we try to peg the amount of production we're going to have in this country to be matching the demand we have plus our imports. So what happens if you start importing more than a lot to make it ratchet it down a little bit so it's mostly producers going to a lot of producers much you're going to future as they might have

wanted to otherwise. So you know either way that's not a good thing if you're if you're a producer in this country you're going to have less production or lower price or maybe even both. So who is really the one who does that effect in the most is it the kind of thing that would be felt most by the people who grow the cane the beets. Or is this the kind of thing that would be felt more acutely by the by the processors by the people who then take the raw product. It goes to the factory then it gets and ends up being made into that white granular stuff that we have on our tables and. And that we use in cooking in use in a lot of other products. Sure there'd be an effect on both groups but I think it's probably not the sort of the the larger factor be at the producer level because the folks who are making the final price are that have more important you're going to want to make those final products many tastes are the ductile bit earlier by the fact that at one of the things that I had done was to look at some of the information that was on this website of the American Sugar Alliance which is I guess a kind of a trade association that

represents the interests of people who grow sugar beets and sugar cane and also people who are in the processing industry. So it sense it's it represents the interests of everybody from the from the field where the raw product is made all the way through to the finished product. And does indeed include the people who grow the the two the two basic stocks the. Again in the beads do you do sugar cane growers and cane farmers and Beat Farmers are are their interests different in any significant way. They're similar they're both groups of course want the best prize for as much sugar as possible. So that way they do have a common cause and that's why you'll see that in most policy discussions I'll be very I'll be working together. It is important although there's very different characteristics of cane farmers versus the farmers cane production this country is primarily in the states of Florida in Louisiana for small amounts in Hawaii and Texas the production occurs largely in the Red River

valley of North Dakota Minnesota Idaho and a handful of other states. It's a different geographic regions obviously but also different skills of operation. More than half of all the sugar cane produced in this country is produced on farms that have more than 2000 acres of sugarcane. More than half of all sugar beets produced in this country are produced in farms of less than five hundred acres of the beets. So the sugar beet farmers on average a much smaller scale than sugar cane farmers. That affects how they might think about if there were some changes in the program in the future that might involve government payments you know they might have different views about how to how those programs might or might not work for their their interests. I want to talk a little bit more detail about the the sugar policy and those things that have been put in place to try to provide support for people who raise the cane and the beets and perhaps also for the for the industry the processing industry. And we talked about

in a passing we've talked about a number of these these things and basically there are three there are price supports which have come and gone over time. There are marketing allotments there are import restrictions. Just one for the question about import restrictions is this. Does this differ from country to country or from region to region or is this Is there some sort of a global figure set for all sugar imports from any place coming into the United States or how exactly does that work. There is a tariff three quarters assigned to each country. So every country has the ability to sell it to a certain amount of sugar to the U.S. at a very low tariff rate. If anybody wants some more than that a given amount of sugar they have to be a very high tariff on any imports of the United States so it has the effect of limiting imports. Those allocations depend in part on from historical shares in the U.S. market. You'll find that countries that are no longer very major exporters like the Philippines for example still have a significant export urine of the U.S.

whereas a country like Brazil which is by far and away the dominant player in the world market only has the of the right to sell a very small amount of sugar into this country. So does that do those allotments and that is the the amount that any given country can send in the United States short of these kinds of tariffs and those that get tangled up in must surely get tangled up in the political relationship between United States and that that country and whether we consider them mostly friendly or whether they consider them big competitors or or whatever. No it's certainly true and it's not a coincidence that we don't have any imports from Cuba for example. You know that is indeed because of foreign policy reasons but I would point out that there's there's no you know a lot of sugar that moves in world markets. The countries that have the ability to sell sugar it has States pour into the European Union under preferential trade agreements. You are doing a lot better in the sugar industry of the countries like

Brazil like Australia who are selling most of theirs or whatever of the rest the world market can bear. We talked a bit earlier about the fact that most of the sugar that's consumed the United States is actually produced in the United States for for our imports. Are there and you also talked about the fact that as far as sugar production is concerned one of the world leaders would be Brazil. And the fact that actually though given that fact a small percentage of the sugar that comes into the import of the United States comes from Brazil comes from other places. What it where the major sources of imported sugar from. In this country it is largely Philippines Guatemala Mexico and some years of the not so much the last couple of years. And just a wide variety of countries have the right to sell relatively modest amount of sugar. Some Central American countries some Caribbean countries. The business of the marketing allotments. I'm interested in how that works and is is this. Actually there is a actually some sort of direct way that

the government has to influence how much cane or beets are planted. Right there's each individual company that processes sugar is given allotment of how much they can market in a given fiscal year and see if they try to market more than that amount. You know they do they just can't legally do so without having to. Go through a lot of the problems so they will tell their individual growers that they don't want them to grow more than a certain amount of sugar in a given year. Otherwise that company be stuck with stocks looking a relative so it does make a big difference in the actual production levels in some years. Does that mean that production exactly matches the allotments music comes fairly close to the law but you put in place to try to keep in part to keep down the cost of the server program to the government. We have an open ended commitment to buy whatever sugar the market wants to offer to give him at a given support price but we also have a legislative rejection so that the sugar program should operate at no cost the taxpayer so to make those two things happen together we have to restrict the amount of production that occurs so that you touch on a point that

goes back to some of the debate over cafe and some of the criticism so one would even say a tax that were made on the industry over the kind of policy that we have in fact. The industry of itself says just what you said that the policy the sugar policy doesn't cost American taxpayers anything. Although it's interesting that they also made the make the point that it operates as a loan program and they say it involves no subsidies. Seems to me that's that's kind of a matter of semantics what you consider to be a subsidy or not. But while I guess it is true that it operates at no cost to taxpayers I suppose it's it is also true that as critics have argued that ultimately consumers do pay the price. If if only in the price that they pay for finished goods that create that that contain the sugar. That's right reconnaissance in support of it operates little or no taxpayer cost on average

but doesn't even tell a significant consumer cost relative to policy didn't have any restrictions on imports. And just the third thing so we talked about these three things talked about import restrictions we talked about marketing allotments and the other is indeed price supports and it works like price supports for other commodities do. There's a target price that and that if the price goes below that then the government steps in. Right that's that's your down version of it that's a loan program so you place your sugar on your loan after it's been harvested. And then as long as the price stays above the loan rate you have an incentive to repay your loan. But if the price falls below the loan right you have the option of just forfeiting your sugar to the government instead of repaying the loan. So that again it can you make the argument would somebody make the argument then that that may not be called a subsidy but the fact that it is a subsidy. Well it definitely has the effect of providing US support for the price of sugar and for WTO purposes the World Trade Organization purposes. It does count as a subsidy even though there's no taxpayer

expenditure involved on average it does provide you no support to the price of sugar higher than it would be in the office of the program. So that counts as a subsidy for Debbie to your purposes. Apparently during some of this debate that went on that we followed in Washington about capita as some people suggested that the sugar industry that it moved away from the these from the protection that comes with these high tariffs in favor of something else. And some sort of green box payments. And I'm not exactly sure what that is but maybe you can you can explain that is is that indeed do you think that and then perhaps the question the ultimate question is do you think that that it is likely that any time in the near future the kind of sugar policy we have that rests on these three legs to try to support the farmers price supports the marketing allotments then the import restrictions that in fact any of that is likely to change much if at all.

Well I think one very important challenge will come in 2008 when under the terms of an after agreement Mexico will have the right to sell as much sugar as they want to sell us. Now as I said before currently Mexico actually last year was an importer of yours so they wouldn't have injured themselves in any way. Many people speculate that in the future there's a good chance that Mexico could become a significant exporter of sugar and might want to supply significant amounts of sugar to the US market. Yet they're supplied enough sugar to the US market is hard to see how you'd maintain the current policy so that might be something that might force there to be some change in policy at some point in the future. Having said that as we talked earlier the sugar industry has done a very good job of protecting our interests and I expect that to be the case in the future. I would not expect to see a very high probability of them just giving up on the current policy anytime soon. Now why don't you move to a policy for sure like that you have for other commodities Well thats now its more interesting question you know why would we have a sure policy like to the corn program where you have you know not so much looking at supports the price of corn

but rather something that writes checks to farmers to provide some you know some support to their income levels. I think the problem a lot of people identify with after the surgery is again how concentrated the industry is especially in the state of Florida where if you were going to make payments proportional how much people produce you could be talking an extraordinarily large payments to individuals that would probably be very tough to justify political. I think that's one of the reasons why the survey has been very wary of any any proposal that they go to a program like that for corn or soybeans wheat. I wonder how the people in the industry feel about the kind of attention that it's gotten and and all as a result of the debate about cafe. There's been a lot of attention devoted to that previously I can tell you when the last time I ever read anything except perhaps is back going back to this point where there were these questions and these stories about the candy industry around the Chicago area I can't really think of too many times that I've read much in the in

the mainstream press about sugar and the price of sugar and the sugar industry. I wonder what people in the industry think about the fact that at least now within the past few weeks there's been a fair amount of attention devoted to sugar and sugar policy. Definite took a very firm stand a kaftan of course lost at the end of the day. I have got a lot more attention and probably some in the end she would prefer that they've gotten in the process. My understanding is that at least a handful of the representatives and senators who voted for the final agreement of capita were from sugar producing states didn't do so because they don't like the sugar provisions or rather because they were convinced it was going to pass anyway and they wanted to make sure they were going to be in a position to defend your producers in the future who didn't want to get you know too far on the wrong side of the Bush administration and of people. And the political system in general who might decide to do Bush are going to targets this if the sugar industry is seen as being the group that if you take after well about

15 minutes left in this part of focus our guest again is Patrick west off he's a program director with the Food and Agricultural Policy Research Institute. That's at the University of Missouri. He's also a research associate professor in the Department of Agricultural Economics there at Missouri. And we're talking about sugar and sugar policy and questions are certainly welcome the number here in Champaign Urbana 3 3 3 9 4 5 5. We do also have a toll free line and that means that if you're listening around Illinois and Indiana and it would be a long distance call or in fact if you'd like to happen to be listening on the Internet you could call in and use that toll free line that he's 800 to 2 2 9 4 5 5 again here in Champaign Urbana. 3 3 3 9 4 5 5 and toll free. Any place else. A hundred to 2 2 9 4 5 5. Here's another color to bring into the conversation someone listening in to so Tim. And that's line number one. Hello good morning. Yes I know

I have wondered for some time about the economy of producing ethanol from sugar. I know Brazil and many other countries are basing their energy programs on that. What what are the economies here in the U.S. for something like that to happen I mean on the surface one would think it's not very feasible cause I don't know of any ethanol produced from cane or be here in the U.S. but how far off is it from the economies of producing ethanol from corn. My understanding is that it would be very tough to make an ethanol plant from sugar work given. Current economics again with the US price of sugar being where it is. The cost of the feed stuff would just be too great to to have that be a profitable enterprise it's a lot cheaper a lot more efficient to make ethanol from corn in this country. You quickly pointed out that in Brazil ethanol is a very major industry.

Ethanol from sugar and faction in Brazil as I understand makes about as much sugar in ethanol as it does in the into sugar for their for sale as your products source to a very massive industry there I was in Brazil last May may have 2004 visit of the sugar processing plant that that one plant all by itself produced about as much sugar in a year as the US imports from all sources combined and the same plant also made about the same amount of ethanol as well ethanol in Brazil sells for you know less than gasoline by a fair amount. Very competitive in in the in the regions where it's produced. But that's all possible because the pressure in Brazil is much much lower than it is here. It is very sugar industry ethanol industry subsidized much in Brazil that you know of. There were definitely subsidies that helped industry get started there are lots of loan never offered to dentistry and other investment opportunities ever given there's also some requirement of ethanol use in some certain parts of the country at certain times.

So I wouldn't want to sue the industry is getting government support for the two years in house but at the same time it's not receiving anything like the level of support that say the US National and should be receiving today. It's not nearly as much as your actions for me. We've kind of hung our hats on you know corn prices remaining relatively high although today they're not but more on the ethanol production from corn. But yet if you well from my limited knowledge of it if you dig into it there's quite a bit of tariff protection and in in direct an indirect subsidy for ethanol production especially for a smaller CO up type production. There are a number of ways that we support ethanol in this country you know we do have the tax benefits offered on all of them all sold we do have some of the investment. Critics are that you mention and we do indeed restrict imports I mean there is a very hefty tax on imports of sugar ethanol I should say. So that keeps out the Brazilian ethanol.

If that ever goes away I mean governments working out for you get deficit now we begin to lose those things. How can we compete I guess with ethanol from import again. Well if we were to like overnight get rid of the tariff on ethanol imports we would probably end up importing a lot of ethanol from Brazil. When CB The entire domestic supply then we'd import a fair amount from Brazil I think it's going to stand for a relatively small change in terms of Hermione's over small change in our tax policy in this country. You probably make that much difference. Ok I'm gonna Haagen the time here but there is another thing that I've always been curious about is this idea of. De hydrating ethanol through plants in Central America and then bring it on in here right. What is that process. Can you explain that in a very short time like his you know that Al that I'm not the scientist to explain the physical process going explain the economics I guess the Central American countries in the Caribbean countries have the right to sell a certain amount of ethanol to the US

without tariff so it's up to 7 percent of the mystic U.S. consumption. That's something that was in place even before captaining that was a Caribbean nation initiative provision from several years ago. That is maintain inner crafter. So what has been talked about is bringing in Brazilian ethanol that is in the final stage have some further processing occur in Central America and they could sell to the U.S. you know taking advantage of the no tariff policy for the certain amount. So a lot of people expect that there will be some coming into the U.S. in that fashion over the next several years. I just point out that I can only be 7 percent of domestic consumption of a lot but you know not taking over the market. So the way that the key they have to deal hydrated is that what they're doing in Central America. That's my understanding and again I can't tell you much about the actual process involved. OK. And one last question maybe it's a little off the subject but what is to your knowledge is is our stage of being able to produce ethanol from

biomass. I've read in time that Nebraska is putting in a plant this next year to start producing ethanol from corn Stover they call it I assume they mean corn stalks I believe that's right I think you have the science behind it is coming along very well and we're getting to understand how to do this pretty well. It's once again making the economics work. You know one of the problems we have is kind of a chicken and egg problem. You have to have enough supplies to make a plant worth while the folks are shy of committing supplies to plants and I was going to be up and running. Yeah but I clock people think that a cornstalk over switch grass in a variety of other biomass sources could become important ways to make ethanol future. OK very and I think that like you know your stuff. Well thanks I think wrong. Good talking to you. Thank you. Our callers have a little further opportunity here to ask some questions. Seven eight minutes. Again our guest Patrick Westhoff he's an agricultural economist at University of Missouri.

3 3 3 9 4 5 5 toll free 800 2 2 2 9 4 5. One of the things I'm wondering if you know about is how over recent years in recent years sugar consumption in the United States has changed and I guess it's my understanding that because of health concerns sugar consumption has declined some although I'm sure that the average American still consumes an awful lot of sugar. Has it has declined enough to make to make much of an impact on the and on the industry here in the United States. There were definitely people in history very concerned over the last two or three years about whether the yakin diet or whatever else is going to cause major changes in sugar consumption patterns. And we didn't see and we saw some drop in per capita consumption of sugar between about 1998 and about 2002 or promote £72 per capita and 1998 to about 57 pounds per capita by 2002. Andy when I was a maid up on the HFCS side so

was it and you know overall drop in and consumption of sugar products. Since that time we have heard of Calderon in fact maybe even increase about the last couple of years. So we're all trying to figure whether this is a sign that interest in actions diets is speeding or if something else is going on. Also obviously one of the things that people in the industry are doing is they particularly I think in the processing and people are trying to cut down their cost of production. And that I think I guess is my understanding that particularly in the industry what they're doing is looking at increasing mechanisation so that at least they cut their labor costs by having fewer employees. Can you wonder can you talk a little bit about what has been done successfully or with the kind of approach that the industry is taking to try to indeed maintain a certain level of profit by getting at what it costs to produce the product right now or can it be production has gotten a lot more efficient over time you know at the at the farm level and then

the processing likewise has got more efficient over time. Now that's part of the reason how you've been able to see wholesale prices for sugar you know not being in about the same religion or even a little bit cheaper relative to prices at the farm level over time so we've seen some efficiencies happen. There's a question of just how much more they can really push that. You know there's you know how much more that can really go than what's already been done. Let's talk. Would someone in Chicago on our toll free line line for. Thank you. High fructose corn syrup and other things for being exploited for pay. Countries like Mexico and so forth and they took a stand to say what do we need. Card 5 1 we've got all or should I feel like you want to import a joining of a government that apparently put a stop to any implication of that if you know what I think and at the moment you know the Mexican government put in place a 20 percent tax on the use of agency and soon soft drink manufacturing and then add the event to pretty

much exclusionary now but definitely shrinking that industry dramatically. Yeah it was no longer using nearly as much to just choose not importing Hurley anymore there is a dead beat you can use that the U.S. is taking about this and do there was any panel ruling just this past week that the rules in favor of the U.S. side saying that the tariff was not in compliance with with our trade agreements with Mexico. One other question regarding the alternative you were cited for diner found down in South America they had to go. It hadn't produced alcohol from the bottom after that from the cannon although I found there were records to be a credible source for our times of Iraq and therefore did not have to be for depending upon foreign oil or should they have a place from the economy. Thank him for any further comment you will make for them. Now just you know again to call that Brazil in particular has made a production of ethanol from sugar a very large part of its energy approach.

When we talk about the little bit earlier with another car what we're sort of coming down to the point where we have to finish up just again to to go back as a general kind of question. Do you expect should we really expect any time in the near future that the American sugar policy changed and particularly I do think the 2007 farm bill will be a very very critical time that will happen the same time we may be looking to WTO agreement that a pressure on the sugar policy as well. So I would expect there to be some changes. But just how large these changes will be I think it's very hard to say at this point. Well we do have one more call here will squeeze in someone listening in Sycamore Illinois up in northwestern Illinois. Free line. Line four. Hello good morning. I'm just curious to know if there is any significant amount of sugar imported into this country from Cuba and the Caribbean anymore cane sugar that is there's no imports from Cuba that

I'm aware of I don't. Pretty much you know it is prohibited by law but we do in Portugal from the Dominican Republic from Jamaica and from a variety of other countries in the Caribbean. OK. I was just curious to know that because I think that that has some of the best tasting brown sugar that I've ever tasted and it's hard. I haven't been able to find it at least not listed as such. But at least I know that it's in here somewhere. Thank you very much. All right. Well thanks for the call. I just something else I'm curious maybe this is in a little different area but I'm I'm wondering whether someone you know as someone has looked at how it is that the increasing use of the high fructose corn sweetener. There has changed in the way that America's Americans expect things to taste. You know when we when we were kids I'm sure that if you had a soda it had sugar in it and now it's got corn sweetener in and I think that people may indeed have gotten used to it but some people might say you know what if it

doesn't taste right to them. Did it given what they were used to has has the increasing use of corn sweetener and has that changed the way Americans think things sweet things are supposed to taste. I have to have some impact because you're right I mean clearly the way you coke or some other you know sort of a taste is very different than 25 years ago. You haven't heard of her mix of sweetener going about now. Well there we will finish up with our thanks to our guest for this part of focus 580 Patrick West Afghan. He's a program director with the Food and Agricultural Policy Research Institute at the University of Missouri he's also a research associate professor in the Department of Ag economics there. And Professor West off thank you very much. Thank you very much for the opportunity.