Questions Surround USDA's 'Sugar Bailout'

A Wall Street Journal article appearing last week raised questions that U.S. sugar policy could be failing.

The article, "Big Sugar is Set for a Sweet Bailout," reported that USDA was considering a buy of 400,000 tons of sugar, apparently to boost sugar prices, which have fallen 18% since October. The price boost would prevent $862 million in loan defaults on the part of sugar processors.

An increase in sugar prices could hit food and candy makers, grocers and other sugar users, WSJ says.

However, USDA economist Barbara Fecso told the paper that if sugar prices bounce back, USDA may rescind its plans to buy. A final decision, the article reported, would come as early as April 1.

Sugar groups fire back

The American Sugar Alliance explained that the sugar price drop is caused by "a flood of unneeded subsidized imports" and oversupply – this is why USDA is looking for alternatives.

ASA said it's the nature of the sugar policy to run at zero taxpayer cost. Pre-emptive USDA actions, ASA said, would save taxpayers money by avoiding the more than $800 million in loan forfeitures that would be more costly.

As for increasing sugar prices for food and candy makers, ASA explained that grocers and food manufacturers have passed none of their savings from recent steep producer price drops along to consumers.

"This might explain why confectioners are booking impressive profits and are expanding production," ASA said.

Senators push for USDA answers

Four Senators Friday issued a letter to USDA Secretary Tom Vilsack questioning the sugar buy, which some have dubbed the "sugar bailout."

In the letter, the Senators – John McCain, R-Ariz., Pat Toomey, R-Penn., Mark Kirk, R-Ill., and Jeanne Shaheen, D-N.H. – asked for clarification on which entities received loans under the sugar program and if the sugar program has gone above cost projections. Additionally, the Senators asked about USDA's consideration of the effects of higher sugar prices on consumers.