Sugar Program

Administered by the U.S. Department of Agriculture, the sugar program guarantees domestic cane sugar and beet sugar producers a minimum price for sugar, which at times has been about three times the world market price. The program supports domestic sugar prices by offering loans to sugar processors at a rate established by law. This report summarizes GAO's findings on the changing conditions in the U.S. and world sweetener markets in recent years. GAO estimates the U.S. sugar program's (1) costs to producers, (2) benefits to domestic sugar and high-fructose corn syrup producers, and (3) net effects on the U.S. economy--that is, the difference between the costs to users and the benefits to producers that result from artificially high sweetener prices.

GAO noted that: (1) GAO estimates that the sugar program cost domestic sweetener users about $1.5 billion in 1996 and about $1.9 billion in 1998; (2) sweetener users included: (a) sugarcane refiners that bought raw cane sugar; (b) food manufacturers that bought refined sugar and other sweeteners; and (c) final consumers who bought sweeteners and sweetener-containing products; (3) the program's costs to U.S. sweetener users depend on the world price of sugar and can vary from year to year--they will be higher, other things being equal, when the difference between the domestic and the world price is greater; (4) in 1998, for example, the program's costs to users were higher than in 1996 because the world price dropped while the domestic price remained about the same; (5) the primary beneficiaries of the sugar program's higher prices are domestic sugar beet and sugarcane producers who, GAO estimates, received benefits of about $800 million in 1996 and about $1 billion in 1998; (6) about 70 percent of the benefits went to sugar beet growers and processors; (7) sugarcane producers received about 30 percent of the benefits; (8) GAO estimates that the sugar program resulted in net losses to the U.S. economy of about $700 million in 1996 and about $900 million in 1998; (9) GAO net loss estimates include economic inefficiencies and transfers to foreign producers; (10) economic inefficiencies occurred, for example, when the sugar program's artificially high domestic prices encouraged farmers to grow sugar beets instead of another crop, such as wheat, that, without the sugar program, might have been relatively more profitable; (11) inefficiencies also occurred when artificially high sugar prices discouraged consumers from purchasing sugar; (12) the cost of these inefficiencies totalled about $300 million in 1996 and about $500 million in 1998; (13) transfers from the U.S. economy to foreign producers occurred because foreign producers received artificially high prices for the raw sugar they exported to the United States; (14) GAO estimates that these transfers amounted to about $400 million in both 1996 and 1998; and (15) the transfers were about the same in each year despite the larger difference between domestic and world prices in 1998 because the United States imported less sugar in 1998.