Sugar Program

In 1998, U.S. consumers used nearly 10 million tons of sugar, about 16 percent of which was imported. The amount of sugar imported into this country is set each year by the Department of Agriculture (USDA). Under the U.S. sugar program, USDA insulates domestic growers and processors from lower world prices for raw sugar by restricting the supply of sugar that can be imported at a low tariff rate. The U.S. Trade Representative, working with USDA, allocates shares of the tariff-rate quota among 40 countries. By law, the sugar program also supports domestic sugar prices by offering loans to processors at a rate of 18 cents per pound for raw cane sugar and about 23 cents per pound for refined beet sugar, with the sugar serving as collateral for the loans. The program allows sugar processors to forfeit their sugar to their federal government instead of repaying their loans--a likely outcome if domestic sugar prices fall below a certain level. This report describes and evaluates (1) USDA's procedures for setting the tariff-rate quota for imported raw sugar and (2) the U.S. Trade Representatives' procedures for allocating the quota among sugar-producing countries.

GAO noted that: (1) USDA uses the tariff-rate quota for raw sugar to restrict low-cost imports and maintain domestic prices at sufficiently high levels to prevent processors from forfeiting on their sugar loans; (2) USDA sets the tariff-rate quota at the beginning of the fiscal year and may adjust its size three times during the year; (3) in setting and adjusting the quota level, USDA compares year-end projections of the sugar stocks held by U.S. producers with projections of domestic sugar use (an indicator known as the stocks-to-use ratio); (4) generally speaking, a low stocks-to-use ratio is associated with a lower tariff-rate quota, tighter supplies, and higher prices; a high stocks-to-use ratio is associated with a higher tariff-rate quota, larger supplies, and lower prices; (5) the relatively low stocks-to-use ratios used by USDA have resulted in low tariff-rate quotas and tight domestic supplies of sugar; (6) in recent years, domestic sugar prices were over 2 cents more per pound than was needed to avoid sugar loan forfeitures; (7) GAO estimates that domestic sugar users incur a cost of $200 million annually for each penny in excess of the estimated price needed to avoid forfeitures; (8) once the initial size of the tariff-rate quota for imported raw sugar is set, USTR allocates shares of it among the 40 countries designated as sugar exporters under the tariff-rate quota on the basis of their exports to the United States between 1975 and 1981; (9) quota allocations for individual countries have not been revised for 17 years, despite dramatic changes in global market conditions, including changes in many countries' ability to produce and export sugar; (10) the United States imported, on average, about 3 percent less sugar than the quota allowed from 1996 through 1998 because some countries did not fill their allocations; (11) because the shortfalls in the tariff-rate quota reduced total U.S. sugar supplies by less than 1 percent, they had a minimal effect on the domestic price of sugar; (12) however, domestic sugar refiners expressed concern that these shortfalls have limited their ability to obtain sugar; (13) GAO identified several options that could be used to fill the tariff-rate quota more completely and better reflect the world cane sugar market; and (14) any changes to the allocation method would have to be consistent with U.S. trade agreements, according to USTR officials.

Recommendations

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