30th Annual International Sweetener Symposium

Napa, CaliforniaAugust 5, 2013

U.S. Sugar Policy: Successes and Dangers

Jack RoneyDirector of Economics and Policy Analysis,

American Sugar AllianceWashington, D.C.

2

U.S. Sugar Policy

Successes1. High-quality, safe, responsibly produced U.S. sugar supplies,

from efficient, geographically dispersed U.S. sugar-producing industry

• 20th lowest cost of 95 producing countries• 142,000 American jobs in 22 states

2. U.S. sugar-using industry able to thrive, expand• Sweetener Users have achieved goals of unlimited access to Mexican sugar

and parity of U.S. sugar price with world price • Sweetener Users opposed to further sugar-producing industry contraction

3. Consumer prices for sugar among lowest in world: • World average is 14% higher than U.S.;• Developed-country average is 24% higher

4. Zero taxpayer cost, 2002-2012• $51 million cost in 2013 = ½% of 2013 farm program spending• Total farm program spending = ¼% of 2013 federal spending

3

U.S. Sugar Policy

Dangers1. Mexico: Exports to U.S. far exceed U.S. needs2. Oversupplies from subsidized foreign sugar

– Mexican government owns 1/5 of industry– Brazil sugar-ethanol subsidies at $2.5-3.0 billion/yr and growing– World market remains distorted by subsidies

3. Historically low producer prices– Severe risk of loan forfeitures, sugar company closures

4. Attacks on sugar policy: Proposed “modest” reform– Revert to 1985 support price– Eliminate USDA ability to cope with unlimited subsidized imports from

Mexico– Mandate chronic oversupply

5. Risk of severe industry contraction: Precipitous drop in real prices; huge rise in input costs

4

U.S. Sugar Policy

Successes• For consumers: U.S. retail sugar prices lower even

than “free trade” Canada and Australia• For food manufacturers: U.S. wholesale sugar prices

lowest in North America– Wages, other non-sugar costs, a different story

• Exports of sugar-containing products rising; net imports declining

• Sweetened-product manufacturing in the U.S.: Profitable and expanding – Sugar costs a tiny share of retail product price

5

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

U.S

. Dol

lars

per

pou

ndDeveloped-Country Average Retail Sugar Price: 24% Higher than U.S.;

Global Average: 14% Higher than U.S.

Source: SIS International Research, "Global Retail Sugar Prices," May 2012, from Euromonitor, International Monetary Fund; 2011 prices. Surveyed countries represent 60% of global sugar consumption. Developed countries include OECD member countries and Hong Kong.

319

American sugar consumers benefit from U.S. sugar policy: Lower retail prices than most of rest of world

6

“Topeka received some sweet news when Mars Inc. selected the capital city of Kansas for a new $250-million, 200-worker chocolate factory.” Site Selection magazine, November 2011 “Richardson Brands in Canajoharie, N.Y., which makes 80% of the world's rock candy, has seen sales rise 5% a year during the economic downturn and expects to add 80 jobs in 2012.”

WRGB-TV Albany, August 23, 2011 “The Hershey Company West Hershey plant expansion will add 340,000 square feet to the existing production plant. ‘We’re building for the next 50 or 100 years,’ said Wade Latz, vice president-global engineering operations, as he toured the facility Wednesday. ‘This is a quarter-billion dollar investment.’”

The Patriot-News, September 22, 2011

“The Wrigley Manufacturing Company will add 54 new jobs locally when a $409,244 expansion of its existing facility is completed.” Nooga.com, December 5, 2011

“BestSweet, a confectionery products manufacturer, is investing $6.4 million over three years to expand its Mooresville [NC] operation… The company recently invested $14 million in its Mooresville operation to add 40,000-square-feet in manufacturing space, and a 140,000-square-foot warehouse and distribution facility. The company also recently added 70 new jobs.” The Charlotte Observer, July 21, 2011 “Spangler Candy Co. is embarking on a $400,000 expansion of its factory in northwest Ohio to make more candy canes… The company will add 20 to 30 jobs to handle the extra work.” Columbus Business Journal, August 31, 2011 “The founder and chief executive officer of candy maker and marketer Promotion in Motion Inc. plans to add as many as 100 jobs at the company's Somerset [NJ] factory by early 2013 to keep up with anticipated growth.” NorthJersey.com, June 5, 2012 “The Chocolate Chocolate Chocolate Company soon will have more space space space. The St. Louis-based chocolatier has announced plans to open a new state-of-the art 30,000-sq.-ft. chocolate factory in the heart of its hometown later this year. Their new facility will double production on the first day and will increase production tenfold, the company says.” CandyIndustry.com, May 2, 2012 “Confectionery job growth trumps green energy job growth in Michigan.” Michigan Capitol Confidential, May 8, 2011

“US-based candy manufacturer American Licorice is set to invest $10m to expand its manufacturing facility at La Porte, Indiana… The company is planning to create additional jobs in the forthcoming year.” Food Business Review, January 28, 2013 “Bimbo Bakeries USA has purchased 30 acres of land in Macungie Township, Pa., to build a new $75 million bakery that will bring more than 100 jobs to the area and produce bread and buns for the Northeast, the company said.” BakingBusiness.com, January 8, 2013 “[Kimmie Candy] has been growing 30 percent a year since [company owner Joe] Dutra relocated it from Sacramento, Calif., to Reno in 2007. He is finishing plant expansion now and anticipates he will need a larger building in 18 months.” Las Vegas Review-Journal, November 1, 2012

“While most industries overall saw marked declines during the recent economic recession, people in the confectionery industry -that's right, candy- say their business was and remains recession proof…[Hammond’s Candies] has a workforce of 120 employees and has recently acquired a taffy company.”

KUNC Radio, July 10, 2012

7

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

2006 2007 2008 2009 2010 2011 2012

1,268,728 1,260,363

1,168,066

1,094,186

1,193,0461,240,367

1,260,917

Sugar in Imported Sugar-Containing Products-Short tons, raw value-

101Source: USDA, ERS. Sugar and Sweeteners Outlook.

8

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2006 2007 2008 2009 2010 2011 2012

560,835588,293

680,094696,963

741,699

820,802831,740

U.S. Exports of Sugar in Sugar-Containing Products: Rising-Short tons, raw value-

101Source: USDA, ERS. Sugar and Sweeteners Outlook.

Sugar price not a factor:SCP exports continued to rise despite higher U.S. sugar prices in 2010-11.

9

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2006 2007 2008 2009 2010 2011 2012

707,893

672,070

487,972

397,223

451,347

419,565 429,177

U.S. Net Imports of Sugar in Sugar-Containing Products: Declining-Short tons, raw value-

101Source: USDA, ERS. Sugar and Sweeteners Outlook.

Sugar price not a factor:Downward trend in SCP net imports continued

despite higher U.S. sugar prices in 2010-11

10

26.00

28.0029.35

0.00

5.00

10.00

15.00

20.00

25.00

30.00

North American Wholesale Refined Sugar Prices:U.S. Price Lower Than Canada and Mexico

-Cents per Pound-

1

1Bulk Sugar, Midwest market; f.o.b. factory (USDA website, July 2013 avg).2SNIIM (USDA website, July 2013 avg)3Canadian industry sources. Bulk sugar, f.o.b.factory, prompt delivery. (For 2014 delivery: 29.75 cents/lb.)

32U.S. Mexico Canada

319

11

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

U.S. Canada Mexico

$7,680

$1,551

$258

U.S.

Dol

lars

per

wor

ker,

per y

ear

Health Insurance

112

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

U.S. Canada Mexico

$18.78

$10.20

$0.51

U.S.

Dol

lars

per

hou

r

Wages

Sugar Policy Clearly Not the Reason Some Candy Companies Left the U.S.

Source: Peter Buzzanell & Associates, The Confectionary Industries in the U.S., Canada, and Mexico, 2009.

12

1.73% 1.88% 2.62% 2.62% 2.43% 3.37% 2.59% 3.69% 4.27% 5.86% 6.45%11.05% 11.49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sugar Cost as % of Retail Product Price*- Sugar Share Mostly Insignificant -

Source: American Sugar Alliance survey of retail products, Safeway store, Arlington, VA, July 2012.*Sugar content computed from nutrition label. Assumes USDA-reported January - June 2012 average wholesale refined sugar price of 49.47 cents per pound. Wholesale sugar prices down 55% from summer 2011 to summer 2013; July 2013 average price: 26.00 cents per pound.. 114

Cost of sugar in a 35-cent candy bar in 1985: 3-4 centsCost of sugar in a $1.39 candy bar in 2013: 3-4 cents

13

U.S. Sugar Policy

Dangers• Severe oversupply; Historically low producer

prices– Severe risk of loan forfeitures, sugar company

closures• Cause of oversupply: Flood of imports from

Mexico– Far in excess of U.S. needs

14

26.00

1820222426283032343638404244464850525456586062

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

U.S. Wholesale Refined Beet Sugar Prices, 1997-2013Prices Falling to Near Loan Forfeiture Levels

-- Cents per pound --

Source: USDA. Wholesale refined beet sugar, Midwest markets. Monthly average prices Jan 1997- July 2013. FSA-calculated forfeiture range.

2012/13-Crop Forfeiture Range

25.57

23.30

31B

Note: Spot market asking prices.Bulk actual sales to large buyers often

at substantially lower price levels.

Average Prices1980's: 27.061990's: 26.632000's: 27.79

15

Supplies Beginning stocks 1,985 Production 9,015 TRQ imports* 1,456 Total Supply 12,456

Demand Consumption 11,470 USDA target ending stocks (14.5% stocks/use ratio)** 1,663 Total Demand 13,133

Deficit (= needs from Mexico) 677

Actual imports from Mexico 1,900

Imports from Mexico in excess of U.S. needs 1,223

Mexican sugar exports to the United States in 2012/13 have exceeded U.S. needs by more than 1 million tons

-- Thousand short tons, raw value --

Data source: USDA, July 2013 WASDE.

* Tariff-rate quota (TRQ) imports = WTO, CAFTA, and other free trade agreement comittments. Actual entries lower because U.S. price dropped below world price and because of USDA actions to reduce TRQ imports.

**Industry view: Lower stocks/use ratio needed to balance market.

16

527,000677,000

2,268,000

1,900,000

Data Source: USDA, July 2013 WASDE.* Sum of U.S. consumption and USDA target ending stocks minus sum of U.S. beginning stocks, production, and TRQ-import commitments.

Mexico Actual Imports

U.S. U.S. Needs*

Rise in Production, 2012/2013 over 2011/12

U.S. Imports from Mexico in 2012/2013

Mexican Sugar Production Increase far in Excess of U.S. Rise; Mexican Sugar Exports to U.S. Far In Excess of U.S. Needs

--2012/2013, Short tons, Raw Value--

17

0.6%

6.6%

13.4%

7.4%

15.3%

9.6%

16.6%16.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Mexico's Share of U.S. Sugar Consumption-- 2006/07-2013/14 --

Source: USDA WASDE Table 24b, 2013/14 forecast. Imports for domestic food use.

U.S.-Mexican free tradein sugar

began 1/1/08

Mexico's share of U.S. sugar consumption has soared; now greater than share of 40 countries under

WTO, CAFTA, and other FTA's.

302-31

18

U.S. Sugar Policy

Consequences of oversupply, low prices:• Boon to consumers, or to Sweetener Users?• Boom in consumer demand for cheaper sweetened products?

– Users’ report: Access to world priced sugar = 20,000 new SCP manufacturing jobs

• Threat to U.S. producers' ability to cope with:– Sharply higher inputs costs– Much higher prices for competing crops

• Effect on food manufacturers' access to safe, high-quality, reliable just-in-time delivery if U.S. sugar-producing sector shrinks further? – “Modest reform” proposal would reduce price further, make

oversupplies permanent

19

26.0027.48

0

10

20

30

40

50

6019

97

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Cent

s/po

und

World Wholesale Refined Sugar Price Now Higher than U.S. (Monthly Average Prices, 1997-2013)

Data Source: USDA/ERS. U.S. sugar and HFCS -- Midwest markets; World sugar -- London #5 contract. Prices through July 2013P31-W

U.S. Wholesale Refined Sugar

(Midwest market)

World Refined Sugar(Basis Europe, plus 6

cents shipping to U.S.)

U.S. - World Average Refined Gap*1997-2012: 9.7 cents/lbJuly 2013: -1.5 cents/lb

20

40

50

60

70

80

90

100

110

120

Aug-

10

Sep-

10

Oct

-10

Nov

-10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov

-12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Source: Wholesale sugar - USDA. Retail products - Bureau of Labor Statistics. Monthly average prices through June 2013 11-Q

Wholesale Refined Sugar

Price Change Since 2010:Wholesale Sugar Price Down 55 %

August 2010 = 100 Percent

Have consumers benfited fromthe steep drop in producer price?

21

40

50

60

70

80

90

100

110

120

Aug-

10

Sep-

10

Oct

-10

Nov

-10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov

-12

Dec-

12

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Source: Wholesale sugar - USDA. Retail products - Bureau of Labor Statistics. Monthly average prices through June 2013.11-R

U.S. Price Changes Since 2010: Wholesale Sugar Down 55% but Retail Sugar and Sweetened Products Up

August 2010 = 100 Percent

Food manufacturers and retailers do NOT pass

savings on lower producer prices along to consumers

Wholesale Refined Sugar

Candy & Chewing Gum

Cereals & Bakery Products

Retail Refined Sugar Ice Cream

22

40%

60%

80%

100%

120%

140%

160%

180%

200%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: ERS/USDA. Sugar (Raw US, #16 Contract), Corn (Yellow , #2 ,Central, IL), Soybeans (Average monthly settlement price), Wheat (All wheat average). Annual average prices, 2005-2012; 2013 prices to date. 135

Changes in U.S. Commodity Prices, 1996-2013 (1996 = 100%)

Sugar

Soybeans

CornWheat

Since 1996:Soybean, corn and wheat prices have almost doubled;

Sugar prices are down 9%

Other farmers receive income supportpayments from the government;

sugar farmers do not

23

188

42

18

42

22

1985 2009

1985 Total = 102

2013 Total = 48

Cane Refineries

Cane Mills

Beet Factories

Since Last Sugar Loan Rate Increase in 1985: More Than Half of U.S. Sugar-Producing Operations Have Shut Down

Source: American Sugar Alliance, 2013 54o

54 closures since 1985;1 since 2008

4%

98%109%

116%129%

258%

0%

50%

100%

150%

200%

250%

300%

Sugar Support Price Machinery andEquipment

Agricultural Chemicalsand Products

General Inflation(CPI)

Wages Gas Fuels

Since 1985: Farm Input Costs -- Huge Increases

Sugar Price Support -- 4% increase, 1985-2013

6b-I

Key farm input costs have increased morethan the general rate of inflation

U.S. raw sugar loan rate: 18 cents/lb since 1985, until 2010 when it rose by .25 cents/lb for 3 years ending at 18.75 in 2012. Input cost data source: U.S. Bureau of Labor Statistics, Prices for 1985 and 2013 (preliminary).

25

U.S. Sugar Policy

Cooperation between sugar producers and customers• Defending consumption

– U.S. caloric sweetener consumption declining– Sugar and other sweeteners wrongly in crosshairs

as culprit in rise of U.S. obesity rates• Important long-term cooperation between

food manufacturers and Sugar Association

26

70 71 72 7269

6771

72 72 72 71 71 69 70 7274 73

76 77 7678 78

8082

83 85 8587 88 89 88 87 86

84 84 8482

80 8077 77 77 76

0

10

20

30

40

50

60

70

80

90

10019

70

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Sugar HFCS Other Sweeteners TOTAL

U.S. Per Capita Caloric Sweetener Consumption: Sugar, High Fructose Corn Syrup, and Other Sweeteners1

-- Pounds per person per year, 1970 - 2012--

Source: ERS, USDA; Sugar Briefing Room, Tables 51-53. http://ers.usda.gov/Briefing/sugar/data.htm.1Glucose, dextrose, honey, edible syrups. 62-C

Modest gain over 40 years;Down 15% since 1999

27

Meat, Eggs and Nuts, 528, 25%

Fruit, 64, 3%

Vegtables, 125, 6%Grains, 432, 20%Dairy, 262, 12%

Fats and Oils, 411, 19%

Sugar & Sweeteners, 333, 15%

U.S. Per Capita Daily Calorie Consumption Rises from1970 to 2010, but Sugar & Sweeteners' Share Drops

1970: Total calories: 2,155

28

Meat, Eggs and Nuts, 544, 21%

Fruit, 81, 3%

Vegtables, 121, 4%

Grains, 620, 24%Dairy, 255, 10%

Fats and Oils, 616, 24%

Sugar & Sweeteners, 367, 14%

2010

2010: Total calories: 2,604

Source: USDA/ERS; http://www.ers.usda.gov/data-products/food-availability-%28per-capita%29-data-system.aspx

Total calories up 449,but sweeteners up

only 33 --just 7.6% of rise

206

29

U.S. Sugar Policy

Cooperation between sugar producers and customers• Achieving global free trade in sugar

– Multilateral elimination of barriers to sugar trade: All countries, all subsidies• When achieved, U.S. will eliminate U.S. sugar policy• U.S. producers highly competitive by world standards,

well able to compete on level playing field• Unilateral disarmament makes no sense: U.S. further

overrun by subsidized foreign sugar– Zero-for-Zero Approach: Resolution introduced in

U.S. House of Representatives • Will Coalition for Sugar Reform endorse?

30

U.S. Sugar Policy

Summary• U.S. sugar policy has been a success for

consumers, food manufacturers, consumers• Policy and market under serious stress:

– Mexico unloading huge surpluses– Producer prices at 1980’s price levels

• Cooperation with food manufacturers desirable: – To defend sugar consumption– To achieve global free trade in sugar, and avoid

unilateral disarmament and market chaos in meantime