[Senate Hearing 106-910]
[From the U.S. Government Publishing Office]
S. Hrg. 106-910
FEDERAL SUGAR PROGRAM
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
FEDERAL SUGAR PROGRAM
__________
July 26 2000
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
U.S. GOVERNMENT PRINTING OFFICE
70-294 WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
RICHARD G. LUGAR, Indiana, Chairman
JESSE HELMS, North Carolina TOM HARKIN, Iowa
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania
Keith Luse, Staff Director
David L. Johnson, Chief Counsel
Robert E. Sturm, Chief Clerk
Mark Halverson, Staff Director for the Minority
(ii)
C O N T E N T S
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Page
Hearing:
Wednesday July 26, 2000, Federal Sugar Program................... 1
Appendix:
Wednesday July 26, 2000.......................................... 69
Document(s) submitted for the record:
Wednesday, July 26, 2000......................................... 213
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Wednesday July 26, 2000
STATEMENTS PRESENTED BY SENATORS
Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman,
Committee on Agriculture, Nutrition, and Forestry.............. 8
Santorum, Hon. Rick, a U.S. Senator from Pennsylvania............ 23
Conrad, Hon. Kent, a U.S. Senator from North Dakota.............. 10
Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska............. 22
Burns, Hon. Conrad, a U.S. Senator from Montana.................. 21
Dorgan, Hon. Byron L., a U.S. Senator from North Dakota.......... 1
Abraham, Hon. Spencer, a U.S. Senator from Michigan.............. 2
Breaux, Hon. John B., a U.S. Senator from Louisiana.............. 26
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WITNESSES
Mink, Hon. Patsy, a U.S. Representative from Hawaii.............. 7
Miller, Hon. Dan, a U.S. Representative from Florida............. 5
PANEL I
Brick-Turin, Carol, CBT Consulting, Annandale, VA................ 15
Schumacher, Hon. August, Jr., Under Secretary for Farm and
Foreign Agricultural Services, U.S. Department of Agriculture,
Washington, DC., accompanied by, Keith Collins, Chief
Economist, U.S. Department of Agriculture...................... 13
PANEL II
Estenoz, Shannon, on behalf of the World Wildlife Fund and the
Everglades Coalition, Washington, DC........................... 39
Frydenlund, John E., Director, Center for International Food and
Agriculture Policy, Citizens Against Government Waste,
Washington, DC................................................. 33
Hammer, Tom, President, Sweetner Users Association, Falls Church,
VA............................................................. 36
Jaeger, Arthur, S., Assistant Director, Consumer Federation of
America, Washington, DC........................................ 32
Kominus, Nicholas, President, U.S. Cane Sugar Refiners'
Association, Washington, DC.................................... 35
Perry, Mark, Executive Director, Florida Oceanographic Society,
Stuart, Florida................................................ 38
Shapiro, Hon. Ira, Coalition for Sugar Reform, Washington, DC.... 30
PANEL III
Horvath, James J., President and Chief Executive Officer,
American Crystal Sugar Company, Moorhead, MN................... 48
Kennett, Alan, President and General Manager, Gay & Robinson,
Inc., Kaumakani, Kauai, HI..................................... 50
Lay, Jack, President, Refined Sugars, Inc., Yonkers, NY.,
accompanied by Jack Roney, Director of Economics and Policy
Analysis, American Sugar Alliance.............................. 52
McLaughlin, Lindsay, Legislative Director, International
Longshore and Warehouse Union, Washington, DC.................. 54
Orden, David, Agricultural and Applied Economics, Virginia
Polytechnic Institute and State University, Blacksburg, VA..... 56
VanDreissche, Ray, President, American Sugarbeet Growers
Association, Bay City, MI...................................... 46
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APPENDIX
Prepared Statements:
Lugar, Hon. Richard G........................................ 70
Harkin, Hon. Tom............................................. 72
Thomas, Hon. Craig........................................... 73
Dorgan, Hon. Byron L......................................... 75
Breaux, Hon. John............................................ 79
Mink, Hon. Patsy T........................................... 88
Miller, Hon. Dan............................................. 92
Baucus, Hon. Max............................................. 100
Abraham, Hon. Spence......................................... 102
Brick-Turin, Carol........................................... 116
Estenoz, Shannon A........................................... 155
Frydenlund, John E........................................... 133
Hammer, Thomas A............................................. 142
Horvath, James............................................... 176
Jaeger, Arthur S............................................. 126
Kominus, Nicholas............................................ 137
Kennett, E. Alan............................................. 182
Lay, Jack F.................................................. 193
McLaughlin, Lindsay.......................................... 198
Orden, David................................................. 205
Perry Mark D................................................. 152
Shapiro, Ira S............................................... 120
Schumacher, August Jr........................................ 105
VanDriessche, Ray............................................ 165
Document(s) submitted for the record:
U.S. Cane Sugar Refiners Association, List of Member
Companies.................................................. 214
Letter to Ambassador Barshetsky, and Secretary Glickman, from
Don Wallace, chairman, ASA, submitted by James J. Horvath.. 216
Editorial, The Sweet Hereafter, submitted by Mark Perry...... 217
Editorial, Buyout May be Best Way to Re, submitted by Mark
Perry...................................................... 233
Petition to support U.S. Sugar Policy, submitted by Lindsay
McLaughlin................................................. 251
FEDERAL SUGAR PROGRAM
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WEDNESDAY, JULY 26, 2000
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Committee met, pursuant to notice, at 8:32 a.m., in
room SH-216, Hart Senate Office Building, Hon. Richard G. Lugar
(Chairman of the Committee,) presiding.
Present or Submitting a Statement: Senators Lugar,
Fitzgerald, Craig, Santorum, Harkin, Conrad, Baucus, and
Kerrey.
The Chairman. Good morning. This hearing of the Senate
Agriculture Committee is called to order. I thank our witnesses
and all who are participating in the hearing for coming at this
early hour.
I would mention that we anticipate roll call votes midway
through the hearing, and we have been advised that we must
leave the room by 12:45 because the Rules Committee of the
Senate has scheduled another hearing with another committee at
that point.
So, with that in mind, I am going to ask if each of those
who testify today, including our distinguished colleagues from
the Senate and the House and those representing the Department
of Agriculture and the panels that have various views on the
sugar program limit their initial comments to 5-minutes.
I will just state categorically at the beginning that all
prepared statements will be made a part of the record. So it
will be unnecessary to ask for permission for that to occur
because we want the record to be as complete as possible, and
we will ask Senators as they appear for questioning to limit
their question periods to 5-minutes as we go through the
rotations.
I will give my opening statement following that of our
distinguished colleagues from the House and the Senate so as
not to delay their comings and goings this morning, but we are
honored that you are here. Let me just indicate that we
anticipate testimony by Senator Dorgan, Senator Breaux, Senator
Abraham, Representative Mink and Representative Miller.
Three of you are here now, and, therefore, Byron, I will
recognize you. It is always an honor to have the distinguished
Senator from North Dakota, Byron Dorgan, before us, and I would
ask you for your testimony.
STATEMENT OF HON. BYRON L. DORGAN, A U.S. SENATOR FROM NORTH
DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much. It is a
pleasure to be here.
Let me say that while I am excited to be here to support
the sugar program, a program that I think is a wonderful
program, a program that has worked for some long while to help
sugar producers and stabilize the price of sugar for both
producers and consumers in this country, I recognize that, that
program has had some difficulties recently, having to do mostly
with the farm program, the underlying farm program in this
country that is not working, number one, and, number two, a set
of trade policies that have undermined our producers as well.
I would much sooner be here, I must say, Mr. Chairman, to
appear at a hearing dealing with the Freedom to Farm
legislation, as you well know. You are probably tired of
getting letters from me on that subject.
The Chairman. Never, never.
Senator Dorgan. But because this is a hearing on the issue
of sugar, let me focus on that.
First of all, there is a lot of discussion about the world
price for sugar. The critics of this program go to the floor of
the Senate and talk about the world price for sugar. The world
price for sugar is a dump price. Largely, there is not free
trade in sugar, as 75-percent of the world's sugar is sold
under contract, at a profitable contract, and the remaining
surplus is dumped on the world market at the current price of
8-cents a pound. The average world cost of production is 18-
cents a pound. It is obviously, it seems to me, that the 8-
cents is a dump price, and we ought not be talking about that
as the world price or the market price.
Twice, we have ended a sugar policy in this country, only
to see extremely volatile prices ranging from 60-cents to 3-
cents a pound, and that volatility has injured both producers
and consumers in this country. We know it, we have seen it, we
felt it, and for that reason, we should understand the value of
a program that produces price stability for both producers and
consumers.
There is a Coalition for Sugar Reform, a group of good
people who are interested in their companies and their profits,
bakers and chocolate manufacturers and biscuit folks and
grocery manufacturers, and they say, ``Gee, if we could get rid
of this sugar program and collapse the price of sugar, savings
would be passed on to the consumers.'' Of course, we know that
is not the case.
Sugar prices are down by a full one-third since the farm
bill began to a 22-year-low. Chocolate and candy prices are up
6-percent. Cookies, cakes, and bakery products are up 7-
percent. Cereal and ice cream prices are up 9-percent. I was in
a grocery store two nights ago. The price of a bag of sugar,
the raw product as we know it, is essentially unchanged. They
have not even lowered the price of the raw product.
So I think we ought to set that argument aside. This is not
about consumers. Farmers and consumers alike, in my judgment,
are being fleeced.
We have got a couple of things that are working against the
sugar program. The GATT playing field in international trade is
tilted against our farmers. GATT left the European Union [EU]
subsidies for sugar 40-percent higher than our loan price, and
the EU is the world's largest producer and exporter of
subsidized sugar. Their high subsidy fosters overproduction
which is being dumped on a world market.
NAFTA is a failure for sugar and also for agriculture as a
whole. NAFTA does not address the $2 billion in subsidy that
Mexico has pumped into sugar production, changing it from a net
importer to a net exporter. There has been no negotiation that
would insist on abiding by the side letters. We have got
stuffed molasses coming in from Canada. It is unforgivable that
is happening, just unforgivable that we have this stuffed
molasses coming in and nobody is doing anything about it. So we
have got the failure of the underlying farm bill, Freedom to
Farm, the failure of trade negotiations and trade acts that
have been agreed to by Congress, and all of that has pulled the
rug out from under our sugar producers.
Finally, Mr. Chairman, I represent beet producers. They are
the most efficient producers in the world. Without the sugar
program, they cannot survive against lopsided trade agreements
which are tilted against them, and against the backdrop of a
farm program that has not worked, what has happened is we have
seen more acreage. That is true. But if we fix the trade
problems and get a decent farm program in this country, that
sugar program will work and work well as it has for many, many,
many years and work for consumers and work for producers.
That is why I am here to say today I support this program.
This program makes sense. If we take a look at changes in the
farm program, and we should--we ought to do that starting
tomorrow--we ought not look at dismantling the one part of the
program that can work if everything else is fixed the way it
ought to be fixed.
Mr. Chairman, thank you very much.
[The prepared statement of Senator Dorgan can be found in
the appendix on page 75.]
The Chairman. Thank you very much, as always, Senator
Dorgan, for your testimony and for your interest in our work.
Let me ask now Senator Abraham for his testimony.
STATEMENT OF HON. SPENCER ABRAHAM, A U.S. SENATOR FROM MICHIGAN
Senator Abraham. Mr. Chairman, thank you, and I appreciate
the chance to go at this time since I have another meeting as
well.
I also am here today to convey to the Committee my support
for the sugar program and why I believe it is a system that is
necessary.
The reality of sugar in Michigan is very simple. It is
responsible for 23,000 jobs in my State, and as is the case
with many United States jobs created by sugar production and
refinement, these jobs are located in rural areas where there
is little other economic activity. That is the reality of sugar
production in Michigan.
Every time the sugar program is challenged, much of the
criticism is leveled at so-called large sugar barons. That may
be true some places, but, Mr. Chairman, in my State, nothing
could be further from the truth. In Michigan, there are
approximately 2,000 family farms that grow beets, and most of
these farms average between 100- and 150-acres. So, when some
in Congress try to kill the sugar program, what they are doing
really is threatening the livelihood of thousands of small
Michigan farmers.
Michigan sugar farmers are the most efficient producers of
sugar beets in the United States, and since U.S. sugar beet
production is the lowest cost in the world, I proudly label
Michigan sugar beet growers the most efficient sugar growers in
the world.
Unfortunately, as has been the case with other agricultural
commodities across the Nation, low prices are also prevalent in
the sugar industry. So, while the rest of the United States
economy has been roaring, U.S. agriculture has not. Prices for
most crops are at or near all-time lows in real terms. This
body has certainly recognized that danger, as you know, because
since 1996 we have provided over $70 billion in payments to
U.S. farmers.
Like other American farmers, sugar farmers are facing tough
times. The price American farmers received for refined sugar
has fallen to its lowest level since 1978. These low prices
threaten to drive sugar producers out of business. Agriculture
faces unique difficulties not experienced in manufacturing or
finance, and I have been a staunch supporter of efforts to
provide emergency assistance for American growers.
The Government should provide assistance to avoid commodity
loan failures. The Government should also protect American
sugar production from threats it cannot counter, and that
really is the purpose of the sugar program.
In my view, those who are seeking elimination of the
program should focus their attention first on the foreign
subsidization of sugar production, much as Senator Dorgan just
commented on. If every government around the world stayed out
of the sugar production business, we would not need a program
to keep our farmers competitive.
Just look at what we are up against, whether it is from the
EU or from Brazil. We face competitors around the world who are
strongly supported by government subsidies, and to put it
simply, U.S. sugar producers are among the world's most
efficient and they welcome a chance to compete with foreign
growers, but cannot be expected, I do not think, to compete in
a situation where they have to go up against foreign
governments.
Without the sugar program, subsidized sugar from foreign
nations would drive American sugar producers out of business.
Our efficient, labor-conscious, and environmentally sensitive
production would be replaced by heavily subsidized imported
sugar grown often under deplorable conditions which are illegal
in all 50 States. Until a level playing field can be created,
perhaps through a new round of trade negotiations, I believe
this Congress must work to protect our domestic market.
Finally, Mr. Chairman, let me just speak directly about
this much maligned program. This year alone, the Government is
spending over $13 billion in loan deficiency payments and
marketing loss assistance to avoid forfeitures of wheat, corn,
soybeans, cotton, and rice. Last week, we agreed to another
$900 million in emergency agricultural spending. Meanwhile, the
initial purchase under the sugar program totaled $54 million.
This was not a payment to producers. This was just the cost of
purchasing sugar which the Government now owns and may sell.
Thus, the initial cost of the sugar purchase is about one-half
of 1-percent of the outlays to avoid forfeitures of other
crops. It is clear to me that the sugar program is a cost-
effective way to help American sugar growers grow for the
domestic market, and I am not alone.
Just last week, an overwhelming majority of Senators from
both parties defeated another attempt to kill domestic sugar
production. When so many sectors of American agriculture are
suffering, I think it is incomprehensible that anyone in
Congress should consider eliminating the one program which
protects U.S. growers from complete eradication.
Until foreign sugar producers grow for the market and not a
government, I intend to work to maintain the U.S. sugar
program. I know I will not be alone, and I look forward to
working side by side with my colleagues here today to protect
U.S. sugar from misguided efforts which would harm this
important sector of the agricultural community.
Mr. Chairman, thanks for having the chance to be here with
you again.
[The prepared statement of Senator Abraham can be found in
the appendix on page 102.]
The Chairman. Thank you very much, Senator Abraham, for
coming early and giving this excellent testimony. We appreciate
it.
Senator Abraham. Thank you.
The Chairman. Representative Miller
STATEMENT OF HON. DAN MILLER, A REPRESENTATIVE IN CONGRESS FROM
FLORIDA
Mr. Miller. Thank you, Mr. Chairman. Let me first of all
congratulate you for the leadership you have given over here on
the Senate side. I have been the leader of the program to
reform and get rid of the sugar program since 1995 on the House
side back when we had the debate in 1996. It was a Miller and
Schumer bill. Now he is your colleague, and so, hopefully, he
will provide that type of support over here.
You have also done a good job advocating the elimination of
a program recently in Fleecing of America and It is Your Money.
This is an embarrassment to this Congress and this country
because agriculture is the most efficient producer in the
world, but we are protecting one crop. It is bad for the
consumer. It is bad for jobs in this country. It is bad for
trade. It is bad for the environment. Now we are finding it is
really bad on the American taxpayer. We have created a cartel,
not much different from OPEC, to control sugar prices in this
country and, as you know, they are about three times the world
price.
They talk about all the subsidized sugar. We have laws in
the books to keep subsidized sugar out, and we should not allow
that in. I would agree completely with that, but as I said,
this is bad for the American consumer. We have recently
received a report from the General Accounting Office. This is
the independent agency that has analyzed the sugar program and
the cost on the American consumer. They have sought the advice
of the Agriculture Department, and the Agriculture Department
refused to participate in this, to come up with a model on the
cost of it.
So they brought in some of the outstanding academic
economic modeling experts around the country to develop a model
to project the cost, and they came up with a $1.9-billion cost
on the American consumer. That is real dollars.
I know some people are going to attack the messenger
instead of the message, but the fact is that the independent
agency that has got tremendous credibility here in Congress and
has brought in some of the outstanding economic modeling
experts around the country. It is a $1.9-billion cost.
Let's talk about jobs. Let me give you two illustrations of
how we are losing jobs in this country. Bob's Candy in Albany,
Georgia, makes candy canes, obviously a large user of sugar.
They can get sugar in Canada or in the Caribbean for a fraction
of the price in the United States. He cannot compete with
foreign candy cane companies and sell, these being driven, his
production, out of this country.
The cranberry business up in Massachusetts is hurting now
because they cannot compete with Canadian cranberries because
sugar is needed. You need a lot of sugar to make the taste
better. So we are losing jobs in the cranberry business. So,
when you start managing prices, it is just bad economics. It is
dumb economics.
Trade. We all recognize that we have got to open up markets
for agriculture around the world, but when you protect one
product, how do you negotiate with other countries? You cannot
negotiate with Canada and say, ``We want all your markets open,
but you cannot sell any sugar to us.'' That just does not work
that way.
That was one of the problems when we went to Seattle. When
we enter more trade negotiations, and I think most of us are
free traders and want to open up trade markets, the problem is
you cannot product one product at the expense of all the
others. Everything has got to be on the table, and you have got
to go to these trade negotiations with clean hands.
I am from Florida. From an environmental standpoint, sugar
has been horrible on the Everglades. We are getting ready to
spend about $8 billion on cleaning up the Everglades. The
Federal Government will pick up about half of that cost, and
the Senate has been very active under Senator Smith in
developing and hopefully approving the plan that is going to be
used there, but sugar is a major contributor to the problem.
With the high price of sugar, we are overproducing sugar in
Florida. We are encouraging more production of sugar, and it is
hurting.
Finally, the cost to the American taxpayer. We heard the
argument in 1996, ``Oh, it does not cost the taxpayers
anything.'' Well, just a month or so ago, they just bought $54
million worth of sugar for the first time since 1985, and they
may buy another 150- to 200-million in the next 60-days. Next
year, because of the increased production of sugar, we could be
talking about a half-a-billion dollars. These are actual
taxpayer dollars. We are buying the sugar, and we have nothing
to do with it. We cannot give it away around the world. So we
are going to store it, and I do not know how long we are going
to store it. Now we are going to have to have new facilities to
store it.
We have got to change the program. The program does not
belong in a free enterprise, competitive system. We need to let
the economy work the way it was designed, and I hope with your
leadership on the Senate side, we can get rid of this program
in the next reauthorization the next session of Congress.
Thank you, Mr. Chairman.
[The prepared statement of Representative Miller can be
found in the appendix on page 92.]
The Chairman. Thank you very much, Representative Miller,
for your leadership, for coming here this morning.
We are joined by Representative Patsy Mink. It is
delightful to have you, as always. Please proceed.
STATEMENT OF HON. PATSY T. MINK, A REPRESENTATIVE IN CONGRESS
FROM HAWAII
Ms. Mink. Thank you very much, Mr. Chairman. I appreciate
so much the opportunity to present the views particularly as it
impacts on my Second Congressional District and the State of
Hawaii and as it affects the entire agricultural rural economy
of this Nation.
I would like to focus my remarks on two aspects: first, the
severity of the crisis facing the American sugar growers; and,
second, the flawed General Accounting Office report to which my
colleague has referred.
The U.S. raw sugar cane prices have plunged from 22.6-
cents-per-pound last July to now less than 17-cents-per-pound
this month. This is the lowest level that we have seen in
nearly 20-years, since 1981 when there was no sugar policy at
all.
Because of flat producer prices since 1985 and rising sugar
production costs, Hawaii's sugar industry has shrunk in the
past 10-years from 12-sugar-companies to only three, and we are
currently being threatened that the third will probably
announce its closure very shortly. This is a catastrophe for my
State, and I am sure that my views with respect to the loss of
this industry for Hawaii would be similarly reflected in other
places in the country.
The lost of 10 plantations in my district represents an
economic, social, and environmental disaster. One might think
that these agricultural jobs could be readily absorbed by
tourism and other industries, but, sadly, this is not the case.
So, when we talk about revising the Nation's sugar policy, we
have to bear in mind that in places like Hawaii and perhaps
elsewhere, it would be a total demise of the presence of this
important industry.
Most of the jobs in the sugar industry in Hawaii are heavy
equipment, industrial-type work that cannot be readily
converted to tourism jobs. So many of these individuals who
come from these plantations that have been closed are still
unemployed and working very, very hard to try to find some
other kind of employment to which they could convert.
The second catastrophe is the loss of the green. We have
taken great steps to try to preserve the green atmosphere of
the State. The lush sugar cane fields have contributed to that
general aloha impression. When the plantations close, what
happens is you have huge dust storms. There is nothing that you
can use the land for productively, and the vermin and other
things contribute to the problems that the adjoining
communities have.
Hawaii's producers currently achieve the highest yields of
sugar per acre. They are well-paid workers. They are in
communities where sugar is an important commodity. So I urge
you to consider the economic aspects of this industry upon a
small State like Hawaii and the catastrophic impact it would
have on the several thousand workers who remain in this
industry.
I think it is important to look at the GAO report very
critically because they are talking about losses to the
consumer based upon world dump sugar prices. I have a chart
here which shows what the real prices of sugar are in terms of
the retail market throughout the country, throughout the world,
and you will see that the United States prices on the shelf in
our supermarkets at 43-cents-a-pound is way below what the
current prices are inmost of the industrial developed countries
in the world.
So, when they talk about 6-, 8-cents sugar, it is not the
real world. There is no way in which you could base an
agricultural policy on a world dump sugar price which could end
in the demise of a very, very important industry in this State.
So I urge you to look at the GAO report through the efforts
of many of us. Critical of the last GAO report, the Department
of Agriculture was given an opportunity to put in comments as
well as the members of the sugar industry themselves, and if
you will read those critical comments by the Department of
Agriculture and by the industry, you will see that the GAO
report really does not base its findings upon reality.
I would like to ask unanimous consent that the entire
statement I prepared be inserted in the record at this point.
Thank you very much.
[The prepared statement of Representative Mink can be found
in the appendix on page 88.]
The Chairman. It will be inserted in full, and we
appreciate very much your coming this morning.
Let me just ask for a moment if my colleague, Senator
Conrad, has a question or comment with regard to the testimony
of our congressional witnesses.
Senator Conrad. Perhaps when they are concluded, I would
have an opportunity to make an opportunity to make an opening
statement, Mr. Chairman.
The Chairman. Very well.
We thank both of you for coming this morning and adding to
our testimony.
Ms. Mink. Thank you very much, Mr. Chairman.
OPENING STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR FROM
INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
The Chairman. At this point, I will make an opening
statement, and then I will recognize Senator Conrad. Then we
will proceed to our first panel, the administration witness and
the academic witness.
Let me just say at the outset that my views on the subject
are well known, and I approach the hearing with a feeling that
we need reform.
I would just say for the record that in 1978, we voted on
the Sugar Stabilization Act really for the first time, and that
act was passed with my position negative in each of the three
major votes on that occasion. I worked with Senator Boschwitz
for reform when the 1981 farm bill came up, but our efforts in
the Committee lost by votes of 9 to 2 and 10 to 3. Finally, on
the floor, the vote to end the sugar program failed by a vote
of 61 to 33, not unlike subsequent votes really for the past
20-years.
In 1985, the same motion to abolish the program lost by 60
to 32. One voted change in a 4-year period of time, one way or
the other. In 1990, Senator Bradley tried a more modest reform
on the floor suggesting that the support price be reduced from
18-cents to 16-cents. That motion failed 54 to 44 for a 2-cent
reduction at that point.
In 1996, when we had another farm bill situation, my motion
to end the program failed 35 to 61, and then for middle gain
over 90 and 85 and so forth. Of course, we had a recent vote
last week that was very similar to the ratios of 60 to 30-odd
votes.
So I appreciate the Congress. The Senate has spoken, and
the House in a similar way, many times on the program. Yet, I
come today suggesting that we will hear testimony about the
status of the industry and the future role of the program, and
I believe that events in this year indicate that the sugar
program is becoming increasingly unmanageable and that radical
reforms are really needed urgently.
This spring, as has been pointed out, USDA offered to
purchase 150,000-tons-of-sugar to stabilize prices and prevent
sugar loan forfeitures. The Department spent $54 million to
purchase 132,000-tons-of-sugar, but the price increases in the
sugar market anticipated, or at least hoped for, have not
occurred.
In its mid-session review of the Federal budget, the
Clinton administration estimates that the sugar program will
cost over $140 million this fiscal year for purchases and loan
forfeitures, proponents that a sugar program can no longer cite
a no-cost basis, but this is just the beginning. The mid-
session review projects that the current program will cost
taxpayers over $1 billion, result in an accumulation of over 5-
million-pounds-of-sugar in Government inventory between now and
the year 2005.
In announcing the offer to purchase sugar in May, Secretary
Glickman stated, ``Something relying on continued Government
purchases over the long term is neither feasible nor
realistic,'' and I strongly agree with the Secretary's
assessment. I hope that witnesses today will present
alternatives to present policies that have failed, in my
judgment, producers, sweetener users, consumers, and the
taxpayers.
It is widely rumored that discussions are underway at the
Department even now with segments of the industry to institute
a payment-in-kind program for sugar in an attempt to reduce the
supply. Such a program would be ill-conceived, in my judgment,
would highlight the desperate nature of efforts to preserve the
program at almost any cost.
Under our current international trade commitments, we must
soon permit increasing imports of foreign sugar to enter the
United States markets. Obligations under the World Trade
Organization and the North American Free Trade Agreement
coupled with record high domestic production projections will
result in a sugar supply far in excess of demand. A long-term
viable and rational solution to the matter should be
implemented in the very new future.
An additional perspective relates to the fact that the
Everglades are dying. Testimony came before this committee as
early as 1990, from my records, indicating this unfortunate
trend. The steady natural flow of water has been disrupted.
Water that could be used to restore this natural environment is
being flushed to the sea, and lack of adequate water storage
results in discharges of polluted waters and surrounding
waterways that makes water management more difficult during
storms and hurricanes.
In the 1996 farm bill, our committee supported the
inclusion of $200 million to purchase lands in the Everglades
agricultural area to help in the process of restoring the
Everglades. This was a thoroughly bipartisan effort and one
which required the close cooperation of Federal and State
officials.
Florida Governor Jeb Bush called the recent purchase of
these lands the linchpin of Everglades restoration. We need to
consider the option of making further purchases of lands from
willing sellers in the Everglades agricultural area with the
savings that might accrue from sugar policy reform. I believe
that sugar policy reform can play an important role in the
Everglades restoration.
We appreciate the witnesses who have come here today to
present statements on the industry, on the program, and on
behalf of consumers and taxpayers. We welcome them and look
forward to their testimony.
I look forward now to the opening statement of my
colleague, Senator Conrad.
[The prepared statement of Chairman Lugar can be found in
the appendix on page 70.]
STATEMENT BY HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA
Senator Conrad. Thank you, Mr. Chairman. Thank you for
holding this hearing.
I would like to turn to a couple of charts to talk about
this industry and the myths and the facts that relate to it. We
had a debate last week. We had, I think, a vigorous debate on
the question of the sugar program, and we saw the result in the
U.S. Senate, more than a 2-to-1 vote in opposition to killing
the sugar program. I think that vote reflected the growing
understanding our colleagues have of the consequences of such a
proposal.
Congressman Miller comes before us today and says that the
sugar program is not consistent with free market economics.
Unfortunately, the world sugar industry and the programs that
other countries have are not consistent with free market
economics, and the United States can make a fundamental choice.
We can choose to abandon our producers. We can engage in
unilateral disarmament. We can wave the white flag of surrender
and see this industry vanish from our country, or we can stick
up for our producers and fight for them the way other countries
fight for theirs.
When the reference is made to free enterprise system, as
Congressman Miller made reference, he should understand that is
not the rules by which world agriculture is being conducted.
This first chart shows exactly what is happening. Our major
competitors are the Europeans. They are playing world
agriculture by the old rules. They are playing by the rules of
mercantilist economics, and they are very good at it. I do not
criticize them. They are sticking up for their producers, and
it is very clear what they are doing.
On average, from 1996 to 1998, the Europeans are supporting
their producers at $324 an acre. The equivalent comparison in
the United States is $34 an acre. They have a 10 to 1
advantage. In effect, what we are saying to our producers is
you go out there and compete against the Germans and the
French, and while you are at it, take on the French government
and the German government, too. That is not a fair fight, but
that is precisely what is happening.
Not surprisingly, the strategy in the plan of the Europeans
is working very well. They are gaining world market share. In
the last 20-years, they have gone from the biggest importing
region in the world to the biggest exporting region in the
world, and this year, USDA tells us they will surpass the U.S.
in world market share. They are doing it the old-fashioned way.
They are buying these markets, make no mistake.
We will go to the next chart which shows what happens to
sugar prices. Sugar prices have plummeted. We see a dramatic
reduction here, 36-percent reduction in wholesale refined beet
sugar prices from 1996 to the spring of this year, a dramatic
price plunge.
Let's go to the next chart. The fact is this does not get
mentioned much by the opponents, but the sugar industry has
been paying in the Government coffers, not drawing from
Government coffers. There is no subsidy here. There are no
subsidy payments made to sugar producers in the United States.
I see this referenced all the time by our opponents. There are
not payments being made to sugar producers. In fact, until very
recently, the sugar industry was paying into Government coffers
from 1991 to 1999, almost $280 million paid into Government
coffers. We have ended that payment because we are now in
budget surplus instead of budget deficits, but the fact is the
sugar industry has been paying into Government coffers.
Let's go to the next chart. The opponents say repeatedly,
in fact, they chant it like a mantra, that U.S. consumers are
paying more because of the sugar program. Well, let's compare
what our consumers pay versus what consumers pay in other
countries. It is very interesting. In the developed world,
there are only two countries where consumers pay less for sugar
than we do in the United States, Canada and Australia. If you
look at all of the other major developed countries in the
world, we are paying on average 19-percent less for sugar than
the consumers in their countries.
Let's go to the next. It is very interesting to look at
what is really occurring because on the left you can see what
has happened to producer prices, the prices that are paid to
the producers of sugar. First of all, raw cane sugar, they have
seen an 18-percent reduction in their prices in the period
covered by the chart which is September of 1996 until March of
this year. Wholesale refined sugar in that period of time is
down 26-percent. You can see the prices of the products that
sugar goes into. Those prices have not gone down. Those prices
have gone up, whether it is cereal up 6.6-percent or cookies up
6.7-percent or candy up nearly 8-percent or ice cream up 9-
percent. While the prices that producers receive have plunged,
the prices of the products that they make have gone up.
The argument that I find most frustrating to hear is that
the world price of sugar is 8 or 9-cents a pound. We heard it
again this morning from Congressman Miller. That is just
absolutely false. That is not the world price of sugar. The
vast majority of sugar in the world sells under long-term
contract or is processed and used in the country in which it is
produced. The average cost of producing sugar in the world
today is 18-cents a pound. That is the cost of producing sugar.
So these people that run around and say that the world
price is 8- or 9-cents a pound, that is just absolute fiction.
What they are talking about is the dump price for sugar. That
is sugar that does not sell under long-term contract. That is
sugar which is not being consumed and processed in the country
in which it is produced. That is the excess sugar. That is
sugar that overhangs the market that sells at a dump price far
below the cost of production. That is not the world price, and
those that make that assertion are just flat wrong.
Let's go to the next chart, and I will conclude on this one
if I can, Mr. Chairman. Some say the sugar program costs
consumers money. Well, let's look at the record. If we go back
from 1979 through 1982 during the period in which we had no
program, the highest prices were when we had no program. The
highest prices for consumers were when we had no program. That
is when prices spiked.
So, Mr. Chairman, I hope very much that those who are
advocates of killing the program will deal with the facts and
not the myths, and when we are talking about the GAO report,
USDA's rejoinder was stiff and stern. They called the GAO
report naive, arbitrary, inconsistent, a puzzlement,
inflammatory, and unprofessional. I do not think I have ever
seen such harsh words in reference to a report, and the reason
is very simple. The instant experts at GAO compared the U.S.
price to that world dump price that is a fraction of the cost
of producing sugar and assumes that if grocery chains and food
manufacturers could have access to the dump sugar price, they
would pass 100-percent of their savings along to consumers.
Wrong on every count.
Mr. Chairman, I think the very strong vote in the Senate
sends a signal that people understand this industry is in
trouble, that we are being out-spent 10 to 1 by our European
competitors, and if we do not stick up for our producers, they
will be gone from these shores and we will wake up and wonder
what happened.
I thank the Chairman very much for his indulgence.
The Chairman. Thank you very much, Senator Conrad.
We are now going to hear from the Honorable Gus Schumacher,
Under Secretary of Farm and Foreign Agricultural Services of
the U.S. Department of Agriculture, accompanied by Keith
Collins, Chief Economist of USDA, and Ms. Carol Brick-Turin,
CBT Consulting of Annandale, Virginia, who will provide a
historic overview of the program.
Secretary Schumacher.
STATEMENT OF AUGUST SCHUMACHER, JR., UNDER SECRETARY FOR FARM
AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF
AGRICULTURE, WASHINGTON, DC.; ACCOMPANIED BY KEITH COLLINS,
CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON,
DC.
Mr. Schumacher. Mr. Chairman and members of the Committee,
I am certainly pleased to be here this morning. I am going to
be very brief.
I am also joined by, of course, Keith, and I have asked
Parks who did a lot of work on domestic programs--we have
basically a team approach to sugar because it is complicated,
and I have some very fine gentlemen and a lady sitting behind
me as well who occasionally may counsel me and Keith as we have
some questions.
I would like to cover briefly three issues, Mr. Chairman:
one, where we are on sugar policy; two, how we are implementing
the program that Congress has mandated; and three, a few
observations on some possible USDA sugar activity in this
coming crop year.
First, with your permission, I would discuss where we are
in American sugar policy at this moment. Clearly, we have a
very high-quality and very value-added product that at least in
the past has provided farmers with a reasonable rate of return
and particularly rural communities and certainly some States
with an important source of income. We heard this morning we
have an over-supply situation at the moment, and adjustments
are occurring. Production is moving, to some extent, from a
higher-cost to lower-cost regions, and refiners at one sugar
cane mill and several beet processing plants may be in jeopardy
with possible closures, as I think Congressman Mink mentioned
this morning. Unfortunately, these possible closures include
areas of the U.S. where sugar cane production appears to be the
only commodity available to support an entire rural community.
In September 1999, USDA did not believe that forfeitures
would be likely for the fiscal year 2000. USDA's own
projections of supply made in that month of September now
appear to be low by about 300,000-tons. This was partly in
response to the lower prices for other crops, the corn and
wheat prices, I think, are roughly 30-percent below their 5-
year average. Some farmers moved from those other crops to
sugar and increased plantings of both beets and cane, and, of
course, the sugar recovery from beet processing was very high.
Slippage in the tariff rate quota through the imports from
unregulated sugar syrup, known as the stuffed molasses problem,
also added additional unexpected sugar to the domestic supply.
There has also been a lot of technological improvements in
this business. Both the processors and the farmers are actually
making a number of efficiency gains--in fact, the
representative from Louisiana behind me had me down to observe
them--I try to visit all the sugar areas. I have been in North
Dakota, Louisiana, and Hawaii. Down in Louisiana, they actually
got me on a harvester, and it was a very, very modern
harvester. I drove it and I was fairly successful in harvesting
a few rows of cane, and I was very impressed by the technical
skill involved in the movement in all of our sugar. That was an
eventful day for me. I have been on wheat combines, but this is
a pretty sophisticated combine in Louisiana.
Regarding cooperatives, I will just move quickly here.
Virtually, all of the sugar is sold by members of farmers
cooperatives. Increasingly, the processing is done, I think,
something like 72-percent by cooperatives.
Let me touch briefly on the world sugar market. It is
dominated by Government intervention. The EU provides $2
billion in subventions for sugar. $1.5 billion is on export
restitutions, and we hope that we can move on that in the next
round.
Let me just conclude with two issues, how we have tried to
administer the tariff rate quota and what we are thinking about
in terms of options for dealing with the current growing
surplus.
First, on the administration of the tariff rate quota, in
the past, the administration of the tariff rate quote prior to
1996 has been pretty ad hoc. So what we try to do is to make it
much more transparent and predictable. We tried to establish
the Tariff-rate quota [TRQ] prior to the start of the fiscal
year based on the USDA projections of domestic sugar supply and
use. Therefore, a portion of this tariff rate quota was held in
reserve and made available to exporting nations at established
times during the fiscal year when USDA projections of the
fiscal year ending stocks to use ratio was 15.5-percent or
lower. USDA views the stocks use ratio at 15.5 as a signal that
the domestic market needs the reserved sugar to be adequately
supplied at reasonable prices, and for the last 3-years, by and
large, it has provided some stability.
We tried under the earlier decision this year to take a
prudent course of action, but as the acreage increased, yields
increased, and extraction rates increased. So we are now facing
the prospect of forfeitures. We have a current supply-and-
demand problem that makes it difficult to operate the program
without costs. We, therefore, have taken action to address
this.
We did purchase, as you indicated, 132,000-tons of refined
sugar. We did this because we felt that would save some money.
We have not gone further than that because the supply situation
has taken us into additional supply.
Let me just briefly, then, finally conclude on some options
we are looking at. There are a number of ways we could try and
deal with this, and some of them, we have not decided to do at
the moment, but we are certainly considering a number of
options. The one we are most seriously considering is the one
you have mentioned, and that is to reduce marketable supply in
the coming year. We are seriously considering a program of paid
diversion utilizing the currently available stocks we have and
anticipate having. There are other options, barring donations,
ethanol, restricted-use sales, but they are either expensive or
they reduce the price of other commodities that already have
depressed prices.
So, under Section 1009(E) of the 1985 act under the cost
reduction options, we would consider this payment-in-kind or
pay diversion for three reasons. We have not made the final
decision, but we are seriously considering it. One, it would
eliminate the $265,000 monthly storage cost for the sugar, Mr.
Chairman, we have already bought. Two, it would eliminate any
potential storage cost for possible forfeited sugar utilized
under such a program. Three, it could possibly reduce further
Commodity Credit Corporation [CCC] outlays next year as the
sugar surplus is expected to be larger next year than it is
this year. Thus, if non-recourse loans are mandated in 2001,
this may save CCC more than the cost of direct purchases.
In summary, we will continue to support a viable domestic
sugar industry with reasonable support for American sugar
producers at the lowest cost to the Government possible.
Clearly, we would prefer a market where neither sugar purchases
or a paid diversion were used, but these options seem at this
moment to be the best alternative options to provide support.
Mr. Chairman, we would like to work with this committee
and, of course, Members of the Congress as you look at
different options for a sustainable manner to support our sugar
farmers which we think are, by and large, pretty efficient and
to also ensure a stable supply to consumers.
That concludes my oral testimony. Thank you, Sir.
[The prepared statement of Mr. Schumacher can be found in
the appendix on page 105.]
The Chairman. Thank you very much, Secretary Schumacher,
and we appreciate your coming before the Committee. In our
oversight capacity as to what you are doing and what you are
planning, why, this is an appropriate and timely moment.
Ms. Brick-Turin, would you give your testimony?
STATEMENT OF CAROL BRICK-TURIN, CBT CONSULTING, ANNANDALE,
VIRGINIA
Ms. Brick-Turin. Chairman Lugar, members of the Committee,
good morning. I am honored to be here today to share with you
my thoughts on the U.S. sugar program. I am Carol Brick-Turin,
president of CBT Consulting, the company I formed 1-year ago
this month, having worked in both the public and private
sectors on agricultural issues for the past 25-years, 15 of
which were spent on U.S. sugar policy.
In my remarks today, I would like to highlight the
following three points in setting the stage for the policy
debate. First, adversities faced by the domestic sweetener
industry today are the culmination of public policy and private
sector initiatives that have evolved over the past two decades.
Second, the U.S. Department of Agriculture is no longer
able to carry out the intent of its congressional mandate, and
as a result, the collision between free market forces and
Government controls is nearing.
Third, it is, therefore, crucial to begin the debate on the
future direction of the sugar program and, in so doing, the
complexity of current Government policy and the industry
response to such policy must be acknowledged and understood.
As shown in the attachment to my written testimony, the
Federal Government has been involved in the sugar market for
more than 60-years. The price support program has been the only
domestic program for sugar since 1981 with the exception for a
brief period of the use of marketing allotments.
However, in 1982, the Federal Government also began to use
a whole host of import policies in order to meet its domestic
policy objectives. Since President Reagan established a
country-by-country quota that year, the Federal Government has
issued and reissued dozens and dozens of related rules,
regulations, Presidential proclamations, executive orders, and
administrative decisions creating a complex web that
constitutes the sugar import program.
Sugar policy set and administered by the Federal Government
has been the single most important influence on the evolution
of the sweetener industry over the past 20-years. Yet, many
changes in the dynamics in the sweetener marketplace have also
occurred as the result of normal industry practice to maintain
a competitive edge by cutting costs and increasing
efficiencies. This interplay between public policy and private
sector initiatives almost always results in the use of
qualifiers when discussing the U.S. sugar program.
I know that President Truman once said that all of his
economists say on the one hand and on the other hand and asked
for a one-handed economist. I did not mean to take him quite so
literally this morning because I would like to share with you
some of the program tradeoffs.
On the one hand, a U.S. sugar policy has protected sugar
growers from volatile price movements in the world market with
guaranteed minimum price supports and restricted import levels.
On the other hand, the same policy by elevating prices has
encouraged displacement of sugar by HFCS, stimulated a rate of
sugar production that has outstripped consumption, reduced U.S.
import needs, and advanced an extraordinary level of
consolidation in the refining and beet processing industries.
On the one hand, current industry rules may be attributed
to external factors such as imports of certain syrups from
which non-quota sugar is extracted, threats of Mexican imports
overhanging the market, and from time to time tariff rate quota
mismanagement. On the other hand, the industry itself must take
responsibility for creating the current oversupply situation
through increased acreage and output.
On the one hand, opponents argue that lower loan rates will
help the consumer. Clearly, grower prices exceed levels that
would be expected in the free market scenario. On the other
hand, the contention by GAO that the sugar program costs
domestic sweetener users almost $2 billion in 1998
unrealistically assumes 100-percent pass through of cost
reductions by refiners and industrial users to the final
consumer.
In fact, my point is that when it comes to U.S. sugar
policy, there is always another hand. There is simply no more
ways for the USDA to help the grower processor within the
framework of the current sugar title. The administration's
hands are tied by the congressional mandate that sets the loan
rate and requires recourse loans if imports drop below 1.5
million-tons, a WTO obligation to permit imports of at least a
million-and-a-quarter tons, and a NAFTA commitment that will
ultimately establish the freeflow of trade between U.S. and
Mexico. It is, therefore, vital to begin the debate on the
long-term direction of sugar policy.
In summary, while I take no side in this debate, I do
believe that the potential free form is undermined by
oversimplified criticism or applause of the U.S. sugar program;
that the current sugar program is a patchwork of statutes,
rules, regulations, executive orders, and administrative
decisions that have been pieced together over the past two
decades. When crafting a long-term policy, both program
opponents and supporters must recognize its complexity in order
to move forward towards a unified constructive approach that
accommodates the changing dynamics of the sweetener
marketplace.
This concludes my prepared remarks, Mr. Chairman. I would
be pleased to answer any questions the Committee has for me.
Thank you.
[The prepared statement of Ms. Brick-Turin can be found in
the appendix on page 116.]
The Chairman. Thank you very much. As the Chair announced
earlier, Senators will try to restrict themselves to 5-minutes
of questions in interrogating our panelists.
Let me start by saying, Secretary Schumacher, Ms. Brick-
Turin has described the box in which you are in, and you are
describing potential options, all of which are difficult. I
think both of you have indicated, as have journalists writing
about this problem, that in some ways producing sugar in this
country has become a more lucrative option than producing corn
or wheat in some instances. There appears to have been a shift
of acreage to sugar.
This is despite the fact that throughout all of this
debate, it has been apparent that an oversupply of sugar in
this country and throughout the world was apparent, but
nevertheless market signals at least to farmers who made these
planning decisions were that given the Government's sugar
program, it was a more lucrative option. We have that set of
circumstances.
Perhaps a change in prices of corn, wheat, and soybeans
would shift that back, but, nevertheless, that will not be in
the cards this year, and many would forecast, I think,
including Mr. Collins, maybe not next year.
So the oversupply thing is there in a big way. Our foreign
policy has suffered through many ups and downs with the
Caribbean, with the Philippines and others, as we have shifted
roughly from a 55/45, that is, domestic import for sugar supply
to about 87/13 now, domestic as opposed to import, but as Ms.
Brick-Turin has pointed out, we have obligations under WTO,
under NAFTA. Clearly starting about the 1st of October, those
come in, in a big way. So the supply thing dictated by price in
our own situation here, that is, better price for sugar than
for corn, say, or acreage return, plus the export thing means
that we have a bigger problem come the fall and a much bigger
problem come next year and without changes, I have suggested,
an overhang of sugar that is really impossible to manage.
So it appears to me that program changes are going to be
required. The problem of the hearing right now is that people
come embattled as sugar growers are hanging on for dear life to
whatever is there. My colleague, and I respect him, Senator
Conrad, is suggesting this world price idea of 8-cents, 9- or
10-cents is totally fiction, but others would say that is sort
of the clearing price. That is what happens, even given all the
restrictions in the world. The fact is that sugar comes cheaper
than 18-cents or what is effectively in many of our USDA
programs more like 21, verging to 26 by the time you add in
interest rates and carrying charges and various other things.
So consumers may not complain. Maybe they do not lose 2-
billion. Maybe they lose only 1-billion-a-year depending upon
the pass through, but that has been a pretty effective tax on
American consumers for quite a while, and that continues on.
My prayer, I suppose, is that somewhere coming from this
hearing or the stimulus of this is that there is an outline of
how all of these interests are better met. I do not have one
off the top of the head. I feel the present situation as being
described is not only a collision, but impossible and
ultimately will lead to all kinds of either evasions of the law
or stretching it to the ultimate, as all the parties try to
gain what they want.
My own inclination would be to say that probably the
support price should be less so that there are fewer
inducements to plant more, that people finally shift their
emphasis to something else, or as I suggested during the
tobacco debate, we have a buyout of small growers who are hurt
and are hurting. That, I think, would have been a good idea.
During the tobacco debate, it faltered for various other
reasons, although I noted Maryland is adopting a program very
similar to the one that I suggested for small tobacco growers
and the might be useful for sugar growers because we keep
getting into this rundown that there are some that are very
small and some that are very large, more large in the cane
business than perhaps in the sugar business, and there are
needs for transition here. So perhaps that ought to be a part
of the policy likewise.
You are thinking of a paid diversion of sorts or a payment-
in-kind that accomplishes that, a sort of a limiting of the
planting efforts so it does not increase an even more supply,
but somewhere in the Department, are there any planners taking
a look at this thing as to what would be a better option? You
have spent a lot of time figuring out how to deal with the
current situation, the political pressures of that, but in the
back room somewhere, are there people theoretically trying to
think about a better world for sugar and consumers and foreign
policy?
Mr. Schumacher. Frankly, Mr. Chairman, we are working to
administer the program that Congress has mandated to deal with
this increase in supply right now. That is why in my testimony,
I outlined a number of the options we did consider and one that
we are seriously considering at the moment. Clearly, we will be
looking in the future, but I think right now----
The Chairman. Those are things you have to follow what we
have done. So that sort of passes the ball back here, and maybe
that is where it belongs. In other words, we try to find some
economists and some theorists and get a better outline. I am
just asking. I suppose, from the standpoint of the
administration, are you trying to think ahead to a better world
for all of this?
Mr. Schumacher. Certainly, this hearing has focussed my
mind on this a bit more, but I think right now, we are really
trying to look at the different options, as I indicated, to
minimize cost to CCC, look at our projections a little more
carefully, and we see where the cost potential forfeitures are
coming and how we might deal with those through the next 18-
months or next 15-months to minimize the cost to the CCC and
the taxpayers.
The Chairman. Let me just ask, then, with regard to the
policy already adopted. I wrote to the Secretary suggesting he
not buy the sugar, and he has bought the sugar and may buy some
more, largely because I did not think it would make any
difference. I think it is throwing good money after bad
already. In essence, it has not really affected the forfeiture
situation. It is still just as grim as it was before, after the
expenditure of tens of millions of dollars, and I presume if
you buy some more, it will have much the same effect, largely
because the inducements to plan more are still there, even
while we are busy trying to get rid of the surplus. The signal
is given by the sugar program that people ought to do more of
this, and they probably will, and all around the world, they
are doing so. So there is just no end to the difficulty of
heading down this trail, whatever the pressures.
I read in The Wall Street Journal that 11 Senators went
down to see the Secretary. The USDA people were amazed at such
a delegation, all waiting upon the Secretary to buy more, to
try to bail out. So there are some problems, but why not have
forfeitures at this point? Why not have a signal that enough is
enough, that finally you have stopped this and that it is not a
good idea to plant more beet sugar or cane sugar or any other
kind of sugar right now? As a matter of fact, you ought to try
something else, and that is why I come to the idea is it
necessary perhaps for somebody to help some people out of this
market, to offer some transition payments or is sugar so
lucrative that there really is no option for these farmers.
Mr. Schumacher. Sugar, as I indicated in my testimony, Mr.
Chairman, compared to corn and alternative crops in the areas
where sugar is grown--and I visited the different areas--sugar
is certainly more profitable to farmers when they run their
pencils pretty carefully, whether it is to the South, certainly
Louisiana, as they expand along the coast a little bit and use
some of these new modern technologies and certainly in the beet
growing areas in the Northern Plains and in the West.
The Chairman. I just simply repeat, it is lucrative because
of the program we offer. If we did not have a program, people
would have different sorts of pencils and come to different
conclusions.
Senator Conrad?
Senator Conrad. Thank you, Mr. Chairman.
Maybe I could go to Secretary Schumacher and ask the
question. We hear repeatedly that the world price of sugar is
8- or 9-cents a pound. Do you believe that, that affects the
world price of sugar?
Mr. Schumacher. We have looked at this pretty carefully,
and that is why I put in my testimony, Senator Conrad, the EU.
I think Congressman Mink and yourself put up the charts on the
retail price of sugar. Of course, what we focus on is how it
affects trade and the next round of WTO and the amount of money
the EU is putting into its sugar export restitutions which we
have called for in Seattle to be eliminated.
I think the sugar program in the EU is a classic case where
if they did not have those huge export restitutions, we might
have a little different world sugar price because they have
been the main influence, in my opinion.
In my previous career, I did a lot of work internationally
on sugar, whether it was Jamaica or other countries, in the
cane business, and the way that EU has taken market share from
the Caribbean and from other islands is really quite
extraordinary. We are going to work very hard in the next round
to eliminate the export subsidies in the classic cases, such as
in the EU.
So the direct answer to my quick----
Senator Conrad. What are----
Mr. Schumacher. Go ahead.
Senator Conrad. No, go ahead.
Mr. Schumacher. The direct answer to your question is,
clearly, if you looked at the cost of production in a number of
countries, it is closer to 17-, 18-, 19-cents-per-pound, if you
average it out over a number of countries.
Senator Conrad. Cost of production, 17-, 18-, 19-cents?
Maybe we could put up that chart that shows cost of
production.
You know, it is just amazing to me that this fiction gets
restated over and over and over that the world price of sugar
is 8-cents-a-pound. It is not 8-cents-a-pound. It is just
nonsense.
The cost of producing sugar, the average world production
cost, just as you stated--you said 17-, 18-, 19-cents.
Mr. Schumacher. In that range, yes.
Senator Conrad. This is the world survey of sugar, 1997
report, just over 18-cents a pound. So, obviously, sugar is not
selling for 8-cents a pound in the world. Sugar is not selling
for 10-cents below its cost of production or half of its cost
of production, less than half its cost of production, or the
entire sugar industry worldwide would be bust. Sugar is selling
for something above its cost of production, and these people
that continually refer to the 8-cents are referring to a dump
price because the vast majority of sugar in the world sells
under long-term contract. It does not count in this calculation
that others are making, the opponents of the sugar industry are
making, and that is the hard reality here.
The fact is this is the relationship, average cost of
production in the world, and the world dump price, which is not
the world price of sugar at all. I think that is a key point
that needs to be repeated.
Let's go to what the Europeans are doing because it is very
instructive. It is not just in sugar. It is in every
agricultural commodity that they support, and you made the
point very well. $2 billion a year, that is what our chief
competitors are doing in terms of support for that industry.
Overall, they are spending close to $50 billion a year to
support their products. That is what the Europeans are doing,
$50 billion a year, and they are doing it because they want to
gather world market share.
In my discussions with the Europeans, they have said to me
repeatedly, ``Senator, we see ourselves in a trade war with the
United States on agriculture. We believe at some point there
will be a cease-fire in this trade war, and we want to occupy
the high ground. The high ground is world market share.''
You would think we would figure this out at some point.
These guys have a strategy. They have got a plan, and their
plan and strategy is to dominate world agricultural trade, and
they are doing it the old-fashioned way. They are buying these
markets. These are the numbers from the Organization for
Economic Cooperation and Development [OECD]. These are not Kent
Conrad numbers. European Union supporting their producers at
$324 an acre. We are supporting ours at $34 an acre. That is a
very simple question that is before us. Do we give in and let
them take these markets that have long been ours, or do we
fight back? That is the question before us.
If we want to engage in unilateral disarmament, we will
find that they are successful, they are victorious, and we are
out of business. Let me ask you what your observation is.
The Chairman. I am reluctant to call time, but give your
observation if you will, and then we will need to proceed to
Senator Santorum.
Mr. Schumacher. One of the things I was most pleased about
in the last month or so is the presentation that this
administration made before Geneva calling on a very radically
different approach so that we can address this issue by
simplifying and getting away from what I call the crayon or the
color or the Crayola approach to amber and green and blue and
all these different colors for exempt and non-exempt support
programs, and that sugar would go into the non-exempt category.
Then we will see how we get along with our European friends.
The Chairman. Thank you.
Senator Santorum?
Senator Santorum. Thank you, Mr. Chairman. I will defer to
my colleague who has to leave, if he has a comment or question,
and I will take it after Senator Kerrey, if that is all right
with the Chairman.
The Chairman. We are pleased to have Senator Burns here.
STATEMENT OF HON. CONRAD BURNS, A U.S. SENATOR FROM MONTANA
Senator Burns. I will be very brief, Mr. Chairman, and I
thank you for your kindness.
When I look at the policies of WTO and the NAFTA and the
enforcement of these agreements, I am not so sure we are
adequately supporting our domestic programs, although I am very
supportive. Currently, we have got this problem of stuffing
molasses to circumvent trade agreements.
I have got 20-years refereeing football. Right now, the
only reason that game is a success, because it is a violent
game, where you can keep law and order among 22 of the most
heavily armored folks in the world, cranky with each other,
mobile and hostile, is that a rule book. We must have a rule
book. Right now, I have a feeling that when it comes to our
trade policies the referees that are supposed to be watching
are not doing a very good job.
I am just astonished. Right now, I am asking them to make
the call where there are violations of the WTO or the
violations of NAFTA. Make the call and then walk off the field
because that is the way we must do it in our way of life. I
would like to see that happen with the sugar situation. I do
not think we would find ourself in a situation that is as dire
as it is today. I am not saying we would not be in a negative
situation, but we wouldn't be in a situation that is as dire as
it is.
I would just suggest to my good friends down at the Ag
Department and my good friends at the Federal Trade Commission
and the International Trade Commission [ITR] to make the call,
and for this administration through the ITR to make the case.
That is my message this morning. The only way we can get out of
this thing is to provide a little bit of protection for our
producers. I think the consumer wants a consistent supply at a
consistent price. This program has supplied that for them.
I thank you, Mr. Chairman, for this time.
The Chairman. Thank you for your participation, Senator
Burns.
Let me just mention our colleague, Senator Breaux, has
arrived. I am going to ask if it is all right with you, John,
for us to complete our questioning of this panel. Then we will
hear from you, and then we will hear from the next panel.
Senator Kerrey.
Senator Kerrey. Thank you, Mr. Chairman.
STATEMENT OF HON. J. ROBERT KERREY, A U.S. SENATOR FROM
NEBRASKA
Ms. Brick-Turin, I hope you did not break your arm
examining the sugar program. I find your testimony to be very
balanced, though I would like to press you a bit on making some
recommendations to me.
I tend to favor the free market and trying to decide what
works and what does not work. I like the marketplace, and
indeed, in domestic sugar, we have got pretty much a
marketplace operating, but I quite agree with you, there is a
collision going on here between the international market and
our patchwork of Government policies. The question that I have
got in my mind is what kind of policy should we put in place to
replace the current program. What do we do?
I am not convinced that throwing the program out is a good
idea or that a buyout is a good idea. In my homestate, I see
the benefits. I have got 555-farm-families, and that is the
ultimate objective for me. I have got 555 families that are on
the land, and I would like for them to feel even better about
farming than they currently do.
I would say to you, Mr. Chairman, they are not going to
grow corn and wheat right now. They are not making money in any
of those. Their choice really right now is do I stay in farming
or do I go and do something else. Those 555 families produce
about 1,000-metric-tons. We have two refiners that have about
14 or $15 million in payroll, another 600 good family jobs in
our community. So that is what I see as the ultimate. I do not
see it just that we are producing sugar for processors to use
for cereal and candy, etc.. I know that is all important, but I
see these families as the ultimate objective in addition to
economic objectives.
So I want our policies to provide opportunities for farm
families to stay on the land throughout the United States of
America, and that is what we have done over 150-years of
intervening in the marketplace with land-grant college
assistance and the transcontinental railroad--etc., etc.. We
have tried to create more market opportunities by good
Government intervention.
I wonder if you have thought about somebody like myself
that likes the marketplace, but as well wants whatever Federal
rules we have to create opportunities for families and jobs
here in the United States of America for people who choose to
make a living of working on the farm. I wonder if you have
given some thought of what you think would work as a good
balance between what the market could do, but what the market
will not do, especially given the presence of other government
efforts, not just the European Union, but throughout the
Caribbean Basin as well.
Ms. Brick-Turin. Yes, I have, Senator. I do not mind being
pushed, by the way. I still have one good arm.
I understand that the marketplace does work. In fact, the
sugar market is unique because while on a day-to-day basis
buyers and sellers work within a free marketplace, the overall
parameters of supply and, therefore, price are still set by the
Federal Government.
I by no means meant to suggest that we throw out the
program. What I would suggest is that we end the Band-Aid
approach to policy.
Certainly, over the past 10-years, I think that the
administration of sugar policy has reflected this Band-Aid
approach. Policy makers would stick a finger in one hole and
there would be leakage elsewhere. I think that the overall
program, both the domestic program and import policy, needs to
be thoroughly reexamined and, if necessary, rebuilt.
I think that clearly, Congress and the administration need
to weigh the importance of maintaining a domestic industry. I
do not think that anybody would argue with the fact that it is
important to do so. But I think that the program needs to be
examined in the overall context of Ag policy, budgetary policy,
and international trade policy, to create an overall policy
approach that gets away from the piecemeal types of decisions
that we have had in the past.
I know that there will be other witnesses testifying as to
specific approaches or specific policies. I want to underline
is the general approach, the general strategy that I think both
program opponents and supporters need to take.
Senator Kerrey. Thank you.
The Chairman. Thank you, Senator Kerrey.
Senator Santorum.
Senator Santorum. Thank you.
STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM
PENNSYLVANIA
In comment to Senator Kerrey's comments, I, too, am
concerned about farm families. I also am concerned about the
families of folks who work in industries that consume sugars,
that use sugar. We have lost a lot of jobs in Pennsylvania in
the confection industry to Canada and Mexico where products are
being produced there instead of employing people in
Pennsylvania, and other places around the country, because of
the high cost of sugar.
Now I understand, in fact, most of the members of the
Pennsylvania delegations and I, sent a letter to you regarding
a proposal to require import licenses for sugar-containing
products. We expressed our concern about that, about what that
would mean. Can you give me an update? We did not get a
decision on that. I guess it has not been forthcoming, but if
you can give me an update on what your thinking is on that?
Mr. Schumacher. What I would like to do is respond to you
in writing on that one so we have it clear and on the record,
Senator, because we have some changes in the rules in Canada
that would affect that. Of course, Senator Burns has counseled
us on the stuffed molasses issue as well. We are trying to put
this altogether, and we will get back to you in a more formal
and timely way--I want to get that out very shortly.
Senator Santorum. Some discussion has been made. I
appreciate that, number one. A second issue, discussion is here
about NAFTA and the fact that sugar imports are expected to
increase as a result of that. Can you tell me how you are
approaching the situation with respect to the interpretation of
this side agreement of NAFTA and what you plan to do about it
this fall?
Mr. Schumacher. I think one of the things that--we have now
a new ambassador-designate, Greg Frazier, who is actually in
Mexico right now and I think is going to be coming back the
next few days and discuss these issues, and he has indicated to
the Committee that he will be coming up here and giving the
members and the staff a detailed briefing in executive session
on the results of his discussions in Mexico that are currently
ongoing as we speak.
Senator Santorum. But you cannot give us any update as to
what is going on?
Mr. Schumacher. I am going to wait for Greg to get back and
tell me, and then maybe he can quickly come up to discuss this
with----
Senator Santorum. Or send us another letter or something
like that.
Mr. Schumacher. No, no. He is going to come up and discuss
this personally with you.
Senator Santorum. I would like to ask Ms. Brick-Turin--to
sort of follow up on Senator Kerrey's question. I think Senator
Kerrey, at least I thought, was trying to get some sort of
specific recommendations, and I think you said we need to look
at it. Can you give us some more specific things that you would
suggest changing that could be made or should be made?
Obviously, I make no secret. I am not a fan of the sugar
program. I make no secret it costs us jobs in Pennsylvania and
costs consumers in this country money. You may question the
amount of subsidy that goes to producers as a result of this
program, but I think the Chairman pointed out very correctly,
this is one of the few remaining programs on the books that
provides support out there, a price that guaranteed some level
of profit. When you have the uncertainty that is in the
agricultural economy today, when you have a program like this,
it encourages people to get into that commodity which results
in the oversupply situation.
So I think the Chairman is absolutely right on. You may be
for or against this program, but if we continue with this
program in its current state, matters are only going to get
worse for everybody concerned and cost the taxpayer as well as
the consumer a lot more money. I think that is something that
needs to be addressed.
I am not sitting here saying I know the answer, although I
voted for the answer that I think was as good, which is to
eliminate the program, but short of that, which only got--I see
Senator Breaux out there chuckling. His 66 votes in the Senate
last week showed that, that was not going to happen at any time
soon. So what sort of recommendations would you make that could
alleviate the problem?
Ms. Brick-Turin. Thank you, Senator, for the question.
I think that policy needs to be looked at in both the short
term and long term. Certainly, in the short term, I would
support another CCC purchase or Payment-in-kind [PIK] program.
I think that the Department should be given a chance to see if
its initial approach for this year's oversupply situation will
work. But I do think, tying it to the longer term, that any
short-term emergency program needs to be based upon a
commitment for structural reform.
The oversupply situation, as the Secretary discussed, needs
to be addressed because the problem is not going away.
Any reduction in the loan rate, for example, will allow
free market forces to have a greater impact on the market.
Certainly, producers with higher production costs will continue
to go out of business. Facilities will continue to close; that
is the natural course of free market forces taking over.
I do not support the dismantlement of the overall program,
but I cannot stress enough the approach that I would take--to
take apart the overall program, both domestic and import
policies, and then rebuild the program. It needs some type of
basic structural reform.
I am not prepared to give a specific answer. I know that
other witnesses will. But I do think that it is vital to look
at the long term as we address the short term.
The Chairman. Thank you very much, Senator Santorum.
Mr. Schumacher. Senator, may I just respond? I do not want
to take time, but my staff has updated me quickly. I will still
get the letter back, but could I respond to Senator Santorum's
question on Canada?
The Chairman. Of course, yes.
Mr. Schumacher. On June 20th, Senator, what happened, as I
said, the Canadian government amended its export permit system
to rescind the requirement that exporters of sugar-containing
products increase the proportion of the export in retail form.
So, of course, the U.S., on these products, has been seeking,
as your letter indicates, some new licensing requirements to
require Canada to continue to export bulk for products to be
packaged in the United States.
So we are working on a rule that will impose such a
licensing requirement, but now that rule is we have to
reevaluate it, given this new June 20th--I will get that letter
to you, but I want to just on the record respond to your
question.
Senator Santorum. Thank you, Sir.
The Chairman. Let me just comment in thanking this panel. I
think Senator Kerrey's observation that there are 555 farm
families in Nebraska who are apparently now involved in
production of sugar because it is a better option, given lower
prices of corn, wheat, or what have you, is a factor that leads
to some sympathy for not only the sugar program, but other
programs.
When the Senators were asked to vote last week on the sugar
program, they confront the fact that in our Ag policy this
year, in commitments this committee has made and have been
ratified by the Senate, 91 to 4, we are really trying to save
every family farmer in the country, to put a safety net on
every single one. So you could very well raise the question why
not the 555 who are in sugar cane. I think we all understand
that because we are in a transition in agriculture that is very
significant.
At the same time, even while we are attempting to help
these 555 farmers, the facts are that the sugar supply of the
world is increasing and we have monumental problems simply
dealing with this, and you have tried to touch on these
briefly, Secretary Schumacher, but obviously to dump the sugar
in various ways around the country, around the world is not
very acceptable. So not to dump it is to have it pile up.
The question then you have to face is whether you use some
of this sugar to buy people out of the idea of producing some
more of it, and that is sort of where you are headed, I gather,
even as we think about this, this morning.
As Ms. Brick-Turin has pointed out, this is another sort of
patchwork, finger in the dike, before the whole thing flows
over. I am hopeful that the Department and likewise in the
private sector that there are innovative people trying to think
through this because we will have to return to this next year.
It will not go away. Perhaps absent an election and absent
pressures of the current situation, we can do better, but we
appreciate your coming before us now and sort of updating what
you feel you must do, and we would like to stay closely in
touch.
Mr. Schumacher. We will do that. Thank you very much for
having us here.
The Chairman. I thank the panel.
I would ask now for Senator Breaux to come forward to give
his testimony.
Senator Kerrey. Mr. Chairman, if I could while he is coming
forward, just to clarify since you have referenced my remarks.
Nebraska beet producers are actually producing fewer metric
tons a day than they did 10-years ago. So we are not seeing
people respond to the sugar program, producing more sugar, the
options that are there. In fact, the strongest signal from the
Government right now is to produce soybeans for the LDP. If you
want to take the full look at this thing, that is the signal
they are getting at.
What I am suggesting is that the program has a purpose
beyond the economic purpose, and we have achieved that purpose.
The Chairman. Thank you very much.
Senator Breaux, would you please summarize in 5-minutes.
Your something will be made completely a part of the record, as
was the case with each of your other colleagues who have
testified before.
STATEMENT OF HON. JOHN B. BREAUX, A U.S. SENATOR FROM THE STATE
OF LOUISIANA
Senator Breaux. Thank you very much, Mr. Chairman and
Senator Santorum and Senator Kerrey. We must be doing better.
We are now in the big room. I am delighted to be here.
The Chairman. There is more interest in your testimony.
Senator Breaux. Yes.
Senator Kerrey. As opposed to the big house.
Senator Breaux. The big house.
Senator Kerrey. Yes.
Senator Breaux. Well, thank you very much. I am always
delighted to discuss the sugar program.
If the Committee is looking to determine whether we need a
program, I think the answer is pretty straightforward. The
answer is yes. We need a sugar program like we need a program
for cotton or rice or wheat or any of the other agricultural
commodities. It should be fair. It should be reasonable, and it
should be workable. So I do not think we are here today to
determine whether we need a sugar program unless you want to
single out one commodity and say every other agricultural
commodity has a program except one. I think we need one, and it
also should be fair.
I think the question is not really whether sugar
contributes to the economy. It contributes many billions of
dollars to the economy in terms of small workers and family
farmers and refiners and people who work in our industry, like
they work in all of the other industries around the country.
The answer is yes, it does contribute to the economy in a
major, major way.
If the question before the Committee is to understand
better how it operates, I think that is a very legitimate
question because a lot of the discussions on the floor of the
Senate, I think, quite frankly, have not been totally accurate
in how the program operates.
We heard debate on the floor this past week about all of
these subsidies to sugar growers. Well, there is no direct
subsidy to sugar growers. As I think this committee
understands, there is a loan program, a commodity loan program
for sugar farmers which is the same type of program that is
also authorized for cotton, for rice, for wheat, and feed
grains. There are no Agricultural Marketing Transition Act,
AMTA, payments for sugar.
We have had an 18-cent loan program since 1985. It has not
been increasing every year. It has not gotten a cost-of-living
adjustment. It has not been increased since 1985. It has been
18-cents since 1985.
If the farmer puts the crop on the loan and he cannot pay
off the loan, he forfeits the crop. That is the essence of a
commodity loan program, but in addition, back in 1996, we made
some major changes and imposed upon the sugar program something
that is not in any of the other commodity programs. If the
sugar farmer forfeits his crop because he cannot pay for the
loan, unlike any other commodity, he has a 1-cent reduction if
his crop is in fact forfeited to the loan program. No other
commodity has that. He is penalized if he has to in fact put
his crop under loan and forfeit it under the loan program.
We also provide for 40 nations to import sugar into this
country, they do.
If we are here today to determine whether elimination of
the program will benefit consumers, I think the answer is very
simple. No, it is not.
The chart I have on the right contains USDA figures, Mr.
Chairman. I used it on the Senate floor this past week. It
shows what has happened since 1996 to the price of sugar. The
figure on the left is the price to the sugar cane farmers. The
one on the right is the price to the sugar beet farmers. It has
dropped 14.6-percent and 31.9, almost 32-percent. So you would
say if the price of sugar is dropping, all of these industries
that use sugar must be reducing their prices as well. Of
course, it is not true. The retail refined sugar price on the
shelf has increased by a half-a-percent. Candy is one of the
biggest users in the country. You would think if the sugar
price was falling like this, candy prices would fall. Instead,
they have gone up 6.4-percent, cookies and cake, 6.6-percent,
cereal, ice cream, all respectable, but very certain increases
in the price that they charge for their product while one of
their main ingredients has crashed 32-percent and 14.6-percent
in the last years since 1996, over the last 4-years. These are
not the industry's figures or my figures. These are USDA
figures.
So I think that if you say all right, let's get rid of the
sugar program and all the consumers will be better, I think
history tells us that is not the case.
I think, Mr. Chairman, in all areas, it is a program that
has worked, that has been stable. There has been a lot of
misinformation about it, but I am certainly not for not looking
a ways to improve this program or any agricultural program.
Hopefully, when the time comes, we will be looking at ways to
improve it, bearing in mind that what we have has worked very
well, especially since we modified it 4-years ago.
Thank you very much, Mr. Chairman.
[The prepared statement of Senator Breaux can be found in
the appendix on page 79.]
The Chairman. Thank you, Senator Breaux.
Senator Kerrey, do you have a question or a comment?
Senator Kerrey. Yes.
Senator Breaux, you were here along with Senator Lugar and
I when NAFTA was being debated, and one of the things that was
a concern with NAFTA was whether or not Mexico would seek to
avoid doing what we had to do here in the United States of
America in the sugar industry, which is we had to restructure
in our industry as a consequence of consumers picking a
different product in soft drinks, almost 100-percent of
displacement that occurred as a consequence of a preference for
high-fructose corn sweeteners that displaced the sugar market.
We lost a lot both on the refining side and on the acreage
side. We had significant restructuring.
The fear was that Mexico would want to avoid having to do
that, and so I wonder if you could talk a bit about the
production, this side letter that was supposed to assure us
that this was not going to occur; that Mexican negotiators were
saying this kind of displacement will not happen in Mexico, our
tastes are different. Well, their tastes are not different.
What has happened is that these sweeteners have done the same
thing in Mexico as has happened here. They have displaced 100-
percent of the market, and Mexico does not want to restructure.
Now they are saying this side agreement, this letter that
they had, was not binding. I wonder if you could talk about how
that influenced your vote in 1993 and your attitude towards
NAFTA as a consequence.
Senator Breaux. A couple of points, Senator Kerrey. You
have really outlined the situation quite accurately.
I think Mexico has as much a political problem as they have
anything else. They have greatly increased their reliance on
fructose corn syrup, corn sweeteners, which has replaced sugar
in a lot of their commodities, like we have done here in the
soft drink industry. So now they have a lot of sugar that has
been not used because it has been replaced by the corn
sweeteners. So they are trying to say, ``All right. What do we
do with all of this sugar?'' It is a political problem as much
as an economic and agricultural problem.
Back when we were considering NAFTA, one of the concerns
among many, many people in the sugar beet and cane producing
areas was that NAFTA was going to unleash a flood of dumped
sugar into this country, and we could not handle that type of
dumping. So a side letter was negotiated which I participated
in and felt that it did provide the relief that was important
and that was a guarantee that Mexico would not be allowed to
arbitrarily just dump whatever they did not need into this
market. That letter is typical of many, many side letters and a
lot of international trade agreements. They are binding. They
have to be lived up to by both countries, and they cannot be
denied.
I think that our administration is trying to make sure that
the Mexican government lives up to the signed letters and
agreements that they entered into. NAFTA would not have passed
had it not been for that. It is just that simple. Mexico has
benefitted tremendously by NAFTA, and for them to now say that
we got the benefits of NAFTA, but we are going to deny
something that led to the adoption of NAFTA, I think, is
totally incorrect and not the right policy.
Senator Kerrey. I appreciate that. I would also say that I
think as people scratch their head and try to figure out why
trade agreements have become unpopular, why we have been unable
to muster a majority to give this President trade-negotiating
authority, why PNTRs are controversial, why these kinds of
trade agreements are controversial, I cite the failure to live
up to this side agreement as an example. People do not trust
these trade agreements as a consequence.
I will continue to press for trade negotiating and
authority, etc., but I think it is really one of the reasons
that in the countryside people say these trade agreements are
not what you promised them to be.
Senator Breaux. Yes. Clearly, NAFTA would not have passed
in the absence of that agreement.
The Chairman. Thank you very much, Senator Breaux, for
coming this morning.
The Chair would like to recognize now a panel to be
composed of: the Honorable Ira Shapiro, Coalition for Sugar
Reform; Mr. Arthur S. Jaeger, Assistant Director of the
Consumer Federation of America; Mr. John Frydenlund, the
Director of the Center for International Food and Agriculture
Policy, Citizens Against Government Waste; Mr. Nicholas
Kominus, President of the U.S. Cane Sugar Refiners'
Association; Mr. Tom Hammer, President of the Sweetener Users
Association; Mr. Mark Perry, Executive Director of the Florida
Oceanographic Society; and Ms. Shannon Estenoz, World Wildlife
Fund and the Everglades Coalition.
We are grateful to each of you for coming today to enhance
our hearing. As perhaps you have heard earlier on, we have
asked each of our witnesses to summarize initial comments in 5-
minutes. All of your statements will be made a part of the
record in full so that this hearing will be as valuable to
others who read the record as those of us who have the
opportunity to hear you personally, and I will recognize you in
the order that I called your names to begin with.
First of all, Mr. Shapiro, would you please give your
testimony.
STATEMENT OF IRA SHAPIRO, COALITION FOR SUGAR REFORM,
WASHINGTON, DC.
Mr. Shapiro. Thank you, Mr. Chairman.
I appear today on behalf of the Coalition for Sugar Reform,
which is an umbrella organization representing U.S. trade
associations, consumer and environmental groups, and taxpayer
advocates who are united in the view that the sugar program
needs fundamental reform.
The panel includes an array of witnesses here that can give
you valuable insight into the various issues, but as a former
U.S. Trade Official, I would like to focus my testimony today
briefly on the international trade aspects of the sugar
program.
I believe that maintaining the sugar program in anything
like its present form will undercut our ability to open foreign
markets for a whole range of U.S. products and services,
particularly agricultural commodities and value-added products.
In that regard, Mr. Chairman, I believe the sugar program is
the Achilles' heel of U.S. trade policy.
Why do I say that? Looking at the record in international
trade and the central challenges facing us brings me to that
conclusion.
I think history will mark the years since 1993 as an
extraordinary period of trade expansion and market opening,
beginning with NAFTA and the Uruguay Round, continuing right up
to this year with the PNTR vote in China and bilateral
agreement on Vietnam. By any measure, world markets are more
open than they were a decade ago, thanks to U.S. leadership,
and that opening of markets has undeniably extended to
agricultural products and food products as well.
The Uruguay Round began the process of bringing agriculture
trade under rules, opening markets and reducing the distortions
imperfectly, of course. NAFTA also did this, and we have had
numerous bilateral agreements that Ambassador Barshefsky and
Secretary Glickman have championed, with the strong support and
the prodding of this Congress, and particularly this committee
and your House counterpart.
Yet, despite those achievements, all over the world,
agriculture remains the most sensitive sector: politically,
economically, and culturally. Barriers have come down, but
agriculture trade remains substantially restricted and
distorted. Tariffs average 50-percent worldwide for
agricultural products. TRQs give some access, but they continue
to maintain restrictive conditions.
We have the EU, as Senator Conrad has pointed out, using
something like 85-percent to 90-percent of the world's export
subsidies, and State trading enterprises still play too large a
role.
For all of these reasons, before Seattle and since, every
U.S. official has made it crystal-clear that liberalizing
agriculture trade further is the number-one priority of the
U.S. in trade. We have set forth our ambitious objectives
recently in the comprehensive proposal--and in my view, there
is no doubt of the commitment of this administration or the
next administration, Democratic or Republican, in that regard,
as well as this Congress.
But the real question, Mr. Chairman and Senator Kerrey, is
how do we accomplish that objective? Where do we find the
leverage, where do we find the allies to bring about more open
world agricultural trade, and against that background, I would
submit that the sugar program is a principal impediment to our
efforts.
First, it makes our calls for a fair and market-oriented
system sound hollow and hypocritical. If we saw this program in
any other country, we would label it as a major distortion of
trade. We cannot really expect other countries to end
protection or Government management of sensitive commodities if
we are not prepared to do so.
Second, we need to build allies with the Cairns Group and
with the developing world if we are going to bring about the
kind of world that the Administration's bold proposal talks
about, and yet, sugar drives a wedge between us and many of our
likely allies. In this sector, it puts us essentially in the
camp of the European Union and Japan as the major distorters of
world trade.
Third, there are very few issues, if any--and I cannot
think of any--that matter more to more nations than sugar
trade. It is at the top of the agenda for the largest
developing nations India and Brazil, and for developing
economies like Chile, Thailand, and the Philippines. But it is
also the high priority for the most struggling economies in the
world: Central America, the Caribbean, and Africa.
We know many of these countries think they got too little
out of the Uruguay Round. In terms of access to the markets of
the developed world. I think the inequities in the sugar
program compel the conclusion that on this issue, the
grievances of the developing countries are well justified, and
not just deeply felt.
I will conclude, Mr. Chairman, by saying that every Nation
has its sensitive commodities, and certainly sugar is one of
ours. But when our sensitive commodity is vitally important to
the economic well-being of so many other countries, it becomes
a major source of imbalance in the global economy. I think we
have to think carefully about it in terms of the next round and
regional trade agreements recognize its possibility for helping
us to open markets for virtually everything else we want to
export.
Thank you.
[The prepared statement of Mr. Shapiro can be found in the
appendix on page 120.]
The Chairman. Thank you very much, Ambassador Shapiro. We
appreciate your testimony.
Mr. Jaeger.
STATEMENT OF ARTHUR S. JAEGER, ASSISTANT DIRECTOR, CONSUMER
FEDERATION OF AMERICA, WASHINGTON, DC.
Mr. Jaeger. Thank you, Mr. Chairman. I am pleased to be
here today on behalf of the Consumer Federation of America.
CFA has long opposed the Federal sugar program as costly to
consumers, and we appreciate your leadership over the years on
this issue.
As we have heard repeatedly this morning, the sugar program
does rely on a system of price supports and import restrictions
to keep prices paid to U.S. sugar producers well above the
world market.
Unfortunately, much or all of this increased cost for raw
sugar is passed on to consumers by those who buy sugar from the
producers--that is, the food processors and the retailers. Now,
we may not like that, but the major studies down through the
years have repeatedly shown that it is economic reality. It may
not be 100-percent pass through, but it is a substantial pass
through.
Consumers pay this, what I call a hidden subsidy, each time
they buy a food product containing sugar at the grocery store.
It amounts to a regressive hidden food tax. It is regressive,
of course, because poor people spend a disproportionate share
of their income on food.
The General Accounting Office, as we have heard, has
repeatedly found the sugar program to be costly to consumers
and other sugar users. GAO is an independent body. It is well
respected. It is an arm of Congress. It has no ax to grind
here. In 1993, it put the cost of this program at $1.4 billion
a year to consumers and sugar users. In the past year, it took
an even more exhaustive look at this program, and it found,
once again, the cost to be $1.5 billion in 1996 and nearly $2
billion in 1998. Without the sugar program, GAO estimated
consumers would pay $600-to $800 million a year less for table
sugar alone. That is not addressing other processed foods.
These estimates would be less troubling to my organization
if most of what consumers were paying in extra food costs was
helping struggling family farmers, the farmers that Senator
Kerrey and Senator Conrad referred to. Unfortunately, since the
benefits under this program accrue on a per-pound basis, the
bulk of the money goes to those who least need--it, the
largest, most financially secure growers. GAO brought this
point out in 1993. It said out that more than 40-percent of the
benefits from the sugar program go to the top 1-percent of
growers. Benefits, of course, are particularly concentrated
among cane sugar growers 33 of them, GAO found, reaped in
excess of a million dollars a year from this program. These
beneficiaries are not Senator Kerrey's family farmers. The
money they receive could be used by consumers to buy additional
food or clothing, to help pay their mortgages, and to
supplement their savings.
In addition to the consumer cost, taxpayers are bearing an
increasing burden under the sugar program. The next witness, I
believe, will address that in more detail.
Defenders of the sugar program dispute many of the numbers
I have cited. In particular, they say consumers would never see
any benefit if the sugar program were eliminated. Processors
and retailers would simply pocket any savings from lower raw
sugar prices.
But, contrary to some of the numbers we have heard this
morning, consumers have already benefitted from the recent
freefall in the farm price of sugar. The retail price of table
sugar--and that is what you need to look at to see the impact
of this program--hit a 4-year low in April. It was down 4-
percent from a year earlier. That is despite rising energy
costs.
Admittedly, this retail price drop is small compared to the
producer price decline over the same period, and for that
reason, my organization is watching these numbers very
carefully. We will not hesitate to speak out if it appears
processors and retailers are taking advantage of the recent
sharp decline in producer prices and not passing savings on to
consumers.
I should also say, while we object to the sugar program,
CFA is concerned about the continuing decline in the number of
small family farms in this country. Clearly, some small sugar
beet farmers in the upper Midwest, in Nebraska, and elsewhere
are facing serious financial problems. They deserve Federal
help. We simply feel price supports are an inefficient way to
do this because they concentrate benefits on the wrong
producers.
In lieu of the sugar program, we suggest a targeted
assistance package specifically designed to help small sugar
producers and other producers that need help to survive.
Thank you.
[The prepared statement of Mr. Jaeger can be found in the
appendix on page 126.]
The Chairman. Thank you very much, Mr. Jaeger.
Mr. Frydenlund.
STATEMENT OF JOHN E. FRYDENLUND, DIRECTOR, CENTER FOR
INTERNATIONAL FOOD AND AGRICULTURE POLICY, CITIZENS AGAINST
GOVERNMENT WASTE, WASHINGTON, DC.
Mr. Frydenlund. Mr. Chairman and members of the Committee,
on behalf of Citizens Against Government Waste, thank you for
the opportunity to testify on the Federal sugar program.
CAGW is a nonprofit, non-partisan organization with 1-
million members and supporters which grew out of President
Reagan's private sector survey on cost control, better known as
the Grace Commission. The organization's mission is to work for
the elimination of waste, mismanagement, and inefficiency in
the Federal Government, with the goal of creating a government
that manages its programs with the same eye to innovation,
productivity, and economy that is dictated by the private
sector.
The Center for International Food and Agriculture Policy
institutionalized CAGW's longstanding goal of dismantling
Depression-era agricultural price supports and regulations.
In addition to a belief that Congress should build on the
accomplishments of the 1996 Freedom to Farm bill and achieve a
truly free market for agriculture, the Center advances the
philosophy that the best way to assure America's farmers a
prosperous and secure future is to promote a more open, global
food economy by dismantling barriers to free trade.
CAGW applauds Chairman Lugar for holding this hearing
particularly at the present time, in advance of congressional
consideration of a new farm bill. For years, the sugar lobby
has successfully deceived the public into believing that the
sugar program has no cost. However, the truth has finally come
out. The Clinton administration's decision to purchase sugar to
prop up domestic sugar prices finally debunks the greatest myth
that producers have perpetrated on the U.S. public that the
sugar program does not cost taxpayers anything.
In fact, there was always taxpayer cost to the sugar
program, roughly $90 million annually, and increased costs of
sugar purchases that went to Government feeding programs, etc..
The Clinton administration's mid-session budget review
shows that from 2000 through 2005, the sugar program will cost
taxpayers--not consumers, but taxpayers--a cumulative $1
billion. The White House agreed in May to purchase 132,000 tons
of sugar which will cost taxpayers approximately $54 million.
However, this is only the beginning.
The Clinton administration acknowledged that this purchase
would not help strengthen sugar prices. In fact, according to a
report in the highly respected Pro Farmer, USDA budget analysts
expect the Government to spend $140 million on sugar this
fiscal year. Indeed, the sugar lobby is already pushing for
still more assistance that would cost at least as much as the
sugar purchase.
The U.S. Department of Agriculture made this situation
worse by mismanaging the tariff rate quota for sugar. Although
USDA is supposed to announce the TRQ allocations prior to the
beginning of each new fiscal year, this year the TRQ was
announced late, over a month after the fiscal year began. If
the TRQ is more than 1.5-million-tons, the U.S. sugar
processors are eligible for non-recourse loans, which do not
have to be repaid, but if the TRQ is less than 1.5-million-
tons, the loans become recourse.
Since sugar processors would rather not have to repay their
loans, they used their clout to pressure USDA to announce a TRQ
that would permit them to forfeit sugar to the Government if
they wished.
USDA came up with a novel approach of announcing an
essentially fictional TRQ and simultaneously announcing a real
TRQ that would actually be enforced. The fictional TRQ was just
over 1.5-million-tons, just enough to give sugar processors the
right not to repay their loans, but at the same time, USDA also
announced that only 1.25-million-tons of the quota could
actually be imported.
In other words, USDA perpetuated a sham by putting the 1.5-
million in a press release, which gave the sugar processing
industry the right not to repay loans made with taxpayer money,
and by ensuring that the real TRQ was significantly less than
this, 1.25-million-tons, USDA further restricted imports. In
fact, the only reason USDA did not shrink the 1.25-million-ton
figure even more is that the United States has an international
obligation under the WTO not to import any less than this
amount.
If USDA had followed the intent of the law last fall, the
taxpayers would not be paying for sugar purchases now. If USDA
had announced the TRQ at the true 1.25-million-ton level, then
price support loans would have been recourse. The big
processors could have still gotten the loans, but they would
have had to pay them back with real money, not sugar.
USDA's administration of the TRQ has been marked by a
short-term political focus and a bias in favor of the large
domestic sugar interests that have historically wielded
influence at the Department. Even before this year's fiasco,
the General Accounting Office found that USDA raised sugar
costs for users and consumers, $400 million higher than would
have been necessary. In other words, USDA has not just imposed
the annual cost of the program on users and consumers recently
estimated by GAO at 2-billion, which was a 40-percent increase
since its last report, but it has added another $40 million to
the consumer tax for sugar.
In conclusion, for the good of U.S. taxpayers, consumers,
and the rest of the agricultural industry, it is long past time
to get rid of the U.S. sugar program.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Frydenlund can be found in
the appendix on page 133.]
The Chairman. Thank you for that testimony.
The Chair at this point is going to call for a short
recess. The roll call vote that was anticipated is occurring on
the floor, and I will return as rapidly as possible. We will
proceed, then, with the rest of our witnesses.
[Recess.]
The hearing is called to order. Again, we would like to
proceed with our next witness, Mr. Kominus.
STATEMENT OF NICHOLAS KOMINUS, PRESIDENT, U.S. CANE SUGAR
REFINERS' ASSOCIATION, WASHINGTON, DC.
Mr. Kominus. Thank you, Mr. Chairman.
I would like to begin by commending you for calling this
hearing. Lord knows the sugar program needs a good look-see.
Our cane sugar refining industry has suffered under the program
since it was adopted in 1981, and now our producer friends in
other segments of the industry are starting to share our pain.
Today, sugar is a mess. The Secretary of Agriculture has
lost control of the situation, and it is largely of his own
doing and that of his immediate predecessors. He can no longer
support the price of sugar for domestic producers by regulating
imports. So now the Secretary must resort to other steps such
as purchases and perhaps plowing up planted acreage.
Over the years, our calls for more reasonable import quotas
have gone unheeded. Tight import quotas have forced up the
price of raw sugar to unreasonable levels well above the
forfeiture levels and thereby stimulated unbridled domestic
production. I believe the current mess could have been avoided
or at least delayed had the Secretary responded to three
changes you made in the sugar program in the 1996 farm bill.
The so-called no-cost provisions were dropped, and a 1-cent
forfeiture penalty was adopted. Clearly, those changes would
permit less restrictive import quotas, but despite our pleas
and the pleas of others, the Secretary chose to ignore those
changes.
He also chose to ignore the third change which attempted to
restore balance to the program by denying non-recourse loans if
imports continue to slip. Although everyone in the sugar trade
knew that imports would be nowhere near the 1.5-million-ton
trigger, the Secretary went ahead with non-recourse loans last
year. All of this has resulted in the current mess. Where do we
go from here?
We believe that the burden for correcting the oversupplied
market should fall on those who created the problem by
expanding acreage. A strong message should be sent to them. The
Secretary should not further aggravate the situation by taking
them off the hook. In this regard, we have five recommendations
that we believe will help the situation.
First, the Secretary should announce and allocate the
tariff rate quota well before the beginning of this coming
marketing year. The 6-week delay in announcing the quota last
year created all sorts of costly problems for refiners and
others in the sugar trade and should not be repeated.
Second, if the quota allocated is less than 1.5-million-
tons, the Secretary should, as the statute directs, provide
resource loans. If the quota announced is greater than 1.5-
million-tons, the 1.5-million-tons should actually be made
available for import.
Third, if the Secretary is going to purchase more sugar, it
should be refined sugar and not raw sugar, as low refined sugar
prices are driving the low raw sugar prices. Purchasing raw
sugar will not result in any increase in refined sugar prices,
and, thus, will not act to avert refined beet sugar
forfeitures.
Fourth, require that any increase in the quota for Mexico
be imported as raw sugar for further refining. Cane sugar
refiners should not be further disadvantaged by the program.
Fifth, and perhaps most importantly, Mr. Chairman, whatever
short-term steps the Secretary takes to alleviate the current
situation should be designed to facilitate a long-term solution
to the problem.
Thank you.
[The prepared statement of Mr. Kominus can be found in the
appendix on page 137.]
The Chairman. Thank you very much, Mr. Kominus.
Mr. Hammer.
STATEMENT OF TOM HAMMER, PRESIDENT, SWEETENER USERS
ASSOCIATION, FALLS CHURCH, VIRGINIA
Mr. Hammer. Mr. Chairman, partly because a lot of what I
was going to say has been said and because of your 5-minute
rule, I will just make a few remarks here.
Mr. Chairman, a lot has changed since I sat before you 5-
or 6-years ago or so and we discussed the sugar program, and I
dare say that my message at that time was not particularly well
received by other members of your committee, or at least all
the members to say the least. I was often politely dismissed
and sometimes not so politely dismissed by saying that the
sugar program was not broken and why in the world would I be up
here offering suggestions to fix it, and that was generally
followed with the comments that the sugar program was a great
example because it cost no money.
I think that those two statements today do not meet at
least today's reality test, and I would like to make a few
comments about that.
For many years, we were concerned that the rigidness of the
domestic sugar policy was not only unfair, but, more
importantly, it would not be able to be sustained in a dynamic
global economy. The answers to our problems are not simple. We
are not in an isolated economy, and we are in the global
economy and we must compete in such.
We are not dealing with one variable equation such as
sugar. If you are a manufacturer of a product, it is rare that
sugar is your only ingredient cost.
Also, we are not competitors. We are ultimately in a supply
chain with the refiners, with the processors, along with the
industrial users and the growers as we try to market our
product to the ultimate consumer.
I would also say the TRQ plan is not working. It is not
easy to administrate. There are many herky-jerky responses that
are occurring. The so-called administrative plan that was
discussed that was put in place in 1996 is impossible to
administer for the very simple reason, Mr. Chairman, that we
have always used as our import policy tool the import quota on
raw and refined products to operate the sugar program.
Over the years, U.S. import of sugar declined from around
5-million-tons to its currently 1.25-million. Due to these
highly restrictive sugar quotas, domestic sugar prices
generally average more than two to three times above world
prices.
Until recently, the operative element of the sugar program
had been the tariff rate quota. The domestic sugar program is,
therefore, not truly a farm program. Sugar rarely went into CCC
loan programs and was almost never forfeited. There was no need
for acreage controls or marketing constraints, although we did
dabble in them for a year or so, because they could use the
import quota to reduce supply. However, as a result of the WTO
minimum commitment of 1.25-million, we are now at that level. I
dare say two things. The WTO agreement was a very powerful
agreement from the standpoint of the industry because we would
be below the minimum import level that today if we had not done
that, but as a result, we can no longer reduce sugar imports.
So we are looking for other ways, like domestic sugar purchases
and PIK programs. So we do need to look at this because the
tools are no longer available to us.
Finally, if I may just say something from the
manufacturer's position, and I would ask anyone to step into
our shoes for a moment, if you saw higher sugar prices, you
would be concerned for several reasons. If you have low world
sugar prices and high domestic prices, four or five several
problems can occur. One, we encourage imports, imports of
sugar-containing products. Two, you encourage the ability or
the desire for sugar-containing product manufacturers to look
for sweetner substitutes at lower cost. We saw that in the soft
drink industry. We are seeing it more and more daily in other
products. Three, it makes it difficult for us to export into
world markets where world prices are combined in those product
costs. Finally, it makes it difficult for us to increase growth
to our consumers. They are not wed to sweetened products. They
are able to buy other products, and we would like to be
competitive on the shelf with other consumer items.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Hammer can be found in the
appendix on page 142.]
The Chairman. Thank you very much, Mr. Hammer, for your
testimony.
Mr. Perry.
STATEMENT OF MARK PERRY, EXECUTIVE DIRECTOR, FLORIDA
OCEANOGRAPHIC SOCIETY, STUART, FLORIDA
Mr. Perry. Thank you, Mr. Chairman and Honorable
Congressmen. I would like to submit my written report for
inclusion in the record today and take a few minutes here just
to give you a brief presentation on it.
We focussed on Florida. We took a look at Florida which we
are familiar with. Just north of Lake Okeechobee is the
Kissimmee River and the Kissimmee Lake and chain of lakes which
used to gradually flow down into a very slow river flow into
the Lake Okeechobee which then periodically would flow down in
through this broad area of about 40 to 60 miles wide down
through into the 10,000 Islands area. It is very visible in the
satellite imagery here, but it also was adequately described
back in 1947 by author and conservationist Marjory Stoneman
Douglas as the river of grass. This was very slow-moving system
which fluctuated according to the inflows from rainfall and
seasonally.
What occurred back in the 1900's when Florida and the
Congress were interested in reclaiming the Everglades, that is,
to drain the Everglades down and make it more ``valuable land''
for agriculture and other purposes, they began building canals
south of the lake. There were four main canals that were built
south of Lake Okeechobee which went down south and then
southeast to the ocean. Those canals in the 1920s were very
effective at draining that land.
Also, around in 1930, the Army Corps of Engineers built the
Hoover Dike around Lake Okeechobee which surrounded the entire
lake, 32-to-40-foot-high dike, and effectively stopped any of
that flow to the south. The Corps also constructed canals to
the east to the St. Lucic Estuary on the East Coast and to the
Caloosahatchee River Estuary on the West Coast. Those are the
two major outlets that are used for controlling the lake level.
Since that time, the Corps over the past 50-years and the
water management districts have been controlling that lake as a
means of flood protection, but also for the effective use for
the south area which is the 700-acres known as the Everglades
Agricultural Area, or the EAA, which is south of Lake
Okeechobee.
In that area, the majority, or about 80-percent or so, is
sugar cane. There is about 460,000-acres, or about 50-percent
of the domestic supply, producing about 2.1-million-tons-of-
sugar annually.
About 440,000 tons is basically under the sugar program,
but sugar has been used to really effectively control that
water south of the lake. We talk about a subsidy here that is
economic, and I know you are focussed on that, but if you could
focus for a minute also on the hydrology of the area and how
effectively sugar has used the water to control south Florida.
What has happened since that control is basically they have
water when they need it for irrigation, and they pump it off to
properties when they do not need it and drain the land so it is
2-feet below the surface which is ideal for sugar.
What has happened since that control has begun is the
Everglades system and the Everglades has been completely
interrupted and is now seeing devastating effects to the
Everglades. The water is discharged east and west and really
the demise of these estuaries is incredible. There is fish
disease outbreaks which I have documented and other problems in
the estuaries, and the lake has been kept artificially high
which then produces a critical time for the lake. Just this
past year, they have had to dump massive amounts out of Lake
Okeechobee just to bring the lake down environmentally to save
Lake Okeechobee.
So what happens here is a complete control over this area
south of the lake. You mentioned that there was farm bill money
that was helped to buy back about 200-million, and 133-million
of that was used last year for the Talisman tracts south of the
lake in the EAA, but that tract is now also being leased back
to sugar cane in order to continue to farm it for sugar cane
for the next 3- to 5-years.
So we need to continue, though, to look at--and I urge you
instead of buying the sugar back and oversurplus supply--is to
take that money and apply it to buying the land itself that is
in production underneath Lake Okeechobee and turning that land
back into the saw grass communities and restoring the
Everglades, saving Lake Okeechobee, and also saving these
estuary systems. I think it is very critical for the
environment, but also critical for the water in south Florida
if we are going to have a sustainable south Florida.
Thank you for the time, and I will be available for
questions.
[The prepared statement of Mr. Perry can be found in the
appendix on page 152.]
The Chairman. Thank you very much, Mr. Perry, for coming
this morning to offer that very important testimony.
Ms. Estenoz.
STATEMENT OF SHANNON ESTENOZ, ON BEHALF OF THE WORLD WILDLIFE
FUND AND THE EVERGLADES COALITION, WASHINGTON, DC.
Ms. Estenoz. Yes, Mr. Chairman. Good morning.
I want to thank you for the opportunity to represent the
Everglades Coalition this morning on this issue that we
consider to be so central to the question of Everglades
restoration.
The Everglades Coalition is a consortium of 42 civic,
environmental, and recreational organizations dedicated to the
preservation and restoration of America's Everglades. I want to
in particular thank you, Mr. Chairman, for your personal
leadership and dedication that you have shown in support of
Everglades restoration over the years.
I want to straighten out a small, but I think important
detail. I notice on the witness list that it indicates that I
am from Washington, D.C., and though I love our Nation's
Capital and enjoy my visits here, I have had the privilege of
living and working within a few miles of the Everglades my
entire life.
A fundamental point, I think, made by Mr. Perry is that the
Everglades Agricultural Area, as we know it today, was not just
a part of the historic Everglades like any other. It was the
central water storage feature of the system. Its primary
ecological function was to store water.
When it was drained for agriculture, the Everglades lost
this enormous 700,000-acre natural storage reservoir. The only
way to restore the Everglades is to build water storage back in
the system. We have got to take that fresh water that we
currently discharge out to tide. We have got to capture it,
clean it, redistribute it to the remaining Everglades and to
the built environment, and we have got to figure out a way to
do it that meets the needs of a restored Everglades, but that
is also fair and equitable to the public.
From an ecological perspective, it makes sense to restore
this water storage in places that it existed historically. To
the extent we can do that, to the extent that it makes fiscal
sense and technical sense, we should be putting the storage
back where it existed historically, and that is true throughout
the system, not just in the EAA, but, unfortunately, the
economics of growing sugar in south Florida is distorted by
subsidy and price supports.
Large-scale sugar production in south Florida exists as a
result of a vast and complex system of publicly subsidized
flood protection, drainage, and water supply that combine to
provide enormous benefit to the growers in the region. Sugar
producers in south Florida are essentially immune to weather-
related adversity, and this is no small boon in a region that
is characterized by the extremes of drought and flood.
On top of all of the advantage that the publicly subsidized
water management system provides, growers in South Florida also
benefit significantly from the Federal price support program.
They benefit not only at a cost to consumers, but at a
significant and direct cost to the Everglades and a
disproportionate cost to the Florida taxpayer.
The price support program obviously did not create the EAA
as we know it, but it certainly has come to define its size and
maximize its impact on the Everglades. The Everglades Coalition
proposes to restore rationality to the economics of growing
sugar in south Florida and to the economics of restoring the
Everglades by urging Congress to phase out the sugar program
when it considers reauthorizing the farm bill.
The program has significant and direct impacts on the
Everglades. By eliminating risk and guaranteeing profit, the
program encourages overproduction. It keeps marginal lands that
are only profitable because of price supports in production.
These lands contribute directly to phosphorous pollution in the
Everglades ecosystem. As it is, Florida taxpayers are paying
70-percent of the cost to clean up EAA runoff.
Lands that are in production because of the program
contribute directly to the water management conflicts that Mr.
Perry described. He also described the devastating impacts that
those conflicts have on the surrounding estuary systems and on
the central Everglades. The value of these lands is kept
artificially high, distorting the economic analysis that goes
into determining the smartest and best and least expensive way
of restoring water storage to the system. It distorts our
ability to decide to what extent and how we should be restoring
water storage in the EAA. The Everglades Coalition urges the
Congress to phase out the program and put an end to these
distortions.
In closing, Mr. Chairman, I want to leave you with a final
proposal. Unless or until the sugar program is phased out, the
Federal Government will be periodically faced with a decision
of whether to buy sugar or face loan defaults. Decisions to buy
sugar simply encourage the growth of more sugar and so on in a
continuous cycle of misplaced incentive, cost to consumers, and
devastating impact to the Everglades.
As an alternative to buying sugar, the Government could
choose to buy land in the EAA taking it permanently out of
sugar production and thereby ending the cycle of overproduction
and buyback that is so destructive to the Everglades.
In short, Mr. Chairman, the Coalition urges Government to
buy land, not sugar. Again, I thank you for the opportunity to
address you this morning.
[The prepared statement of Ms. Estenoz can be found in the
appendix on page 155.]
The Chairman. Thank you very much.
Ms. Estenoz or Mr. Perry, either one of you might have a
response to this question. In November of 1995, I offered
legislation co-sponsored by the distinguished ranking member
then of our committee, Senator Leahy, to assess Florida's sugar
at 2-cents a pound in order to provide money to purchase the
land and to in fact clean up the Everglades. That had some
debate here, but it resonated in Florida politics, and as you
know, referenda occurred in the election of 1996 in which, as I
recall, by about a 52- to 48-percent margin, such an idea lost.
What are the dynamics of Florida politics, or why would
such a good idea have lost? Obviously, this was a very large
issue in Florida, a very conspicuous issue in 1996, and I just
query from your own response, since both of you are from
Florida here today, what is going on there.
Ms. Estenoz. That is an excellent question, Mr. Chairman.
That initiative did fail by a very close margin in Florida,
and I think as some of these initiatives often go, they often
turn on sort of last-minute information and kind of public
campaigns that include commercials, very well-funded campaign
to fight that initiative, and I think that, that was absolutely
central in defeating that proposal.
I think what we are seeing in Florida now is the debate
among the people of Florida about Everglades restoration has
really reached a new level, and it is primarily because the
restoration plan is moving through Congress as we speak and
people are talking about it, and they are looking at how much
it is going to cost us.
It is going to cost the Federal Government $4 billion to
restore the Everglades, but the other $4 billion is going to
come from the State of Florida. I think folks are really now in
the year 2000 looking at that, looking at that bill square in
the eye, that bill to fix the Everglades. They are realizing
that we really need to make public policy decisions that make
sense and that fit with this larger goal to restore the
Everglades.
I think the other thing I would say is that I think the
public understands better now than they ever have before that
as goes the Everglades, so goes south Florida. South Florida
cannot exist--we cannot maintain our quality of life. We cannot
maintain our water supply without a healthy Everglades
ecosystem, and I think people are looking much more critically
now in south Florida at ways to make that happen.
The Chairman. I was impressed with the fact that although
we discussed these programs in Agriculture Committee and it is
one of the many programs that we have and obviously helps farm
families and what have you, the ramifications when you have the
concentration that occurred in the industry in Florida on the
environment are very, very substantial, in fact, finally tragic
and devastating to the economy of a large portion of a major
State. So the ripple flows out.
We have had testimony from all of you that the
ramifications on our foreign policy--and once again, this is
not the purview of this committee, but I know from my own
experiences in the Philippines and trying to build democracy in
Latin America throughout the 1980s that this issue was a
tremendously important issue, and it had devastating impact
upon those who were attempting to bring about democracy and
free market economics in those countries.
You might wish they were dealing with something in other
than sugar, but they were dealing in sugar. It was extremely
important. As we have heard earlier on, this is a very
important and emotional subject for lots of countries.
So, on the one hand, we were advising them to head toward
democracy and market economics, and on the other hand we had a
program that debilitated many of those efforts and continues to
really even today. So they are big issues outside this
committee, but we sort of bring them in here.
I just come back to the fact that we have a program now
that stimulates more supply. The fact is that the loan rates
and the policies being administered encourage people in the
United States for whatever reason, to produce more sugar, even
as we sit here and as we try to decide how we are going to
dispose of it. That is not a good idea. It is intuitive that
somehow we need to change the supply-and-demand equation, and
the question is how to do so with the most positive effects for
all the people who are involved. So we are continuing to
search, really, for how to do this.
We have these votes from time to time on whether to end the
program, and they fail routinely by 2 to 1 because people say
there are all kinds of problems in just eliminating cold
turkey, and there are, but incremental attempts--I cited the
attempt of Senator Bradley, 10-years or so ago, to even make a
2-cent change also failed 54 to 44 at that time. Maybe the
Congress has changed, but, essentially, this is a program that
has been very durable, whatever its effects upon the
Everglades, on world trade, on democracy in the hemisphere, on
American consumers, and, therefore, it is sort of curious for
somebody who is outside the loop of people who come to a sugar
hearing as to how in the world such a thing could have started
and be allowed to persist. You have offered good testimony in
terms of some of the problems we must face. I hope you will
work with the Committee in terms of constructive solutions. We
will try to find some.
Let me call now on Senator Conrad.
Senator Conrad. Mr. Chairman, I appreciate this panel.
Obviously, there are many issues that have to be considered
that relate to different parts of the country. I noted that
Ambassador Shapiro made the statement that having a program
makes hollow our request to other countries to abandon their
support measures. I would simply say the hard reality is other
countries have these support measures, and those who advocate
unilateral disarmament, I think, are misguided.
Those who believe that if we end our programs, thereby
supposedly setting a good example for other countries, will be
sorely disappointed. That is precisely what we did in the last
farm bill, which proved to be a disaster. That is why we have
had to write three disaster bills in the last 3-years because
some had this notion--I think it is naive--that if we just cut
our support for farmers, other countries would follow our good
example. That is not what happened. The Europeans did not cut
their programs. Instead, they went full speed ahead. The result
is they have gobbled up market share, establishing a stronger
position in world agriculture than we have. USDA now tells us
for the first time, Europe will surpass us in world market
share.
So my own conclusion is the only way you get a result is if
you have leverage, and the only leverage you have is to match
our competitors in terms of the programs that they have to
support their producers, and if we fail to do that, we simply
are abandoning our producers and consigning them to failure.
That is a disaster, too.
I go in the small towns, the farms of my State and see real
economic hardship because, as I have indicated in the chart I
have put up before, our major competitors are outspending us 10
to 1 in support for their producers. The only way that I can
see that you get both sides to back off is if you have leverage
and if you are in a position to negotiate a more favorable
result.
The hard reality is we do not have any leverage. When the
other side outspends you 10 to 1, they win and you lose. So my
own view is we have got to rearm in agriculture. We have got to
rebuilt our defenses.
As I said to some of my colleagues, if we were in a
military confrontation with the Russians and they had 50,000
tanks and we had 10,000 tanks, would our first move be to cut
our tanks in half? I do not think so. That is exactly what we
did in the last farm bill in agriculture. The Europeans were
spending $50 billion a year to support their producers. We were
spending 10. In the last farm bill, we cut our support for our
producers in half to $5 billion, and then we wonder why they
are gaining world market share and moving into a superior
position.
We go to Seattle, and they are unwilling to move. They are
unwilling to back off their massive export subsidies. Why?
Because we have no leverage to negotiate a better result.
So, Mr. Chairman, I hope all of these facts are kept in
mind as we move forward because I think we have adopted a
losing proposition in terms of a strategy for American
agriculture, and the result will be the ruination, the economic
ruination of tens of thousands of farm families who do not
deserve that result.
The Chairman. Thank you, Senator Conrad.
Senator Kerrey?
Senator Kerrey. Thank you, Mr. Chairman.
First of all, I want to thank the witnesses for taking your
time, including an interrupted testimony with the vote, to
appear before us. Thank you, Mr. Chairman, as well for holding
these hearings because I do think that we have a program that
is a mess.
We have got serious problems, and it is embarrassing, to
put it mildly, to have to get into considering things like a
PIK or a buyout and doing the various extraordinary things we
are considering right now.
My own thinking is that some sort of structural change is
needed. Senator Roberts, a week before last, and I held a
hearing on the issues of trade and how do we promote
agricultural trade, and I would say to you, Mr. Chairman, there
are a number of structural impediments that make it very, very
difficult to get decisions made. As a consequence, I think we
have missed huge opportunities to constructively assist Russia,
for example, in making the transition to free markets. Instead,
we have supported and stabilized corrupt government structures
instead of encouraging the private sector.
We have, I think, an opportunity, if we can do it in a calm
way, to examine the sugar program and perhaps connect it to
some other trade issues and get the bureaucracies of Government
to start working in a more constructive way.
I am compelled, however, to say in listening to the
witnesses that in 12-years of operating, working, and serving
the people of Nebraska in the Senate, I have seen the United
States of America time and time again take the lead in opening
our markets. Nobody has lower tariffs and trade barriers than
the United States, and I do not think we have to apologize. You
may not like the sugar program, but it is certainly relative to
the rest of our trade programs. I am not embarrassed by it
given the willingness of the United States of America to lead
and put our workers at risk. Do not tell me it does not put our
workers at risk.
I would say one of the reason that issue may have been
defeated in Florida is people like jobs. They sort of think it
is an important thing to have. I have got real job security. I
do not have to worry about the damn marketplace, and I get paid
$132,000 whether I perform or not, but 137-million-Americans do
not. They have got to work out there in that marketplace, and
trade can play a nasty trick on somebody at the age of 55.
Please do not tell me I have got to go and learn computer
software when I am 55-years of age if my job goes south, or
move someplace else. There are all these theories of
comparative advantage and so forth, and I have voted for free
trade things. I have said that the United States has got to
lead, and as to democracy, my God, consider the price that
Americans have paid in blood and in money in the last 60-years.
Please do not tell me that the United States of America has not
led in trying to help the rest of the world become more
democratic.
I have listened without success to fight back tears to
Vaclav Havel, Nelson Mandela, Kim Dae-Jung of South Korea. We
have paid a big price, America has, and we do not have to
apologize for that as we are trying to examine how to make the
sugar program work.
I voted to help restore the Everglades. It is not in
Nebraska. My ecosystem is the Missouri River, and we worry and
try to figure out how to balance the needs of the Missouri
River as well, trying to protect that ecosystem, redevelop that
ecosystem. We recognize we made mistakes, but I have got a
million people that work at home and they want jobs. They have
got to produce something and earn something. They are trying to
earn a living.
Mr. Chairman, I apologize for making a philosophical
statement here, but it seems to me that in the presentation of
the case against the sugar program, we are arguing somehow the
United States of America is a protectionist Nation. We are not.
Point to me another Nation on earth that would allow itself to
develop the kind of deficits that we have. We bailed Asia out.
We responded responsibly when the BOT declined in Thailand and
Asia was in the toilet. We did not protect our marketplace at
that time. We allowed enormous amounts of imports to come in
the United States.
I think these hearings can lead to some constructive change
in this program. I do think it is a mess. I do think as well
that it connects to the problems that Senator Roberts and I saw
when we had our witnesses coming up and talking to us about the
barriers and problems and frustrations.
I hope I do not mispronounce Mr. Kominus' name. Somebody
like yourself that is actively involved in the business laid
out some very concrete suggestions of ways that we perhaps
might make this program work better. I appreciate all the other
suggestions as well. I think we have got to find a way to
improve this program rather than just beating ourselves to
death saying there is something wrong with America as a
consequence of, one, to produce a program that creates jobs for
our people.
The Chairman. Thank you very much, Senator Kerrey. I pay
tribute to you again for supporting our committee's attempt to
get into complex problems. We had a very good hearing on energy
policy in the country last week that I thought was an
extraordinary opportunity to explore that and to put on the
record for our colleagues a whole host of both problems and
alternatives. I am hopeful this hearing will have a similar
effect.
I would just announce for all who are interested, we will
have a hearing tomorrow on the proposal by Senator McGovern,
Senator Dole, and others for a school lunch program worldwide.
The ramifications of that might be another complex and
important issue that the President has focussed on recently and
others have.
But for the moment, we thank each one of you for coming and
for your patience and waiting through our roll call vote
situation.
Yes. Ambassador Shapiro, do you have a comment?
Mr. Shapiro. Mr. Chairman, thank you.
Because Senator Conrad--I am sorry he is gone--and Senator
Kerrey's statements were so strong, I just wanted to make a
couple of comments.
The first is that nothing in my statement should suggest
that this is not a hellaciously difficult problem. It is.
Everything I learned about trade started when I worked in the
U.S. Senate, in the 1980s and 1970s--where every job and every
farm matters. So I take that as a given.
What I was trying to say is that a full accounting of the
costs and benefits of this program includes trying to figure
out how it fits with our other agricultural trade objectives.
This Government has been committed to opening markets around
the world, and if you look around the world, you will find that
agricultural barriers are still very high.
In my view, you change that in the next multicultural
negotiation or regional negotiation by finding allies, having
leverage, and essentially asking others to open their sensitive
markets by being willing to open your own.
I wanted to say to Senator Conrad--and we have worked
together before--I have never believed in unilateral
disarmament.
I do believe that the sugar program undercuts our ability
to isolate the European Union. I believe we are in something of
a worldwide competition as to how we approach agriculture
around the world, and I think the sugar program has the
unfortunate effect of undercutting our position in that regard,
but nothing any of us has said should suggest this is not a
hellaciously difficult problem.
The Chairman. Thank you very much.
The Chair would like to call now a panel composed of: Mr.
Ray VanDriessche of the American Sugarbeet Growers Association;
Mr. James J. Horvath, President and Chief Executive Office of
the American Crystal Sugar Company; Mr. Alan Kennett, President
and General Manager of Gay & Robinson, Incorporated, in Kauai,
Hawaii; Mr. Jack Lay, President of the Refined Sugars,
Incorporated, of Yonkers, New York, accompanied by Jack Roney,
Director of Economics and Policy Analysis of the American Sugar
Alliance; Mr. Lindsay McLaughlin, Legislative Director of the
International Longshore and Warehouse Union; and Professor
David Orden, Agricultural and Applied Economics at the Virginia
Polytechnic Institute and State University.
Gentlemen, we thank you for coming, and I will ask you to
summarize your testimony as we have asked the other witnesses
in 5-minutes. Your full statements will be made a part of the
record, and then we will have questions by our Senators and our
panel.
Mr. VanDriessche.
STATEMENT BY RAY VANDRIESSCHE, PRESIDENT, AMERICAN SUGAR BEET
GROWERS ASSOCIATION, BAY CITY, MICHIGAN
Mr. VanDriessche. Good morning. I just would like to let
everybody know that we have the opportunity here to have a
sugar beet here for those who have never had a chance to see
one. So this is a sugar beet.
Mr. Chairman, my name is Ray VanDriessche. My brother and I
are sugar beet, corn, soybean, and dry bean farmers from Bay
City, Michigan. As president of the American Sugar Beet Growers
Association, I represent over 12,000 family farmers who grow
sugar beets in 12 States.
Mr. Chairman, it is critical to set the record straight on
three basic points. First, the U.S. sugar industry is efficient
and globally competitive. Beet sugar produced in the U.S. is
the lowest cost among beet sugar producers worldwide, as seen
on chart one. In fact, over half of the sugar produced in the
world is produced at a higher cost than U.S. beet and cane
sugar, as seen on chart two, and 75-percent of the world's
sugar is produced in developing countries that have
substantially lower health, safety, and labor standards, and
environmental standards and costs than what we do. Our sugar
and our sweetener industry has a comparative advantage and an
economic right to produce the essential ingredient for our
market.
Second, the world's sugar market is a dump market. The
price of sugar on the world market does not reflect its cost of
production. Chart three shows that the average price of sugar
on the world raw market for a 10-year period is about one-half
of the average worldwide cost of production of raw sugar during
that same period.
Sugar policy in the U.S. has been a proper response to the
predatory trade practices of our competitors. U.S. consumers
pay 20-percent less for refined sugar than the average consumer
in other developed countries. Comparing U.S. sugar prices
against the world market price is ignorant, foolish, or is an
attempt to deceive those who are not informed of the facts.
Third, lower sugar prices are not passed onto consumers.
Industrial users purchase the majority of sugar in this
country. The evidence is clear that their savings on lower-
priced sugar is not passed onto the consumer. Chart seven shows
the decline in U.S. prices since the beginning of the 1996 farm
bill and the continued increase in the price of sugar-
containing products. There has never been any evidence of pass
through of savings to the consumers.
Mr. Chairman, let me tell you why there is so much
controversy over sugar. Big corporate users attack sugar policy
because they actually have to pay for what it cost to produce
the commodity, but you never hear them whine about the billions
of dollars that Government spends on other commodities that are
necessary and are appropriate to rescue those farmers from
economic disaster. Such policies allow them to purchase
commodities below the farmer's cost of production, shifting the
cost to the taxpayer. In the end, the farmer is blamed for
Government cost. It survives, but does not prosper, and the big
user reaps the benefit of commodities priced below the farmer's
cost and does not pass the savings onto the consumer. An
economic crisis is plaguing our industry and affecting every
grower throughout the country because every grower's income is
directly tied to the price of refined sugar.
Chart eight shows the collapse of the refined sugar market
since late last year. Refined sugar prices have dropped by 34-
percent since the beginning of the 1996 farm bill, and now
prices in every production region are well below the forfeiture
price. The current market conditions have not only put our
farmers at risk, but also our processing factories, their
workers, and our real communities.
The price collapse is a result of three factors: quota
circumvention by stuffed molasses from Canada; the threat of
increased Mexican imports under the NAFTA; and increased
domestic production due to the lack of profitable alternative
crops, three consecutive years of good weather that produced
excellent crops, and companies attempting to maximize
efficiencies by greater throughput.
For 15-years, the U.S. sugar policy has run at no cost to
the taxpayer, and in the last decade, sugar producers
contributed $279 million in marketing taxes to help reduce the
Federal deficit. This was achieved because we had a balanced
market and both the legislative authority and the
administrative tools to properly balance supply and demand. The
major reforms of the 1996 farm bill and the effects of the
NAFTA and Uruguay Round import commitments have thrown our
industry into our current crisis.
Congress has appropriately stepped in over the past 5-years
with billions of dollars to assist other commodities. We
believe our industry is equally threatened and deserves some
form of relief, also.
Mr. Chairman, four things need to be fixed immediately to
save our farmers and our industry. First, the administration
must buy more sugar to avoid massive forfeiture. Second, we
must retain non-recourse loans for the crop we are about to
receive. Third, the circumvention of our tariff rate quota from
products like stuffed molasses must be stopped. Finally, we
need to resolve the dispute with Mexico over the NAFTA
provisions.
Thank you, Mr. Chairman.
[The prepared statement of Mr. VanDriessche can be found in
the appendix on page 165.]
The Chairman. Thank you very much, Sir.
Mr. Horvath.
STATEMENT OF JAMES J. HORVATH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN CRYSTAL SUGAR COMPANY, MOORHEAD, MINNESOTA
Mr. Horvath. Thank you, Mr. Chairman and members of the
Committee. I appreciate the opportunity to appear before you
today.
I am going to summarize my comments, as you requested, Mr.
Chairman, because I have submitted my testimony for the record.
My name is Jim Horvath, and I am president and chief executive
officer of American Crystal Sugar Company, based on Moorhead,
Minnesota. American Crystal is the largest sugar beet company
in the United States with five factories in the Red River
Valley of Minnesota and North Dakota. As a cooperative, we are
owned by 3,000 family farmer shareholders, and we have about
1,500 employees.
The subject of today's hearing, the sugar policy is
unsustainable given the current circumstances, is simply not an
accurate conclusion. To analyze it, let's review some facts.
The first fact is that sugar prices have been flat for 15-
years. Here is a chart showing nominal and real sugar prices
since 1985. As the trend lines show, nominal sugar prices have
been stagnant, while the real prices have dropped
precipitously. The chart also shows that since the 1996 farm
bill, prices are down dramatically taking a nosedive of 30-
percent just since last year. This is the lowest level of price
in the last 22-years. Prices now stand below the forfeiture
level in all regions of the country.
Some people argue that flat prices mean high prices. Let me
assure you it does not. Otherwise, we would not have seen seven
sugar beet factories close since 1993, with two more slated for
closure for next year. Profitable factories, Mr. Chairman, do
not close. Those that cannot offset inflation do.
Under flat prices, one of the few ways to fight inflation
is through growth. Without a strategy of growth to continually
seek efficiencies, it is very likely that American Crystal's
factories would have closed by now, also. Growth is not a
strategy to raise havoc. It is a strategy to survive, plain and
simple.
Some people blame the current price collapse on growth.
Well, that is not so plain and simple. It is a fact that the
terrible farm economy has forced shifts in acreage from program
crops to sugar beets and sugar cane. More obvious contributors
to our current situation are our trade agreements. Quite
frankly, the sweetener provisions of the North American Free
Trade Agreement are shortsighted and disastrous. The agreement
gives Mexico guaranteed and, in some cases, unlimited access to
our market, and it ensures that any access would have occurred
fairly, as though the billions of dollars of subsidies the
Mexican government is providing its sugar industry to exploit
this agreement had not occurred. Unless it has changed, Mr.
Chairman, NAFTA will destroy an efficient and productive United
States sugar industry.
The Uruguay Round of GATT also contributes to the current
crisis in sugar. It requires the United States to import about
12-percent of our domestic consumption whether we need it or
not.
Another factor is the egregious case of stuffed molasses.
The London-based sugar trading corporation, ED&F Man, has
continued to blatantly circumvent our harmonized trade schedule
in a manner that should cause all Senators, supporters and
opponents alike, to bristle. This sneaky scheme offends our
customs laws, our sugar policy, and our common sense. It is
flat-out circumvention, and it must be stopped.
So, Mr. Chairman, these facts explain the real reasons of
sugar price collapse we are experiencing. To rectify the
situation, the sugar industry has been seeking USDA assistance
in the form of sugar purchases. We are seeking this because of
the dramatic stress in the industry and because it will
actually save the Government money.
On May 11th, Secretary Glickman announced a modest purchase
of 150,000 tons of sugar, although the final purchase amount
was less. While we greatly appreciate the Secretary's action,
it is simply not enough. Forfeitures under the loan program are
not only possible this year, they are inevitable.
Anticipating this, the Secretary made a clear
recommendation that he expects the sugar industry to come
forward with additional measures to address sugar supply. We
took the Secretary's message seriously. As you, Mr. Chairman,
and the Committee have heard from Mr. Schumacher, a payment-in-
kind program for the current crop year is under consideration
by the USDA.
At American Crystal, we are supportive of this concept. We
believe it achieves several worthwhile objectives for the
industry and the Government. It quickly reduces the current
oversupply. It relieves the USDA of the responsibility of
managing large amounts of sugar, and it returns balance to the
oversupplied market, and, again, it saves the Government money.
Mr. Chairman, in conclusion, I was chief financial officer
at American Crystal Sugar Company for 13-years before I became
CEO 2-years ago. I know how to run a sugar company. The farmers
who own our cooperative know how to do that, too. The fact is I
still think it is remarkable that we have been able to do this
and do the things right in our industry in spite of flat prices
for the last 15-years.
Having done what is right, we believe it is also right to
implement measures in the short term to restore an economic
environment in which shareholder investments and logical
business strategies can fairly operate. For issues beyond that,
we look forward to the 2002 farm bill debate which, as you
know, is not that very far away.
Again, thank you for the opportunity to testify, Mr.
Chairman.
[The prepared statement of Mr. Horvath can be found in the
appendix on page 176.]
The Chairman. Thank you very much, Mr. Horvath, for your
important testimony.
Mr. Kennett.
STATEMENT OF ALAN KENNETT, PRESIDENT AND GENERAL MANAGER, GAY &
ROBINSON, INC., KAUMAKANI, KAUAI, HAWAII
Mr. Kennett. Thank you, Mr. Chairman and Members of the
Senate Agriculture Committee.
My name is Alan Kennett. I am the president and general
manager of Gay & Robinson. G&R is a family-operated sugar cane
farm and cattle ranch. I have been involved in the sugar
industry for 35-years, beginning my sugar career in England. I
have worked in Africa, the Caribbean, and now fortunately in
Hawaii.
Today, I speak for the sugar cane farmers of Hawaii. The
Hawaiian sugar industry began commercial operations 165-years
ago on the Island of Kauai. For many years, beginning in the
1950's up through 1986, Hawaii's annual production exceeded 1-
million-tons-of-sugar. Today, Hawaii produces only 330,000 tons
of sugar annually from far-operating factories.
In 1986, there were 13 operating factories, and sugar was
grown on all of the four major islands, Hawaii, Maui, Oahu, and
Kauai. Today, sugar is grown only on Maui and Kauai.
Earlier this month, AMFAC Sugar on Kauai announced plans to
furlough 100 of its workers immediately, and I am afraid this
is an indication that they may be finally getting out of the
business.
Unfortunately, since the demise of sugar on the big island,
nothing has replaced sugar as a viable agricultural crop, and
the former cane lands remain idle, overgrown with weeds.
Unemployment is high, and drug usage, marijuana growing and
drug trafficking, have increased dramatically, as have the
social problems that are created by high unemployment and drug
usage.
Maui and Kauai could see the same occur should we lose our
sugar industry. Our company, G&R, employs 270 people. We also
provide housing for 350 families of both current and former
employees. I promised our workers that I would do my best to
impress upon you the importance of this issue. I pray to God, I
do not let them down.
Try and imagine what it must be like to wonder if you have
a job tomorrow, next week, next month, next year. On the Island
of Kauai, that is what many of our employees of sugar wake up
contemplating each morning.
One of my workers suggested to have the Senate Agriculture
Committee come and visit and see firsthand these rural
communities and witness what is going on and see for yourself
the despair that exists in places where sugar was once grown.
Because of Hawaii's isolation relative to our market,
Hawaiian producers incur high freight costs, which puts us at a
disadvantage relative to other sugar-producing areas. Clearly,
Hawaii has not received congressionally approved returns from
the sugar program, nor have many U.S. sugar farmers whose
livelihoods are being threatened by the dramatic fall in prices
over the past year.
When Congress passed the 1996 farm bill, we were lead to
believe that we had an 18-cent price for 7-years. We went out
and we invested money in our business. We have not seen
anything like the 18-cent price we thought we would have. This
is not fair.
Oversupply and loss of market confidence in the ability of
USDA to maintain a viable program have resulted in some fairly
depressed producer prices for raw and refined sugar. The U.S.
raw sugar cane prices have fallen about 22.5-cents a pound to
17-cents, the lowest in 18-years. To put this in perspective
for Hawaii, if you take the 17-cent price level, you need to
take 3.62-cents off for handling, transportation, and a refiner
discount. We in Hawaii are presently only receiving 13.38-cents
a pound, and we do not have the benefit of the price flow
protection because we cannot use the loan program.
Sugar has been overlooked in Government market loan
assistance efforts during the farm crisis for the past several
years. Net CCC outlays for other program crops exceeded 10-
billion in fiscal 1998 and 19-billion last year. Sugar revenues
totaled 30-million in 1998 and 51-million last year. Nearly 30-
billion is budgeted for other program crops this year.
Government action to address this problem is appropriate
because so many of the factors leading to the price drop of
sugar are more closely related to Government action and
inaction than to producer decisions. Furthermore, the
Government has responded to similar price drops for other
program crops by providing tens of billions of dollars in
assistance over the past several years.
I see my time has run out, Mr. Chairman. I would like to
just conclude.
Sugar farmers in Hawaii are in serious danger. If sugar was
no longer grown in Hawaii, that would have a devastating effect
on the Hawaiian economy. We have done much to look for ways to
survive the changing economics of the U.S. sugar industry. We
have made significant efforts to become more efficient by
continued investment in our farming operations. We have pursued
alternative sugar cane byproducts to provide additional and
independent sources of income to the plantation. The U.S.
Government has shown compassion to other farmers in crisis. Why
not for sugar farmers?
Please remember that sugar farmers want what all other
program crops want, a fair opportunity to farm and make a
reasonable living. American sugar producers' competitiveness
and the disastrously low prices parallel the plight of other
American farms. Sugar farms do not want to be treated more
favorably than other farmers, just equally.
Thank you.
[The prepared statement of Mr. Kennett can be found in the
appendix on page 182.]
The Chairman. Thank you very much, Mr. Kennett, for coming
all the way from Hawaii to give this testimony. We appreciate
it.
Mr. Lay.
STATEMENT OF JACK LAY, PRESIDENT, REFINED SUGARS, INC.,
YONKERS, NEW YORK ACCOMPANIED BY JACK RONEY, DIRECTOR OF
ECONOMICS AND POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE
Mr. Lay. Mr. Chairman and members of the Committee, I
appreciate the opportunity to appear before you today to offer
a perspective on what I believe to be a needed change in the
direction for both U.S. and international sugar policies. I am
currently serving as president of Refined Sugars, Inc., in
Yonkers, New York. I recently returned to the sugar industry
after 7-years of retirement, having been employed by Domino
Sugar for 39-years and ultimately as president.
Reference was made previously as to 12-sugar-cane-refiners
closing. As one who had direct responsibility for closing two
of those refineries, the reason was not because of the sugar
program, but rather because of the high fructose corn syrup
displacement of sugar in soft drinks.
Many of the refineries that have closed would have closed
regardless of whether it was high fructose or not, in my
opinion, because they were inefficient.
Mr. Chairman, the structure of the sugar industry in every
country of the world is cumbersome and complicated. The United
States is no exception to the general rule. Sugar requires a
dedication of large numbers of acres of land as well as
substantial capital assets to grow beets and cane as well as to
provide beet processing, cane-milling and cane-refining
facilities to produce raw and refined sugars.
Rotation of the crop on a yearly basis to reflect or
anticipate swings in general commodity prices does not occur in
sugar. Stability is what all sugar producers hope to achieve,
so long as the price they receive is above their cost of
production, or in the case of the cane refiner, the cost of raw
sugar acquisition plus a refining margin sufficient to cover
refining cost and provide a reasonable return on investment.
The uniqueness of sugar is the primary reason that
Government agricultural policies support sugar to the extent
that they do. In many countries, this direct support leads to
overproduction. Overproduction then leads to dumping of sugar
on the world market, and ultimately the world market price
bears no relation to the actual cost of producing sugar.
In the United States, we support producers indirectly. We
limit imports in the hope that domestic prices will settle at
levels that yield a fair and reasonable return to growers. Many
decry the intervention of the U.S. in the domestic sugar market
through the USDA's administration of the import quota. However,
the United States imports roughly 15-percent of its
requirements, and is the third largest importer of sugar,
second only to Russia and Indonesia, and most of this comes in
tariff-free. Whereas, most of the larger world producers are
subsidized exporters.
It has been the position of the U.S. Government and the
U.S. sugar industry in international trade negotiations that
all government supports of sugar be phased out. However,
European Union, a large exporter, has shown little interest in
further internal reforms and has recently concluded several
regional free trade agreements that specifically exclude sugar.
Mexico has reacted to tough times by rolling over large
Government loans to privatize sugar groups. Even Australia, the
supposed free trade paragon in agriculture, has relapsed in the
last 2-years into more traditional patterns of conduct coming
to the financial aid of its sugar industry.
The U.S. sugar policy that was adopted by Congress in the
1996 farm bill presumed that the global march towards free
trade would take a predictable path. The 1996 farm bill
repealed supply management policies that attempted to limit
U.S. sugar production. It also reinforced the premise that the
U.S. would continue to import more than our Uruguay Round
commitment of 1.2-million-tons-of-sugar from abroad.
In 1996, producer prices in the U.S. were at stable levels.
With marketing controls repealed, sugar growers planted more,
confident that the import quota would be ratcheted down to
maintain a constant domestic price support.
AMTA payments to producers of other crops allowed them to
begin to grow sugar as an alternate crop, and, consequently,
domestic production grew and the import quota was cut until it
hit the WTO floor and then prices collapsed in both raw and
refined sugar. It is not a pretty picture, but it is the
culmination of a cycle that had its origin in 1996 legislation.
We took the restraints off of domestic production. It was
assumed that our efficient producers would grow for the U.S.
market as well as for world markets. The policy assumption was
that world markets would rationalize as a result of global
elimination of Government subsidies. This has not happened. As
evidence to this, one need only look at the world price levels
of sugar which until recently have been substantially below the
cost of production, of even the lowest-cost producer. This
reflects increasing levels of Government support around the
world for sugar industries, not less support.
We now have too much sugar grown in the United States. We
also have international trade obligations that require us to
import large amounts of sugar whether we need it or not.
You have heard reference to the stuffed molasses here today
which bypasses the TRQ and results in 132,000 tons of sugar,
refined sugar-equivalent, coming into the United States duty-
free.
The large subsidizers in the world are not going to
suddenly eliminate their internal supports and subsidized
exports. If the United States wishes to maintain any sort of
defensive support for its sugar industry in this environment,
we must find a way to limit U.S. production of sugar cane and
beets to levels that balance the supply with demand in our
domestic market.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Lay can be found in the
appendix on page 193.]
The Chairman. Thank you very much, Mr. Lay.
Mr. McLaughlin.
STATEMENT OF LINDSAY MCLAUGHLIN, LEGISLATIVE DIRECTOR,
INTERNATIONAL LONGSHORE AND WAREHOUSE UNION, WASHINGTON, DC.
Mr. Lindsay. Good morning, Chairman Lugar and members of
the Agriculture Committee. It is an honor to be here today to
represent the International Longshore and Warehouse Union, or
the ILWU. The ILWU is the largest private sector labor union in
the State of Hawaii. We represent longshore workers, hotel
workers, general trades, and agricultural workers, and all of
these workers are consolidated into one large local, ILWU Local
142. We also, by the way, represent about a hundred workers in
Crockett, California, at the C&H Sugar Refinery there.
Mr. Chairman, ILWU members at the three remaining sugar
operations on Hawaii asked me to present a petition for you
which I have attached to my written testimony. These are hard-
working decent citizens who live in constant fear that their
livelihoods will be stripped from them. They believe, as I do,
that without a sugar program, there is no hope for their
industry in Hawaii.
Mr. Chairman, we are proud of what we have accomplished for
sugar workers in Hawaii. During the 1950's, the sugar workers
made great gains in their struggle for economic justice. The
ILWU established an industry-wide medical program, sick leave,
and paid vacation and holidays, all unique in the agriculture
industry. The ILWU also won the first pension plan ever
negotiated for agricultural workers in the United States and
established the 40-hour work week for the first time ever in
agriculture.
But the story of sugar workers in Hawaii in the last few
decades has been one of just attempting to survive. The union
and the workers have cooperated to combat chronic low prices
for raw sugar with productivity gains. Periodically, throughout
the last 20-years, the union members have agreed to accept
little or no wage increases and flexibility of work rules, all
in the name of keeping the Hawaiian sugar industry alive.
Despite these joint labor-management efforts to keep the
Hawaiian industry alive, we have seen the shutdown of seven
sugar companies in the last 9-years and the loss of 3,000 jobs.
The president of Local 142 said this in 1995 about the death of
sugar on his island, the Big Island of Hawaii, ``Last year, my
home on the Big Island of Hawaii, Hamakua Sugar Company and
Hilo Coast Processing Company shut down because of low,
declining sugar prices. The shutdown has caused devastating in
my community, the likes of which I have never seen in my
lifetime. Even the devastation caused by Hurricane Iniki could
not rival what I have witnessed. Close to 1,200 workers lost
their jobs. These jobs are not easily replaced, and most of the
displaced workers have not found other employment. Their
unemployment benefits either have been or are soon to be
exhausted. They are finding themselves in desperate situations
resulting in more stress in the home, increased substance
abuse, and crime, and more incidence of domestic violence.''
Recently, as Mr. Kennett said, 100 workers out of 450 at
AMFAC Sugar Plantation were furloughed while the company
assesses its future in the sugar operations. These employees
are drawing unemployment insurance while they wait for a phone
call that may never come to go back to work.
The State of Hawaii is very concerned about sugar leaving
the Island of Kauai and say that it would be an enormous cost
ranging from $4.7 million to $8 million for the first year
alone. The direct and indirect impact of losing the sugar
industry on Kauai would cause the unemployment rate on the
island to skyrocket from 6-percent to 9-percent, then higher as
indirect job losses occurred. There are no jobs for these
people to transfer to.
Local 142 vice president, Bobby Girald, said, ``All I see
in the local newspaper in the Employment Section is part time,
part time, part time. That is not good enough to take care of a
family.''
I wanted to let you know, Mr. Chairman, that our members
are concerned that abandoning the U.S. sugar program would mean
a certain loss of their jobs because they cannot compete with
heavily subsidized European sugar or sugar that is produced by
cheap labor. The ILWU has offered assistance and solidarity
with struggling sugar workers and their unions in developing
countries, but change is slow. An ILWU delegation to the
Philippines found conditions to be very poor. Workers work long
hours for little pay and begin work at a very young age.
According to the Department of Labor report, ``By the Sweat
and Toil of Children,'' which I am sure you have seen, young
people are cutting cane at age 12, which is a very dangerous
job. What kind of message does it send to American sugar
workers who have struggled to achieve a decent standard of
living that we will abandon them in favor of heavily subsidized
European sugar or in favor of plantation owners in countries
that rely on cheap oppressed labor?
We believe sugar is an area where the inclusion of labor
standards and environmental standards in trade treaties could
make a difference.
I see my time is up, but I just wanted to conclude by
saying that our union is not the only union interested in this
program. In the past, I have worked with the International
Association of Machinists. They represent workers in the State
of Florida. I have worked with the Food and Allied Service
Trades Department of the AFL-CIO, the Grain Millers and the
Distillery Workers. I appreciate your allowing me to testify
today.
Thank you.
[The prepared statement of Mr. McLaughlin can be found in
the appendix on page 198.]
The Chairman. Thank you, Mr. McLaughlin. Your testimony is
very important from the perspective of the longshoreman and
likewise Hawaii, as is the case with Mr. Kennett.
Professor Orden.
STATEMENT OF DAVID ORDEN, PROFESSOR, AGRICULTURAL AND APPLIED
ECONOMICS, VIRGINIA POLYTECHNIC INSTITUTE AND STATE UNIVERSITY,
BLACKSBURG, VIRGINIA
Mr. Orden. Chairman Lugar, Senator Kerrey, and Senator
Conrad, thank you for the opportunity to testify at this
hearing.
I am David Orden, Professor of Agricultural and Applied
Economics at Virginia Tech and an author of the recent book,
``Policy Reform in American Agriculture.''
This morning, I am here to suggest several possible reforms
to the sugar program. Sugar policy is at a crossroad at the
turn of the millennium. The traditional form of program
management has run out of room to operate. A new approach to
sugar policy is required.
To achieve this new policy, we must look behind the two
main options that have dominated past debate. The reforms that
are required are steps that will do three things, allow greater
market flexibility within the domestic market, retain the terms
of our existing border measures and our international trade
commitments, provide some direct support to producers.
Similar steps have been taken progressively for other field
crops since the 1960's, a period of almost 40-years. It will in
fact take courage to apply these measures to sugar, but the
time to do so has arrived.
My first observation is that current policies are out of
room to operate, and I think there has been quite a bit of
discussion and comment about this in previous testimony and the
discussion about that testimony. This year, domestic supply has
expanded compared to demand putting downward pressure on
prices. The domestic policy has run out of room to operate.
Farmers face enormous uncertainty in the market, and
traditional policy instruments are indeed under stress.
One option for sugar policy is to attempt to hold the price
level up through constraints on domestic supply. Stocks can be
accumulated by the CCC, and if that is not enough, we can have
a plowdown PIK or marketing allotments or acreage reductions
can be re-legislated, but these are the types of Government
storage and supply control measures that Congress has
progressively abolished for other crops. They will be
detrimental to the American sugar industry if they are now
applied in this sector.
The alternative to current programs offered by critics of
the sugar program is likewise ill-advised. To unilaterally
eliminate all domestic support and simultaneously increase
imports until U.S. prices fall to world price levels is too
draconian a short-term shift from past rules.
Let me turn to the objectives of a direct payment policy
broadly. There are five positive objectives. These are to free
up prices to allow the domestic market to clear in response to
supply-and-demand considerations; to avoid outdated
interventions through Government involvement in purchases,
forfeitures, stockholding which will necessarily then imply
stock disposal or domestic marketing allocations; to reduce
incentives for oversupply relative to demand, and this applies
both to domestic producers and also to foreign producers who
have access to the U.S. market under our existing international
commitments; to provide adjustment compensation to farmers in
the short run; and to create a sustainable long-run policy that
eventually has more open trade and a reasonable safety net for
producers.
Senator Kerrey, you asked for a balanced approach to future
sugar policy and have pointed out the need for something
different from what we have done, and these are the kinds of
directions I am trying to point us.
Let me talk about two options. These are options for
domestic policy reform that can be carried out within the
context of current international commitments with no change in
border measures. For this reason, they are not subject to the
objection that domestic producers would be exposed to unfair
competition from abroad. Moreover, they may help address the
coming impasse over recourse versus non-recourse loans. I am
surprised this morning there has not been more discussion of
the difficulty the Secretary of Agriculture will have
announcing non-recourse loans for next year after a PIK
piledown has occurred this year.
The first direct payment approach would be implement
marketing loans that would allow consumer prices to fall while
providing a price guarantee to producers. It would lower
domestic market prices when supplies are large. Sugar use would
expand, helping bring supply and demand into balance. This
change in policy would help restore market equilibrium in
circumstances like this year.
The cost of a marketing loan program for each penny of
payments per pound of sugar is around $180 million, assuming
full participation, and because of the concentration in sugar
production, the distribution would be skewed unless there are
payment restrictions applied. Nonetheless, for each penny of
taxpayer cost, more than that penny is saved by consumers, and
this shift in support from consumers to taxpayers yields a net
gain and distributional gains that have been mentioned by a
previous speaker.
The introduction of marketing loans would provide support
for domestic producers, but would reduce production incentives
abroad. In particular, it would reduce the incentives for
production in Mexico as they gain access to the U.S. market.
Marketing loans would also ease the adjustment to future
multilateral trade liberalization. Domestic producers would be
assured of some compensation if as part of a general package of
agricultural trade liberalization, increased sugar imports were
agreed to by the United States. Thus, marketing loans achieve
many of the objectives of a direct payments policy while
providing a guaranteed price to producers and should appeal to
producers for this reason.
Senator Lugar, if I can indulge in having one more minute,
I would like to mention a second alternative in the direct
payments arena. It may be impossible in fact to maintain
through a marketing loan program current prices that American
farmers, American sugar producers have been receiving and are
expecting. If the principal market force putting downward
pressure on prices is farmers' increasing ability to supply
sugar when current loan rates set the price incentive for
production, then a marketing loan program with current loan
rates will prove expensive every year. An alternative to this
approach is fixed direct payments based on historical
production and lower loan rates. Under this approach, farmers
would have a choice about whether to continue to produce sugar
and would receive payments regardless, and production decisions
would be market-based, with loan rates lowered below expected
market prices.
These are not, as you were well aware, new policy
instruments, but their application to sugar would be new. In a
State like Nebraska, Senator Kerrey, where farmers are
producing a variety of crops, it would bring, if you will, all
of the agricultural policies that they face under one umbrella.
One option Congress could consider, and this is the last
point that I will make, would be what I call a 25/50 proposal,
to reduce loan rates by 25-percent and provide fixed
compensation payments of 50-percent of the change in loan rate.
Loan rates would be reduced from 18-cents to 13.5 for raw cane
sugar and from 22.9 to 17.2 for refined sugar. Payments based
on average U.S. production during 1997 and 1999 would have an
estimated cost of around $450 million. If these compensation
payments were made on an emergency basis next year, they could
be reconsidered in the 2002 farm bill and either eliminated or
converted to a more permanent basis.
Mr. Chairman, I am out of time. I will not reiterate the
main points that I made except to say that it is possible and
it is probably essential that we now do reformed domestic
policy within the constraints of both our current border
measures and our international commitments.
[The prepared statement of Mr. Orden can be found in the
appendix on page 205.]
The Chairman. Thank you very much, Professor Orden. I
appreciate the specific policy recommendations you have made
which are amplified in your overall statement. This is, I
think, a very important contribution as to how we meet the
dilemmas that many have described today, and I think you have
offered considerable balance by pointing out that in the past,
the two polls of policy have been supply control. Then we plow
it under and restrict farmers somehow or another to do the
impossible, despite the fact that we try to stop imports. This
country is not an armed fortress, and we found that to be a
very difficult policy, quite apart from the fact that we have
already trade obligations. We have signed treaties. Other
people depend upon our word, and we are trying to negotiate
greater openness, sometimes with great difficulty.
So the supply control situation does not appear to me to be
a very promising one, and I would agree with you that simply to
repeal the sugar program as a draconian step, it has all kinds
of ramifications that are difficult, given the predicament that
we are in, so what to do. You have suggested at least we might
move in an incremental way recognizing that we already are
paying a fairly heavy price as a society. We can argue whether
USDA is paying it or American consumers or somebody, but you
are suggesting that essentially a marketing loan business that
finally affects supply and decisions, but at the same time some
compensation to people who are in this transition may be a fair
way to go, and then to try to see in the next farm bill where
that led us, what sort of modifications we need to make to
that, but that the current situation is basically unsustainable
in large part, as you point out, however fudged the situation
was with regard to expectations of imports this year, whether
the Secretary waited 6 weeks beyond the proper time or found
some fictitious level. That will be even harder to do next
year, even if this committee is not watching or the rest of
society omits any inspection.
As a result, we probably have to do something in the next
year, but I appreciate your outlining these alternatives
because I suspect that somewhere in that area, if we are to
make any change, lies the potential solution, either optimistic
or pessimistic about whether we will find a solution. It could
very well be that this is such an intractable problem, people
are so emotionally involved, that we do nothing, but that will
lead to all sorts of things that each of you have described,
and I think in a very articulate way. There will be a lot of
pain for workers. There will be more mills shut down, a lot of
farmers going out of business, all supposedly why we kept the
thing propped up and it simply will not work for anybody's
benefit that I can perceive, largely because we have a problem
now in which we are producing much more than this country
consumes and the world consumes and offering incentives to do
more of the same. This is simply an unsustainable structure. It
will collapse, if it is not already in process of
disintegration.
I appreciate the focus each one of you have given. From the
standpoint of management, Mr. Horvath has described very
accurately the problems that are involved there. Certainly,
there are differences between the beet sugar people and the
cane people and even our programs that apply to that, and we
have to be thoughtful about that, regional differences, the
historical point of how we got there, but each one of you in
your own way have made a very, very important niche
contribution as well as an overall collective statement.
Senator Conrad.
Senator Conrad. Thank you, Mr. Chairman. Thank you for
holding this hearing, and thank you for the panels that we have
had. It has certainly been a good discussion.
I want to especially welcome Jim Horvath of American
Crystal Sugar, one of the outstanding citizens of my State. I
think he did an exceptional job here defining the problem.
If I could, Mr. Chairman, I would like to take this back to
the broader question of farm policy because I personally
believe we have got to reconsider the direction that we have
taken.
As I analyze it, as I diagnose it, we are in a circumstance
in which our major competitors support their producers at a
level ten times ours. That creates an unlevel playing field.
That puts our producers at a substantial disadvantage, and the
question is how do we respond.
We responded in the previous farm bill by what I call
unilateral disarmament. We substantially cut our program on the
theory that others would follow our good example. It did not
work. It has been a disaster. That is why we have had to write
three disaster bills in the last 3-years.
My own conclusion is the only way you lead to a more
rational world agricultural policy is through negotiation, but
the only way you get a result in negotiation is with leverage,
and we have given up ours.
My own belief is that we have got to rearm in agriculture
in order to go to the table to get a negotiated result that
leads to a more rational outcome; in other words, build up to
build down. It is exactly what worked in a military
confrontation with what was then the Soviet Union. We built up
in order to build down.
After being in Seattle, I am absolutely persuaded we are
not going to get a rational response from the Europeans absent
substantial leverage, and the only leverage that they will
respect is if the United States reverses course and adds
resources to agriculture so they can see that their long-term
goal of world agricultural dominance is going to be
disappointed. It is only in that context that I believe that we
will be able to negotiate a rational world agricultural policy,
and that is why I have introduced the FITE bill, farm income
and trade equity, because I think we have got to say to the
Europeans, we are going to take you on, we are going to meet
you head to head, and then we are willing to negotiate to
eliminate export subsidies and to try to fashion a strategy for
world agriculture that is fair and one that is economically
rational.
I thank the Chairman.
The Chairman. Senator Kerrey?
Senator Kerrey. I, too, Mr. Chairman, want to thank you
both for holding the hearings and for the witnesses coming
forward.
I do think we have an urgent problem here that calls for
action. As always, we have got to find areas where we can reach
bipartisan agreement. I would hope that we could reach
bipartisan agreement on the idea that when you sign an
agreement with another Nation, they ought to honor that
agreement, and Mexico is unquestionably circumventing that with
actions that basically say, ``I know you guys restructured your
refining industries as a consequence of a shift to a different
product from sugar to high fructose corn sweeteners. We do not
want to do it. We are not going to do it. So we want to dump.''
We ought to at least hold their feet to the fire on that issue
and communicate in a bipartisan way to President-Elect Fox that
it is vital that Mexico lives up to that agreement. We ought to
find ways to stand up to this circumvention that is occurring
with stuffed molasses. That is a clear violation of an
agreement. It is going to be very difficult for us to have much
of an impact if we cannot find some bipartisan area where we
can move, but also find some area that reinforces things that
generally this committee has supported, which has been the
advancement of free trade agreements and the use of free trade
agreements to assist agriculture.
I asked Senate Breaux. NAFTA would not have passed--would
not have passed the House of Representatives without that
agreement, and you are not going to get trade negotiating
authority. If you are looking for a reason why trade
negotiating authority has not been provided at present, you
have to look no further than that side agreement that has been
dishonored. So it is vital that we do.
I would like to ask Mr. VanDriessche and perhaps Mr. Lay as
well, because both of you have commented on this--and, Mr.
Orden, I appreciate the constructive suggestions. I do not know
in the short term if we are going to be able to act on those,
but if you look at the existing farm program--and I would just
like to get your comment on this--what we have got is a
decoupled farm program payment that was signed in a 7-year
contract in 1996. It was projected to cost $43 billion over 7-
years. We are going to spend close to $35 billion just this
year because we have modified the contract in 1998, 1999, and
this year as well putting out additional AMTA payments. Indeed,
I think it would be about $10 billion of AMTA payments this
year.
The LDPs have been shockingly expensive, and by the way,
Mr. Orden, one of the issues you have to examine on the
marketing loan is look at what has happened with the current
LDP program. We set the LDP very high for soybeans in order to
get some additional support for Freedom to Farm, just as
Freedom to Farm was enacted as a consequence of an agreement to
bring on the Northeast Dairy Compact, which is not exactly
Freedom to Farm.
What we see is about $3 billion now in soybean payments in
LDP versus almost the same amount for corn. We may spent more
on the LDP for soybeans than we do for corn. In both cases,
what we have got is a situation, Mr. VanDriessche, that you
described that essentially any processor can buy at much lower
prices, and then the taxpayer comes in and picks up the
differential with a direct payment out to the producer.
I am wondering if, relative to what we have in sugar, if
either one of you see this as essentially corporate welfare. Do
you see this as a payment that benefits the processors as well?
Do you have ideas, either philosophically or specifically,
because that is where Mr. Orden is going, to modify Freedom to
Farm so that it could work for sugar growers as well?
Mr. VanDriessche. I would say because of the level that is
paid on those AMTA payments, it actually sets a low level for
those processors to be able to buy their commodity.
Essentially, it is more of a benefit to the users than it
is to the farmer because really what it does for us it allows
us just to survive. It is just enough of a payment where
growers can continue to raise those particular commodities
and----
Senator Kerrey. Except for soybeans which we have said
above the cost of production. You would have to look at
soybeans as almost a special case because we have set that
price higher, and we got a lot more acreage in it as a
consequence.
Mr. VanDriessche. There is a result of that, that with the
price of soybean support being where it is, there is more acres
that has gone into soybeans. So I do agree with you on that.
Senator Kerrey. Do you see ways to modify, either you or
Mr. Lay, the existing Freedom to Farm Act, perhaps even in the
short term, that would be of assistance to producers, to beet
producers?
Mr. Lay. As I understand it, the AMTA allows a farmer to
take acreage out of production and then put it back into
production in some other crop, and I believe----
Senator Kerrey. No. Actually, the AMTA payment is made--
there is no acreage reduction program at all. The AMTA payment
is made independent of what is being produced.
Mr. Lay. OK. Well, maybe if they are producing soybeans or
cotton on land in Louisiana and they take that out of
production and get AMTA payment and then put it into sugar
cane, that is one of the--of course, Louisiana is one of the
areas where production of sugar has just skyrocketed in the
last 10-years, and it is going to continue.
Senator Kerrey. That is what I am saying. I think the
Freedom to Farm has had an impact. Both of you have asserted,
and I think correctly so, that Freedom to Farm has had a
negative impact upon the price of sugar----
Mr. Lay. Yes.
Senator Kerrey.--and created part of this situation. So the
question is whether or not some modification could be made. You
can see this as a modification of Freedom to Farm since you are
paying the consequence. You are paying the price for it that
would be of assistance to producers.
Maybe you can think about that over lunch and come back to
the Committee later.
Again, Mr. Chairman, I thank you very much for holding
these hearings.
The Chairman. Thank you, Senator Kerrey.
Just picking up your thought, I suppose one of the
anomalies of Freedom to Farm, as the witnesses have pointed
out, farmers have the ability to plant whatever they want to
plant on their farms, and that is one of the appealing aspects
of that, to utilize their land and their resources that way,
but as Mr. Lay has pointed out, if market signals indicate it
is more profitable to plant sugar cane than cotton or rice or
wheat or whatever, farmers will do that.
I suppose one of the arguments here could go either way. I
suppose as the incentives to plant sugar now are sufficiently
lucrative, given the program we have, that people would go in
that direction. So this is increasing the oversupply, given
both the freedom to do it. In the old days, you had to plant
whatever you had there in order to keep the quota. So you went
the corn route or wheat or cotton or rice. You did not have
that option. Now, under Freedom to Farm, you can plant whatever
you want to plant. So people plant sugar. Why? Because they do
better with sugar.
But one of the consequences of this is, of course, an
oversupply which our own program creates, just as the Senator
has pointed out with soybeans. An anomaly of that program is
the LDP for soybean, clearly out of line with corn. So the
farmers have found that out, and they have planted more
soybeans for a variety of reasons, but one of them is the LDP.
Each time, we jigger with the program, we create some
unintended effects, as people find in a market system, and if
they have the freedom to do so, where is the advantage?
I do not know how we stop that except, as Professor Orden
pointed out, one way, of course, is supply control. You move
the other way sharply, and you just simply plow it under or
offer incentives to do that, such as giving people payment-in-
kind, sugar, to plow it under, so that they will not produce
more sugar.
But, as I think he points out correctly, we have been down
that road from the time of the New Deal and killing of little
pigs and plowing under of corn and so forth a good number of
times, and it has some real problems in terms of both freedom
for farmers as well as supply and demand which USDA has never
been able to gauge particularly well.
So the marketing loan thing, as the Senator points out, has
its problems in that however you set this marketing loan thing,
maybe we will make a mistake, maybe as we did, with soybeans,
sort of get it out of whack.
It is sort of hard when you are arbitrarily setting these
things to find out really how the world works and where markets
might wind up, but on the other hand, it is sort of a halfway
home between the draconian step of scrapping the whole program
and doing supply control and trying to figure out how much you
plow under now, how much sugar you give somebody not to produce
sugar, and figuring out how long that can be sustained in a
world that is producing even more sugar all the time.
I think Senator Conrad makes a good point in terms of
analogy to the cold war, and he often does this in our
committee about unilateral disarmament and gearing up, but
taken to its extreme, the Europeans arguably are going to spend
from 65- to 75- or $80 billion to make their program work.
Even at the Senator's estimate of $30 billion for our
program--that may be a little high, but maybe not too far off--
we are still a long way from 75 or 80. Conceivably, the
American people may say in order to beat the Europeans at this
game, we are prepared to invest $50 billion more of taxpayer
money in agriculture to show the Europeans what we think of
them, but in the meanwhile, farmers in this country might pick
up some market signals and produce a whole lot more. So we
would say, ``Well, you cannot do that. We are going to put
supply control on you. We are going to put this money into the
economy somehow to beat the Europeans, but we do not want to
throw it out of whack altogether, the supply-and-demand
situation, but a tough thing to do,'' even if you want to go
head to head on these things.
I think we all are frustrated in this committee, I would
share with you, with the fact that we are not making good
headway in our exports. We were stymied in Europe. We still
have a recession in Asia. We are unable hardly to even get a
bilateral treaty with getting Chile into NAFTA. Even when the
King of Jordan came over and said it is vital for peace in the
Middle East to have a free trade agreement with him, even to
move a bilateral one, with or without fast-track authority,
this is a situation that is terrible, and it will not work,
because otherwise we are going to produce more and we cannot
send it anywhere, whether it is sugar or beans or corn.
Mr. VanDriessche. Mr. Chairman?
The Chairman. Yes.
Mr. VanDriessche. I wonder if I might have a minute to
comment here.
The Chairman. Sure.
Mr. VanDriessche. I think we have to be careful that we do
not compare sugar production with other commodities. For one
thing, we do not have the flexibility that soybeans, corn, and
other commodities do because we are tied to a processor.
As you know, I have stated I raise corn and soybeans and
sugar beets, and as a matter of fact, I plant them all with the
same drill, the same 12-row drill, but I have a lot more
flexibility with those other commodities because, if I decide
that one particular elevator or company or whatever does not
work for me, I will go to another one. That is not the same
with sugar. We are tied to a contract to a processor, and there
are many elevators that I could take my product to.
With sugar, if we lose our processor, we are essentially
out of business, and with some of the things that are being
talked about here, we could very easily do that. We are at
sustainment levels right now.
It is not one of these things you can get in and out of, as
we talked about, ``Well, if soybeans look good, we will get
into soybeans. If corn looks good, we will get into corn,'' or
whatever, but sugar beets is not the case that way. If we lose
our processor, we are out of production with that particular
crop.
Senator Kerrey. Specifically, does that mean it is
important for us, whatever we do in the short term, that we do
not force USDA into having to go from non-recourse to recourse
loans?
Mr. VanDriessche. We have to look at that. That is a very
important point.
Senator Kerrey. In other words, we do not force USDA into a
policy option that would require them to shift from recourse to
non-recourse because it is difficult to approach a processor
unless you have got a non-recourse loan, isn't it?
Mr. VanDriessche. Correct.
We want to be very careful how we formulate this policy,
and we want to look at the whole picture, not just at what
production has done here in the United States because of all
the other trade implications that come in along with that.
There was reference made that if we look at doing some type
of things with sugar as we have done with the other
commodities, is this going to be lucrative, are we going to
have that much more in production, and is it lucrative right
now. Well, I do not think it is lucrative right now when we
have a number of factories that are closing, and as a matter of
fact, I should not be sitting here right now. The person that
should have been president of this organization called us at
Christmas time. He was supposed to assume his responsibilities
as of February 1st, and he had to let us know that he was going
out of business.
He is a very sharp individual, a very promising young
farmer that would have done a great justice for this
organization, but he is out of business.
Senator Kerrey. Mr. Chairman, do you mind if I put some
additional detail on this?
The Chairman. No, go right ahead.
Senator Kerrey. One of the things that I hear as well when
I talk to, whether it is beet or corn or wheat or soybean,
farmers in Nebraska is when they hear that we have got to
increase quotas in sugar and we have got a lot more product
into the United States, they immediately say, ``Senator,
understand that the structure of agriculture in Mexico or
Brazil or one of these other countries is completely different
than ours.'' You are not going to be shifting production to
small-scale family farms in these countries. These are larger
processors with much different environmental regulations and
much different cost on the labor side as well. So they do not
see a level playing field, and they certainly do not see the
comparative advantage shifting over to something that
necessarily is going to be viewed qualitatively as an
improvement.
Mr. VanDriessche. Well, I think that is what is frustrating
to us as growers when we talk about the import quotas that are
here. We have to work with them. They are part of our trade
agreements. But let's face it. We are the third-largest
importer of sugar in this world, and when we as growers are
looking at what we need to do to solve our problems, we have to
consider the fact that we are importing this much sugar and we
are talking about the problem that we have and what we are
doing as producers. It is very frustrating for us on the farm.
Senator Kerrey. Mr. Chairman, I just want to say there will
be some things that we have talked about today, some views
where it is impossible for us to reach agreement in the short
term, but my guess is you can find four or five things where
you could get broad agreement from the Committee and I hope you
do because, with your leadership, I think we could do some
things that would be constructive.
The Chairman. This is what we will try to do. We are not
going to have success on this policy any more than any other
without broad bipartisan support which ultimately about all the
Committee agrees, and when we have that, we have some success.
Otherwise, we just have a discussion.
I just want to raise one more question because of the
expertise here. In addition to the problems abroad, mention has
been made of the high fructose syrup situation. If we were in a
different forum, either privately or publicly, in the past many
people who are corn producers or people representing that
interest have been very much in favor of high sugar supports,
however they came, with the thought that somehow that gave them
some room to maneuver under that. So it has been an unusual
alliance of what seemed to be a competitive source of
sweetener, but in fact there was a partnership of effort.
That may still be the case, although it is less so, as I
understand the current situation, but what about the fact that
if sugar has been more expensive, apparently, to candy makers
or cookie makers or what have you, they have gone another route
to corn? That is a free market system and very possible.
Therefore, how do we work that out internally in the country?
Do you just observe that, that is the case? Clearly, if the
demand for sugar declines because people are finding
substitutes in terms of sweeteners, this is another facet of
the problem, even while we are busy trying to maintain the cane
or the sugar beet industries.
The corn people say, ``We have an interest in this, too,''
as a matter of fact, competitive product, and a lot of the
dispute with the Mexicans comes from the corn people in a way
saying we have been frustrated altogether by the trade dodges
that are occurring there in Mexico so they could go together
with sugar people and all the rest of us. The Mexicans try to
get relief.
Do any of you have any thoughts about this sort of
sophisticated nuance of the problem?
Yes, Sir.
Mr. Horvath. Yes, Mr. Chairman. I would like to comment on
that.
I think the conversion that has occurred in the United
States of converting from the use of sugar in many products to
high fructose corn syrup started about 20-years ago, mainly in
the soft drink industry, and has basically from our perspective
been, more or less, complete. There continue to be minor
changes, and the reason that there is not more, from my
perspective, is that functionality differences exist between
our two products.
I think that we have a situation where we probably will not
see much continued conversion to high fructose corn syrup.
As far as the consumption of sugar itself is concerned,
sugar consumption continues to rise in this country basically
in relationship to the increase in population.
I have a couple other comments, Mr. Chairman, I would
appreciate if I could make.
The Chairman. Yes.
Mr. Horvath. On Senator Kerrey's comment concerning
recourse loans, from my perspective, recourse loans for next
year, any policy changes that would reflect a direction to go
in that direction would be quite disastrous for this industry
and could in fact start the process that Mr. VanDriessche talks
about where you start to see more and more processors closing
and, therefore, more and more of our folks on the farm going
out of business.
Second, I think an important point relative to the
profitability of sugar versus other crops, I do not think we
are talking here about sugar making a lot of money. I will
quote an article from the Minneapolis Star Tribune that
reflected the fact that last year, the average Minnesota farmer
made $47,000, and $48,000 of that 47 came from the Government.
So we are looking at, for all other crops, basically our
farmers are trading dollars while sugar provides a modest
return and has for some time, but at today's prices, we are not
seeing that in the sugar business either.
Half of my shareholders will be losing money in the next
year based `upon what we are seeing in the marketplace today.
So this is really a significant change.
I have one more point, Mr. Chairman, if I may. Relative to
the whole issue of the sugar industry's support about foreign
trade, this industry has been united for many years in support
of finding a level playing field as far as foreign trade is
concerned for sugar, and we continue to support that. Recently,
last week in fact, we sent a letter to Ambassador Barshefsky
and Secretary Glickman reflecting our support of their recent
statements as far as the direction of future trade talks as far
as sugar is concerned. So we are very much supportive of
finding that level of fair playing field for sugar in world
trade.
I would ask, Mr. Chairman, if we could please submit that
letter for the record.
The Chairman. Yes. We would be happy to enclose that in the
record.
[The information referred to can be found in the appendix
on page 216.]
Mr. Horvath. Thank you, Mr. Chairman.
The Chairman. I think your point you have made there is an
important one.
Let me just say with regard to the food processing or
manufacturing side, the testimony we are getting from almost
everybody in that area is they are not doing very well.
Sometimes we have a byplay between producers and people from
manufacturing with the assumption that one is doing well and
the other is not, but, nevertheless, the people from the stock
market come and point out that everything involving food is out
of favor, which is very, very low ratings by the market as
opposed to other things that Americans are doing. This is not a
high-flying business in any aspect of it, which sort of gets to
Mr. VanDriessche's point.
If people who are involved in the processing of the sugar
go out of business, there is not a lot of flexibility for
people who are growing it either. This is an interchangeable
situation, or for workers who are employed by all of this.
Let me just ask as a technical point, though. We heard
early on the fact that the non-recourse or recourse loan
situation sort of recurs next year at this point of $1.25
million or what have you that was either fudged or ignored or
somehow this year, but given the supply situation that we are
discussing, it is very difficult to see how the Secretary is
going to make a finding there. Unless there is a deliberate
change in policy or some discussion of this, why, we are going
to reach a crossroads in a few months, which all of you have
pointed to, and that is one reason we are holding the hearing
now as opposed to at that moment, so we all sort of understand.
Yes, Professor Orden.
Mr. Orden. If I could comment on that for just a minute,
Chairman Lugar. I think you are right that it will be very
difficult for the Secretary to in good faith announce under the
current circumstances sufficient imports to have a non-recourse
loan, and by the letter of the law, that then leaves the
Secretary with a recourse loan which is a very serious problem
for domestic producers.
One suggestion would in fact be to implement early next
year a marketing loan program associated with that recourse
loan so that there was some cushioning of the lower prices that
might occur next year in the marketplace by some compensatory
payments. I just wanted to point that out as an option because
otherwise we are going to be in the same plow-down situation
next year, and it looks like for some number of years in the
future.
The Chairman. We thank each one of you for staying with
this hearing. It has been, I think, an important hearing for
the Committee, staff, and for the public, and you have made it
so. We thank you for coming.
[The prepared statement of Senator Harkin can be found in
the appendix on page 72.]
[The prepared statement of Senator Baucus can be found in
the appendix on page 100.]
[The prepared statement of Senator Thomas can be found in
the appendix on page 73.]
The Chairman. The hearing is adjourned.
[Whereupon, at 12:27 p.m., the Committee was adjourned.]
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A P P E N D I X
July 26, 2000
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July 26, 2000
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