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Sugar Markets Overview

Global sugar production for 2013/2014 is forecast at 175 million metric tons,[1] very slightly up from the previous year, of which the United States accounts for around eight million metric tons, about 5 percent down from the previous year. Supply has grown steadily from 144 million metric tons produced in 2008/2009. The United States is both the fifth-largest producer and the fifth-largest consumer of sugar. Over the same period, demand grew from 153 million metric tons in 2008/2009 to 167 million metric tons forecast in 2013/2014 (i.e., from a supply shortfall to a surplus).

Exhibit 18.2 shows world and U.S. monthly Sugar prices from January 1990 to July 2013. U.S. consumers pay Substantially more than world prices for sugar, as the U.S. market is manipulated through price Support, domestic market controls, and tariff rate quotas. Better growing conditions and hence cheaper costs of sugar in other producing countries would make U.S. producers struggle to survive without such Support. Opposition to support, especially among beverage makers, has been increasing in recent years, and both producers and consumers have substantially increased their political contributions and lobbying efforts.

Sugar Prices, 1990-2013 (World and U.S. Monthly)

Exhibit 18.2 Sugar Prices, 1990-2013 (World and U.S. Monthly)

World source: London International Financial Futures and Options Exchange (LIFFE); U.S. source: Bureau of Labor Statistics.

Price Support

The U.S. Department of Agriculture (USDA) makes loans to producers who can either sell their product to the USDA at the minimum price to repay their loans or to the market if prices are higher. In attempting to avoid anticipated minimum price purchases, the USDA is often an active participant in sugar markets. It recently purchased 15.5 million metric tons of sugar from U.S. producers to bolster low market prices. In 2013, around $1.1 billion of loans were made to 17 producers representing about half of the country's producers.

Domestic Market Controls

Producers are each allotted maximum sales volumes each year. Excess production must be stored until permission is given to sell it in the future. Aggregate allotments must amount to at least 85 percent of anticipated demand.

Tariff Rate Quotas

Tariff rate quotas are used as a strict control on sugar imports. The USDA establishes quota volumes annually for sugar that can enter at low or zero duty. There is a minimum quota of around 1.1 million tons to satisfy U.S. obligations to the World Trade Organization. This can be increased if shortfalls of domestic production versus demand are expected.

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