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Report sheds light on Brazil's sugar subsidies

Published on April 25, 2013 3:01AM

Last changed on May 23, 2013 8:50AM


Capital Press

Sugar is the most distorted commodity market in the world, according to the American Sugar Alliance, and the organization wants lawmakers to understand those distortions and maintain protections for U.S. sugar producers in the upcoming farm bill.

ASA commissioned a study of sugar subsidies in Brazil, by far the largest sugar exporter in the world. The study, by Patrick Chateny, a sugar and ethanol expert for UK-based ProSunenergy, estimated that Brazil's government programs provide $2.5 billion annually in sugar subsidies.

Those subsidies allow Brazil to dump sugar on the world market below the cost of production and do not represent free-market policy or fair-market price, said Jack Roney, ASA policy director.

"This report underscores the importance of continuing the current U.S. sugar policy," he said during a teleconference on Wednesday.

Brazil produces 36 million to 38 million metric tons of sugar per year and exports 25 million to 26 million metric tons. The U.S. produces 7 million to 8 million metric tons of sugar per year and is a net importer of 2 million to 3 million metric tons per year.

Domestic production and roughly 142,000 U.S. jobs would be at risk if U.S. sugar policy was scrapped, he said.

That's because most of the 100 sugar exporting countries -- including Brazil, whose subsidies have helped it gain 50 percent market share of global sugar exports -- have distorting policies when it comes to sugar, he said.

Brazil has become a powerhouse in the sugar industry and has promoted the view that it has done so through free-market policies, when in fact it owes most of its growth to strong government intervention in its sugar and ethanol sectors, Chateny said.

Brazil's sugar and ethanol industries are closely tied, and strong government intervention in the ethanol industry affects the unit cost of sugar production, he said.

Chateny's report on Brazil's sugar subsidies was largely devoted to ethanol but in Brazil sugar mills produce ethanol and ethanol plants produce sugar, he reported.

Brazil would need to increase its sugar price by 15 percent to replace government supports, he estimated. Those opposing U.S. sugar policy cite the world market price, but that is a "dump price" that should never be used as a yardstick to measure free trade in sugar, he said.

ASA wants to make sure Congress is aware of the extent of Brazil's distortion of sugar prices and its less transparent subsidies to prevent any dismantling of U.S. sugar policy, Roney said.

U.S. sugar producers are highly efficient, and domestic sugar prices are below the world average, he said. And the U.S. sugar program has operated with no cost to taxpayers for more than 10 years.

"To disarm unilaterally while foreign subsidies run rampant would lead to job loss and leave us dependent on unreliable, subsidized foreign sugar," he said.

That is a lesson the EU learned the hard way when it weakened its sugar policy in 2006. Europe lost 120,000 sugar-related jobs, and when foreign supplies dried up, its consumers paid more for sugar and sweetened products, Chateny said.

"America should exercise caution before outsourcing its sugar supply to Brazil," he said.


To read the report: sugaralliance.org , click on "Papers and Testimony"


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