How Sugar Policy Works
U.S. sugar policy, which operates under the Farm Bill overwhelmingly passed in 2008 by Congress, is based on the common-sense notion that supply and demand should be in balance.
Sugar is a no-cost commodity program because sugar farmers do not receive subsidy checks. To ensure that sugar policy runs at no cost to taxpayers, the U.S. Department of Agriculture (USDA) has three tools at its disposal. The agency can 1) slow the flood foreign imports to those required by our trade agreement obligations (note: Mexican imports are unlimited under NAFTA), 2) limit the amount of sugar American farmers can sell, and 3) divert surpluses caused by excessive imports into ethanol production.
Each year, the USDA forecasts U.S. sugar consumption and decides whether to limit the amount that U.S. producers can market. The USDA then allocates market share to 41 foreign countries based on U.S. import commitments in trade agreements, such as the WTO and CAFTA. Mexico is the only supplier – domestic or foreign – with unrestricted access to the U.S. market because of NAFTA. If imports create an oversupply situation, then unneeded sugar is made available to ethanol producers.
By avoiding oversupplies and shortages, sugar prices stay stable. And fair prices eliminate the need for government payments to farmers.