US sugar program pits growers against soda, candy makers

U.S. Sen. Pat Toomey, R-Pa., thinks the government should get out of the sugar business. His state is home to chocolate giant Hershey.

WASHINGTON — Makers of sodas, candy bars and other sweetened snacks are taking aim at a long-standing federal program that keeps sugar prices high by restricting imports.

Doing away with the sugar program would be a “huge boost” to candy makers and help them grow, said Robert Simpson Jr., president of Jelly Belly Candy Co., which has factories in California, Chicago and Thailand.

But the efforts of manufacturers are sparking intense opposition among lawmakers from sugar-growing states and the sugar lobby, as well as from some public health advocates.

“Is this where we need Congress to spend its time, trying to make cheap candy bars?” said Mark Muller, director of the Food and Justice Program at the advocacy group Institute for Agriculture and Trade Policy.

The battle is focused on a farm bill that renews the decades-old sugar program. The Senate voted down efforts to repeal or roll back the sugar program when it passed the bill last month.

But as the House takes up the legislation next week - a draft bill released Thursday proposes to keep the sugar program intact - candy makers and their allies are hoping for better luck in the Republican-controlled chamber.

“There’s a better political climate for us this time around,” said Larry Graham, chairman of the Coalition for Sugar Reform, which tried to kill the sugar program in 2008 when the last farm bill was passed. “We think there’s going to be a good fight in the House.”

Members of the coalition include the U.S. Chamber of Commerce and the conservative Club for Growth - groups that in 2010 spent more than $41 million to help send Republicans to Congress. The chamber recently put lawmakers on notice that backing the “chronically flawed policy” could earn them the ire of the powerful business group.

The sugar program costs consumers as much as $3.5 billion a year in higher food prices, the coalition argued.

Under the program, at least 85 percent of sugar sold in the U.S. must come from domestic processors. Sugar supplies are managed by the U.S. Department of Agriculture, which tells U.S. sugar companies how much they can sell and limits how much low-tariff sugar can be imported from overseas.

The government also can buy up excess sugar and sell it to ethanol makers — even at a loss — to avoid price slumps. The Congressional Budget Office expects the sugar-to-ethanol portion of the program to cost taxpayers $193 million in the next decade.

U.S. sugar producers are guaranteed minimum prices through federal loans that allow them to borrow against their sugar supplies at a specific per-pound rate. If market prices drop below the specified price, producers can forfeit the sugar instead of repaying the loans in cash.

Supporters said the program provides safe, American-made sugar at little cost to taxpayers.

“Otherwise, you’re at the mercy of the agencies that set regulations for other countries,” said Mickey Seither, an executive at American Sugar Refining, which owns a cane refinery in Crockett, Calif. “To us, it’s much better to be in control of that final product that goes out to consumers.”

And the program helps the $20 billion growing and processing industry continue to employ 142,000 workers nationwide, supporters contend. They also question whether food and beverage makers would pass along the savings if sugar prices were lower.

“History has shown that food manufacturers will pocket any savings in ingredient costs to boost their profits instead of passing those savings along to consumers though lower food prices,” said Phillip Hayes, a spokesman for the American Sugar Alliance, which represents sugar growers and processors.

Wholesale refined sugar prices are down 19 percent since August 2010, but the price of candy and gum - products that count sugar as their main ingredient - have climbed 7 percent, he said.

Some economists said now is a good time to end the program.

“Very few farmers would go out of business because prices are so profitable, even at the world market level,” said John Beghin, an Iowa State University economics professor. He cowrote a recent study that concluded that ending the sugar program would lead to as many as 20,000 new jobs in the food-processing sector.

In May, raw sugar sold for 30.2 cents a pound on the U.S. market and 20.5 cents a pound on the world market. Refined sugar sold for 59.5 cents a pound in the U.S. market and 25.5 cents a pound on the world market. Shipping costs added an additional 5 cents a pound to the cost of foreign sugar.

Critics of the program, such as Sen. Pat Toomey, R-Pa., said government should get out of the sugar business entirely.

“It’s an egregious government manipulation of the markets,” said Toomey, whose state is home to chocolate giant Hershey Co. “And there’s an explicit commitment of the government to buy sugar (if prices drop). Why should the taxpayer bear that risk?”

Each side claims it is battling a powerful opponent.

A review of campaign contributions and lobbying expenditures shows the immediate interests on both sides are fairly evenly matched, but groups such as the U.S. Chamber of Commerce and the National Association of Manufacturers lend a powerful boost to those trying to gut the program.

American sugar companies and their trade associations have doled out more than $2 million in campaign contributions since the beginning of last year, compared with less than $900,000 spent by the candy and snack food industries.

But sugar companies have spent about $3.6 million on lobbying in the first three months of this year, compared with about $5.2 million spent by the food and beverage groups, including the powerful American Beverage Association and food giants Mars Inc. and Kraft Foods Inc.

Simpson, the jelly bean company executive, said the coalition’s real power lies with its grass-roots operation.

“We have plenty of members that are at the standby,” Simpson said. If the sugar program comes up for debate on the House floor, “we will bring everybody that we can to demonstrate how each of these businesses have been impacted.”