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Trade talks in works could devastate US sugar industry

October 21, 2003

BATON ROUGE, LA – A new study by economics professors at Louisiana State University, conducted for the Louisiana Bankers Association and the First South Farm Credit Association, confirm that bilateral and regional trade agreements being negotiated by the U.S. administration would devastate America’s sugar industry if free trade for sugar is included.

Stephen L. Rochelle, chief executive officer of First South Farm Credit Association, said, “As a lender to agriculture, we are very concerned over the findings of the study. The study bears out what we have feared. That is, the regional and bilateral trade agreements being pursued by the Administration could literally wreck the Louisiana sugar industry, and in truth, the entire U.S. sugar industry.”

Rochelle said if, based on the study, lenders expect that “in the near future the sugar industry would be over run by foreign subsidized sugar, the premature dismantling of the sugar program, and the consequence of sugar prices below production for any country, it would put the state of Louisiana and its delicate economic base in great jeopardy.” Sugarcane is by far Louisiana’s most valuable crop.

The LSU analysts estimated that additional imports of 2 million metric tons would cut U.S. producer prices for sugar in half, to less than 12 cents per pound. Two million tons is the export capacity of the five Central American countries with which the U.S. is rushing to achieve a free trade agreement, the CAFTA, by the end of this year.

The study predicted a domestic producer price of only 8 cents per pound – less than half of world average sugar production costs – if imports grew by 3 million tons. The authors noted, “These additional import levels pale in comparison to the 27 million metric ton sugar export volumes of countries currently negotiating free trade agreements with the United States.” Total U.S. sugar consumption is less than 9 million tons.

Upon learning of the study and its contents, Carolyn Cheney, chairman of the American Sugar Alliance, said, “American sugarcane and sugarbeet farmers, in 16 states, are among the most efficient in the world, but none could survive at the low prices these trade agreements would bring. This thorough and detailed study by experts outside of the sugar industry reinforces dramatically what we in the industry have been saying. Including sugar in these agreements and opening our borders to excessive tons of subsidized foreign sugar would drive efficient American sugar farmers out of business.”

Cheney said, “American sugar farmers have long endorsed the goal of genuine global free trade in sugar. We could compete with foreign farmers on a level playing field, free of all government intervention. But the world sugar market is distorted by a vast array of subsidies and the so-called world price is really a dump price – barely a third of the world average cost of producing sugar.

“The only way to address these distortions,” Cheney said, “is multilaterally, through comprehensive negotiations in the World Trade Organization (WTO), not piecemeal in these bilateral and regional agreements. Our message to the Administration is quite clear: Reserve sugar for negotiation in the WTO, not in these bilaterals and regionals.”

Cheney also noted that consumers would not see any benefit from the lower producer prices that might occur, because food manufacturers and grocers do not pass their savings along to consumers. “For example,” Cheney said, “during much of 1999 through 2001, sugar producer prices languished 20 to 30 percent below previous levels and drove many farmers out of business, but consumer prices for sugar and sugar-containing products have not declined.”

In addition to the CAFTA, the U.S. is currently negotiating, or soon to begin negotiating, agreements with major sugar-exporting countries and regions such as Australia, South Africa, Thailand, and, in the Free Trade Area of the Americas, Brazil.

The study, “Impact of Potential Bilateral Free Trade Agreements on Projected Raw Sugar Prices and the Economic Viability of Louisiana Sugar Industry,” was conducted by LSU economic professors Michael Salassi and Lynn Kennedy and research assistant Janis Breaux.

The American Sugar Alliance is the national coalition of growers, processors, and refiners of sugarcane, sugarbeets, and corn for sweetener.