CCFA MEETING ON SUGAR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100110002-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 33
• Document Creation Date: December 21, 2016
• Document Release Date: May 21, 2008
• Sequence Number: 2
• Publication Date: August 22, 1983
• Content Type: MEMO

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EXECUTIVE STARIAT
Routing Slip
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of
Aug. 22_1983 NUMBER: (-A 8847 DUE BY:
-r. Cabinet Council on Food and Agriculture to review the Sugar Import
Quota Program.
ACTION FYI
# C.kB Lti ET ME.1MERS Q Q
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HL'D
Transportation
Ener}-
Education
Counsellor
Q B
L
LSTR
C EA
CEQ
OSTP
RXS
Q
ACTION
Baker iY
Deaver
Claris Q
Darman (For WH StajinzJ
Harper
Jenkins
C
Q
Q
C
1
FYI
C
n
CCCT/Gunn
CCE.J/Porter
CCFA/Ba=
CCHR/Carieson
CCLP/ Uhlmann
CCM.VBle lsoe
CCN'RE/BO;gs
Q
Q
The Cabinet Council on Food and Agrigulture will meet Tuesday, Aug.
23 at 2:00 p.m. in the Roosevelt Room. The background papers which
were just received by our office are attached,
Q Craig L Fuller /Larry Herbolsheimer
Assistant to the President Associate Director
for Cabinet Affairs Cabinet .airs
456-:S Z3 4-9 o- S-Cfl
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August 22, 1983
MEMORANDUM FOR THE CABINET COUNCIL ON FOOD AND AGRICULTURE
FROM: DANNY J. BOGGS, EXECUTIVE SECRETARY
SUBJECT: CCFA Meeting on Sugar
Attached is an options paper on sugar for use in preparation
for the Cabinet Council meeting scheduled for August 23,
at 2:00 p.m. in the Roosevelt Room.
Additional background documents will be circulated later.
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August 22, 1983
MEMORANDUM FOR THE CABINET COUNCIL ON FOOD AND AGRICULTURE
FROM: DANNY J. BOGGS, EXECUTIVE SECRETARY
SUBJECT: Review of Sugar Import Quota Program
o What is the appropriate formula for calculating the
sugar market stabilization price (MSP) for FY 1984?
o How should the MSP be defended in FY 1984?
o If a sugar import quota is deemed necessary to defend
the MSP in FY 1984, what should the size of the quota
be?
o Should-the-current dut.y__on imported sugar be reduced?
The premise upon which the Administration has implemented the
sugar price support program to date has been that the program
should be operated at no cost to the Federal Government in any
given fiscal year. That premise has dictated what some observers
have characterized as an overly protective sugar MSP and an
unnecessarily restrictive sugar import quota. A number of
.Federal agencies question whether the "zero-cost" premise should
continue to drive the administration of the sugar price support
program, especially when the effect of such premise is to impose
unduly high costs on consumers. The Cabinet Council must come to
a consensus on this basic policy question before it can resolve
the specific issues outlined in this paper.
The first two issues need to be resolved at the August 23 meeting
of the Cabinet Council on Food and Agriculture so that the FY
1984 MSP and the results of the review of the sugar import quota
program can be published by September 1, as required by Presiden-
tial Proclamations 4940 and 4941 of May 5, 1982. Presidential
Proclamation 4941 requires that the third issue be resolved by
September 15. There is no specific time deadline for resolving
the last issue.
Sugar is among the most widely cultivated crops in the world.
Over 100 countries, with the European Community, Brazil, the
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Soviet Union, India, Cuba, and the U.S. as the leading produc-
ers, grow sugar beets or sugarcane. Sugar is also among the most
widely regulated commodities. In countries where it is produced,
governmental direction affects production levels, prices, and
wages. In countries that import sugar, governments frequently
control imports to maintain the structure of the competing
domestic industry, to derive revenue, and to keep consumption at
a given level.
Another characteristic of the world sugar market is that
relatively little sugar is traded internationally on the
so-called free market. Approximately 70 percent of world sugar
production is consumed in its country of origin, usually at
prices and in quantities established by the government. About 10
percent is sold in preferential markets. Hence, only about 20
percent of the sugar produced is traded on the free market.
Because of its relatively small size, the free market bears a
disproportionate share of sugar shortages and supluses. Unstable
prices reflect this condition. For example, when crop failures
are widespread and world demand exceeds supply, producing
countries withhold their production to meet domestic needs first,
preferential arrangements second, and the world market demand
last. The world price often soars as a consequence. Similarly,
when there are widespread bumper harvests and world supply
exceeds demand, the world market becomes a distress market and
the price plummets.
About 55 percent of the sugar consumed annually in the United
States comes from domestic sources (30 percent from sugar beets
and 25 percent from sugarcane) and 45 percent from foreign
sources (virtually all cane). U.S. sugar beets are currently
produced in 15 states while domestic sugarcane production is
centered in Hawaii, Louisiana, Florida, and Texas.
Sugar derived from sugarcane and sugar beets is the primary
sweetener in the U.S. market. The principal alternatives to
sugar are noncaloric sweeteners and high fructose corn sirup
(HFCS). HFCS is the most important of these alternatives,
accounting for 25-30 percent of the total industrial sweetener
use and 50 percent of beverage sweetener use.
As a result of the increased use of sugar substitutes, U.S.
percapita consumption of sugar has declined in recent years.
HFCS use has more than doubled in this period. This trend is
expected to continue.
The current USDA price support program for sugar is governed by
the provisions of the Agriculture and Food Act of 1981. The
purpose of the sugar program is to provide price support to
domestic sugarcane and sugar beet growers by guaranteeing that
the Commodity Credit Corporation (CCC) will offer loans for
processed sugar at the loan rate. The processors are thus able
to buy sugar from the growers at a specified price with the know-
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ledge that they subsequently can choose to forfeit the sugar to
the CCC and retain the loan proceeds or sell the sugar on the
market at a higher price. If sugar imports are allowed to drive
the market price below the support price, it is more profitable
for the processors to forfeit the sugar to the CCC rather than to
sell it in the marketplace.
The Agriculture and Food Act of 1981 requires the Secretary of
Agriculture to support the price of the 1982-85 domestic
sugarcane crops through nonrecourse loans at such level as he
determines appropriate, but not less than 17 cents per pound for
the 1982 crop, 17.5 cents per pound for the 1983 crop, 17.75
cents per pound for the 1984 crop, and 18 cents per pound for the
1985 crop. The Secretary is to support the price of domestically
grown sugar beets through nonrecourse loans at a level that is
fair and reasonable in relation to the level of loans for
sugarcane. In establishing this program the Congress indicated
that it did not want the operation of the sugar price support
program to result in net outlays in any given fiscal year.
Since the raw commodites being supported under the program are
not storable, the loans are made not at the farm level but at the
first stage where a storable product is produced. Thus loans for
cane are made at the mill where raw cane sugar is produced, and
beets are supported at the factory in refined form. Loan rates
are adjusted by regions depending on transportation costs, with a
high cost region receiving a lower loan rate. This is because it
would cost more for the CCC to move the product to its normal
marketing point in the event of forfeiture. In the event of
forfeiture, interest is not paid on the loan, and the actual cost
of transporting the product is carried by the CCC.
In order to implement the intent of Congress, the Administration
has taken several steps to restrict imports of sugar. These were
necessary because of the wide disparity between world and
domestic prices. In December 1981, the Administration increased
duties to the maximum level and established import fees to
protect the CCC against the forfeiture of sugar. These measures
added to the cost of the imported sugar, bringing it up to the
level of the MSP. During the course of the first four months of
1982, the world price continued to fall sharply, passing the
point where duties and fees alone were able to support the MSP.
Thus, in May 1982 further changes were implemented. An import
quota system was established on a county-by-county basis, and the
fee system was retained to provide protection to the program,
with appropriate modifications to make it compatible with an
import quota program.
Review of the sugar import quota program is required by the terms
of Presidential Proclamation 4941 of May 5, 1982. The results of
the review will be published in the Federal Register (See
Attachment I for USDA's proposed draft of the results of the
review).
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Sugar producers have urged the Administration to continue to
operate the sugar price support program in a highly protective
manner. Domestic sugar users and refiners want the
Administration to lower the FY 1984 MSP and defend it via import
fees and duties rather than an import quota.
The world sugar market is expected to return to a more balanced
position in 1983/84 (September-August). Production in 1981/82
reached a record 100.7 million tons, up 14 percent from the
previous year, and nearly 11 million tons above consumption.
Production decreased slightly in 1982/83, to around 99.2 million
tons, still some 5.7 million tons above consumption. The effect
of these two very good years was to build up ending stocks to
record levels of nearly 38 million tons, or 40 percent of world
consumption. Normal ending stocks are estimated to be around
25-28 percent of consumption. The existence of these large
stocks has severely depressed world sugar prices. Prices, which
had been above 30 cents a pound in early 1981, began to fall
sharply and in mid 1982 were as low as 5.5 cents per pound.
Production in 1983/84 is expected to decline to around 95-96
million tons, due in large part to decreases in production due to
weather problems. Consumption is expected to grow to around 95
million tons. World prices have strengthened in recent months
and are now around 11 cents. The existence of very large stocks
is expected to moderate future price increases, however. The
psychological effect of a balance in production and demand after
two years of surpluses might exert an upward price effect of a
cent or two, but most market observers believe that world sugar
prices will stay in the current range of 10.5 cents to 13.5 cents
per pound in FY 1984.
The market stabilization price (MSP) was authorized in Presiden-
tial Proclamation 4887 of December 23, 1981. It represents the
price at which it is felt producers will find it more attractive
to sell sugar in the market, rather than forfeit it to CCC.
Experience in 1977, when import fees were first used on sugar,
showed that when the market price was equal to the loan rate,
forfeitures occurred, and CCC acquired sugar. Thus it was felt
that a cushion was necessary on top of the loan rate in order to
provide adequate protection. The cushion represents the highest
cost of marketing sugar, sales from Hawaii to Gulf and Atlantic
ports. The highest cost factor was chosen so as to provide the
maximum protection to the program and thus avoid Federal
acquisitions of sugar. In addition to the transportation and
handling factor, there is an interest rate factor and a
"marketing incentive" factor. These components are required
under provisions of Presidential Proclamation 4940 of May 5, 1982
(See Attachment II for an explanation of the calculations of the
components of the FY 1984 MSP). The FY 1984 MSP must be
announced by September 1, 1983.
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Domestic sugar users and refiners complain that by establishing
an overly protective MSP the Administration is imposing a burden
on consumers in the form of unduly high sugar prices. They claim
that two components of the MSP -- the interest rate factor and
transportation and handling charges -- could be adjusted so as to
reduce the MSP without subjecting the CCC to large acquisitions
of sugar. Sugar users believe that the MSP could be reduced by
up to 3.5 cents per pound by requiring processors to pay interest
and transportation costs if they forfeit sugar under loan or by
establishing transportation costs on a basis that represents the
average rather than the most expensive marketing scenario. A 3.5
cent reduction could save consumers roughly $2 billion. .
Sugar users and refiners claim that such a reduction in the MSP
would permit the Administration to use import fees and duties
rather than an import quota to protect the MSP from material
interference from foreign sugar shipments. This would allow the
Administration to escape from an import quota program that is
inconsistent with its free trade philosophy and burdensome to
administer. Moreover, opponents of the quota system suggest that
a return to import fees and duties would generate revenues for
the Treasury.
Sugar producers and processors take the position that the
Administration's implementation of the domestic sugar price
support porgram and accompanying border protection measures are
necessary to provide fair prices for growers without exposing
American taxpayers to additional budget outlays. They assert
that the elimination of the interest and transportation factors
in the computation of the MSP would be inconsistent with other
similar commodity price support programs that do not require
participants to pay interest or transportation costs upon
forfeiture. They also point out that the use of average
transportation and handling costs rather than the highest
transportation and handling costs would encourage processors to
forfeit up to $550 million worth of sugar to CCC.
Sugar producers and processors question whether the market
fundamentals are such as to generate world sugar prices that can
be raised to the MSP level via import fees and duties, given the
limits imposed by current law on the maximum levels of fees and
duties. They suggest that the Administration continue to employ
the quota as its primary means of border protection, relaxing the
quota when it becomes clear that domestic sugar prices can be
maintained at the MSP while increased amounts of foreign sugar
are permitted to enter the country. Most parties believe that it
would be less disruptive of the market to take this course of
action rather than to move back and forth between a quota and
a system of fees and duties.
Should it be determined that an import quota is necessary to
defend the sugar MSP, the Secretary of Agriculture will have to
announce the size of the quota by September 15. Critics of the
import quota program claim that the current quota is too re-
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strictive, forcing domestic sugar prices 1 to 2 cents above the
MSP. These critics urge the Administration to relax the 1984
quota so as to avoid overshooting the MSP. The fine tuning of an
import quota to achieve a specific price objective is one of the
many difficulties associated with the implementation of a quota
program. There are bound to be errors no matter what level of
care is given to the administration of the program. USDA has
suggested two quota-size options for FY 1984 (See Attachment
III).
Finally, there is some interest in reducing the sugar import
duty. The U.S. currently charges a duty of 2.8125 cents per
pound on imported sugar versus a bound minimum rate of 0.625
cents per pound. With the enactment of the Administration's
Caribbean Basin Initiative (CBI), 73.3 percent of U.S. sugar
imports in FY 1984 will enter duty-free under the GSP program.
Proponents state that reducing the duty would minimize the
inequitable treatment of the remaining non-GSP sugar exporters
(Brazil, Thailand, Philippines, Australia, South Africa) and
would constitute a beneficial gesture in advance of the
President's November trip to Thailand and the Philippines.
Moreover, they point out that the duty is unnecessary to defend
the MSP as long as an effective quota system is in place.
Those opposed to reducing the duty emphasize that such action
negates the effect of the special treatment accorded to targeted
countries under the CBI. They also assert that the reduction in
the duty would result in a revenue loss of as much as $34 million
and would send the wrong signal to exporters if duties had to be
raised at a later date to defend the MSP in the absence of a
quota.
1. What is the appropriate formula for calculating the sugar MSP
for FY 1984?
a) Retain the current formula provided for in Presidential
Proclamation 4940.
o Would defend against the acquisition of sugar, thus
avoiding federal outlays.
Disadvantages:
o Would renew charges that we are over protecting the
price of sugar at the expense of consumers.
b) Establish a new MSP formula providing a lower MSP level
without any changes in the operation of the sugar price
support loan program.
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Advantages:
o Would make it easier to relax the sugar quota or switch
to a duty and fee system of border protection.
o Would address some of the critics' concerns about the
level of price protection provided for domestic sugar
producers.
o Would lead to an increased risk of CCC acquisition of
sugar, increasing Federal budget outlays $60 million to
$550 million a year.
o Would require a new presidential proclamation.
c) Establish a new MSP formula that reflects administrative
changes to the sugar price support loan program (i.e.
charging interest and/or transportation upon forfeiture).
o Would allow maximum flexibility to relax the sugar
quota or switch to a duty and fee system of border
protection.
o Would not risk any increase in Federal budget outlays.
o Would address many of the critics' concerns about the
level of price protection provided for domestic sugar
producers.
Disadvantages:
o Would be very unpopular with a broad spectrum of
agricultural producers and their representatives in
Congress.
o Would require a new presidential proclamation.
2. How should the sugar MSP be denfeded in FY 1984?
a) Continue to use import quota.
Advantages:
o Would assure stability in the market.
o Would minimize risk of forfeiture of sugar to CCC.
o Would be easy to enlarge to permit more sugar to enter
domestic market as world sugar price increases.
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Disadvantages:
o Would be inconsistent with our free trade philosophy
and would continue to cause problems in the GATT and
the International Sugar Agreement.
o Would continue to be burdensome to implement.
b) Change to a duty and fee based system.
Advantages:
o Would be easier to administer.
o Would be more consistent with international trading
rules.
o Would generate revenue for the Treasury.
Disadvantages:
o Probably would be unable to defend a high MSP given
current and expected world prices.
o Lack of quantitative restrictions on sugar imports
would expose CCC to risk of sugar forfeitures.
o Potential of returning to quotas would create
instability in the market.
c) Rely on CCC acquisitions of sugar to defend the MSP
without any form of border protection.
Advantages:
o Consistent with free trade philosophy.
Disadvantages:
o No border protection would result in about 4.3 million
tons of sugar, valued at around $1.5 billion, being
forfeited to CCC.
3. If the sugar quota program is deemed necessary to defend the
MSP in FY 1984, what should the size of the quota be?
USDA has recommended two quota sizes for FY 1984. Both are
larger than the,FY 1983 quota of 2.890 million tons.
a) 2.985 million tons
b) 3.135 million tons
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4. Should the U.S. sugar import duty be reduced?
a) Yes
Advantages:
o Would reduce the inequitable treatment of the remaining
non-GSP sugar exporters (Brazil, Thailand, Philippines,
Australia, South Africa).
o Would be a beneficial gesture in advance of the
President's November trip to Thailand and the
Philippines.
o Under an effective quota system the duty is unnecessary
to defend the MSP.
b) No
Advantages:
o Would result in revenue loss of as much as $34 million.
o Would send wrong signal to exporters if duties had to
be raised at a later date.
o Would negate the intended effects of the CBI.
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? - vvl -1 ~CHMENT I
BILLING ('ODE 3410-10
DEPARTMENT OF AGRICULTURE
OFFICE OF'THE SECRETARY
REVIEW OF THE UNITED STATES SUGAR IMPORT QUOTA. SYSTEM
AGENCY: Office of the Secretary, USDA.
SUMMARY': This notice reviews the U.S. sugar import quota system established
by Presidential Proclamation 4941 of May 5, 1982.
I. INTRODUCTION
SUPPLEMENTARY INFORMATION: In accordance with paragraph (f) of Headnote 3,
subpart A, part 10, schedule 1 of the Tariff Schedules of the United States
(TSUS), the Secretary of Agriculture has consulted with the U.S. Trade
Representative, the Department of State, and other concerned agencies as to
the operation of the sugar import quota system established under the authority
of Headnotes 2 and 3 of subpart A of part 10 of schedule 1 of the TSUS, the
International Sugar Agreement, 1977, Implementation Act, and Section 201 of
the Trade Expansion Act of 1962. After reviewing the operation of the sugar
import quota system, the Secretary of Agriculture has determined that the
system should be continued in effect in order to give due consideration to the
interests in the United States sugar market of domestic producers and
materially affected contracting parties to the General Agreement on Tariffs
and Trade. The rationale for this decision is based on the following
analysis.
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II. QUOTA NEED
A. Background
World sugar production reached record levels in 1981/82
(September/August) totalling an estimated 100.6 million tons of beet and
cane sugar. The record output was accomplished by significant increases
in sugar beet plantings, especially in the European Community, as well as
larger sugarcane harvested acreage in key producing countries. These area
increases, which were spurred by high prices in 1980 and the first quarter
of 1981, benefitted from generally outstanding growing conditions
throughout the world for both beets and cane. This 14 percent growth in
production from the preceding year outpaced world consumption by about 11
million tons, creating a surplus supply situation and causing world prices
to decline sharply beginning in the spring of 1981. In this environment of upward spiraling world stocks, depressed prices and the mandate of the
Agricultural and Food Act of 1981 to support the price of domestic sugar
at specified levels, it was obvious that imports, if not restrained, would
displace domestic sugar and force it into the hands of the Commodity
Credit Coporation. To prevent this, import fees under Section 22 of the
Agricultural Adjustment Pct of 1933, as amended, and import duties on
sugar were increased in December 1981. Despite these increases and owing
to a drop in the world price below 10 cents per pound in April 1982 (based
on f.o.b. Carribean, No. 11 contract on the New York Coffee, Sugar and
Cocoa Exchange) it was no longer possible to achieve, through fees and
duties, reasonable market prices which would protect the interests in the
U.S. sugar market of domestic producers.
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Heavy imports were. threatening to displace domestic sugar from the U.S.
market. Such a result would have had adverse effects on the interests of
U.S. sugar producers. As a result, the import quota for sugar was
modified (effective May 11, 1982) until such time as the world market
price strengthened sufficiently to permit a return to an effective system
of fees and duties.
Quarterly quotas were established for the May 11 to June 30, 1982 period,
and the July 1 to September 30, 1982 quarter at 220,000 and 420,000 short
tons, raw value, respectively. On August 11, 1982, the Secretary
established an annual fiscal year sugar import quota period of
October 1-September 30. For 1983 the global quota was set at 2.8 million
short tons.
Concomitantly with the import quota proclamation issued on May 5, 1982,
the President issued Proclamation 4940 which revised the Section 22 fee
system by increasing the market stahlization price (MSP) for the 1982
purchase agreement program from 19.08 to 19.88 cents per pound. On
September 1, 1982, the Secretary of Agriculture announced a MSP for sugar
of 20.73 cents per pound for 1983.
B. Current World and U.S. Sugar Market Situation
The fundamental imbalance between world sugar supplies and demand carried
over into 1982/83. World output of centrifugal sugar in 1982/83 is
currently estimated at 99.66 million tons, down slightly from the previous
year's record production. Beet sugar output declined to 36.87 million
tons, refle-Hnn a sinnifirant drop in the European Community's sugar beet
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acreage and beet sugar production from record 1981/82 levels. However,
this decline was largely offset by an improved Soviet crop of 7.4 million
tons, compared with 6.4 million tons the previous year.
World cane sugar output dropped 1.4 percent to 62.79 million tons due, in
part, to yield reducing heavy rains in Cuba, Peru, and Ecuador. In
addition,a700,000 ton decline in India's production to 9.0 million,
reflected reduced acreage caused by the price depressing effects of record
high internal and international stock levels and a 700,000 ton.decline in
Thailand's production resulted from depressed prices and less than ideal
weather conditions compared with the previous season. These declines were
partially offset by an upward revision in Mexico's sugar production to 3.1
million tons, compared with 2.6 million tons forecasted earlier.
Global centrifugal sugar consumption in 1982/83 was initially estimated at
92.4 mill
ion tons, 3.2 percent above the previous year. The lingering
world recession along with the substitution of other sweeteners for sugar
in some economies has hindered more substantial growth in sugar
consumption, despite extremely low world prices which averaged under 7
cents per pound during the first eight months of 1982/83. Nevertheless,
low prices, abundant supplies and a resurgent world economy are seen to be
exerting some added upward pressure on demand in parts of the world,
thereby pointing to a small increase in the 1982/83 consumption estimate
to around 93.0 million tons.
With respect to the United States, centrifugal sugar production for
1982/83 is now estimated at 5.8 million short tons (5.2 million metric
tons). T" - '- A -7 ^?r^o^+ from iQR1/a7 Hue primarily to reduced sugar
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beet acreage. Cane sugar production increased by nearly 9 percent due
primarily to excellent yields. Domestic consumption of sugar in the
United States continues to trend downward due largely to substitution of
alternative sweeteners, particularly high fructose corn sweeterners (HFCS)
by the beverage industry. This increasing shift to HFCS was highlighted
this spring when two major soft drink companies permitted more HFCS use is
their cola products For 1982/83 sugar utilization is currently estimated
at 9.05 million short tons, compared with 9.40 million tons the previous
year.
The import quota system has limited the entry of foreign sugar to meet
domestic demand to 2.89 million short tons (2.62 million metric tons).
For the period October 1, 1982, through August 5, 1983, 2.48 million short
tons have been charged against the quotas for the 37 countries which have
allocations. The domestic price of raw sugar (c.i.f., duty and fee paid,
No. 12 contract as published by the New York Coffee, Sugar and Cocoa
Exchange) averaged 21.61 cents per pound for the first nine months of the
quota year. As a result of these prices, which are above the 1983 MSP
objective, no sugar put under loan to the CCC for the 1983 crop has been
forfeited to the U.S. Government.
C. Outlook for World and U.S. Sugar Market
After two consecutive years of substantial world surpluses, world
centrifugal sugar production and consumption levels in 1983/84 are likely
to be in closer balance. Prospects for 1983/84 world centrifugal sugar
production point to a downturn in output to around 94.8 million tons, 4.8
and 5.8 m,11;nn tnnc halnw the two orevious Years, respectively. Current
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world sugar beet acreage for beets, planted in the spring of 1983 in the
Northern Hemisphere to he harvested in the fall, are off from the record
highs of the two previous years. In the European Community, for example,
area planted to beets is down 9 percent from the 1982/83 level. Due to
cool and very wet weather in the spring and early summer followed by very
hot and dry conditions, beet yields in Europe are expected to be off.
Consequently, sugar production in 1983/84 is forecast at around 11.7
million tons raw basis in the European Community, down 21 percent from the
14.8 million tons produced in 1982/83. Somewhat offsetting this decline
are relatively stable production prospects in Eastern Europe and the
USSR. With respect to cane sugar, drought in the key producing and
exporting countries of South Africa and Australia are expected to reduce
the crops in those countries by 26 and 15 percent, respectively. The
Philippine crop is also expected to be reduced by dry weather. Offsetting
some of these declines, centrifugal cane sugar output in important sugar
countries in Central and South America and the Caribbean are expected to
be up from 1982/83 levels. Production in Brazil is initially forecast at
9.4 million tons, compared with 9.3 million tons in 1982/83. More normal
harvest conditions should permit Cuba to increase its sugar output to
around 7.5 million tons. In China, continued expansion in sugarcane
production is anticipated.
A global increase in consumption to around 96 million tons is anticipated,
given recent trends and continued relatively weak world prices. This
forecast assumes a modest recovery in the global economy and continued
growth in consumption in Africa, the Middle East and Asia, especially in
the oil-exporting countries in these regions. While world production and
lanne or slightly in deficit in
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1983/84, the possible deficit is not expected to be large enough to
significantly reduce the large world sugar stocks still overhanging the
market (estimated at 42 percent of consumption or 40.2 million tons,
compared with "normal" ending stocks of 20-25 percent). These stocks, as
well as the continued growth in some markets of alternative sweeteners to
sugar, continue to have a dampening effect on prices. The viability of
this analysis is reflected in world sugar futures prices which currently
range between 11.58 cents per pound for contracts due in September 1983
and 13.45 cents per pound for contracts due to mature in September 1984.
For 1983/84, U.S. sugar production is forecast to be around 5.7 million
short tons, about the same level as 1982/83. Lower yields for sugar beets
stemming from wet weather and delayed plantings this spring are
anticipated. However, this should be largely offset by higher cane sugar
output particularly in Florida. Domestic utilization of sugar is expected
to drop to 70 pounds per capita or 8.75 million short tons, compared with
72.4 pounds per capita and 9.05 million short tons in 1982/83. While this
anticipated 3 percent drop in consumption is significant, it indicates
that the decline is decreasing at a decreasing rate as the market
potential for the primary sugar substitute HFCS is reaching maturity.
With the increased demand for HFCS from beverage companies, HFCS capacity
utilization has tightened and has helped raise HFCS prices. After ranging
from 17.0 to 18.5 cents in April, prices for HFCS-55 (used in soft drinks)
surged to 22.0 to 23.5 cents a pound in June. Prices are now about 7
cents higher than in January 1983, and 3 to 4 cents above the 1982
calendar year average.
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If world prices were high enough, it would again be theoretically possible
to achieve U.S. price support objectives utilizing only import fees and
duties rather than restrictive quotas. Utilizing the 1982/83 MSP of 20'.73
cents per pound, assuming maximum authority on duties and import fees, the
minimum world price at which the MSP can be achieved is 11.08 cents. This
calculation changes when the GSP allowance is taken into account. Under
the current quotas, 56 percent of imports are GSP duty free. With the
enactment of the Caribbean Basin Initiative (CSI) the Dominican Republic
is expected to receive duty free treatment. As a result, 73.3 percent of
quota imports would be duty free in fiscal year 1984. In addition,
minimum world price at which the MSP can be approached without quotas is
12.80 cents per pound. As a practical matter, world sugar prices would
have to move well above this 12.80 cents per pound minimum. USDA would
want to be certain that quotas would not be an on-again off-again
proposition due to on volatile world prices.
Given the above analysis, we do not foresee prices strengthening
sufficiently to move from restrictive quotas to a duty and fee system.
The Secretary has determined therefore that quotas should be continued
into 1984 and he plans to file notice of the new quota level with the
Federal Register no later than the 15th day of the month immediately
preceding the calendar. quarter during which such determination shall be in
effect (i.e. September 15, 1983). In determining such quota amounts the
Secretary shall give due consideration to the interests in the United
States sugar market of domestic producers and materially affected
contracting parts to the General Agreement on Tariffs and Trade.
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III. PERCENTAGE ALLOCATIONS
A. Allocations based on Historical Patterns
In order to give due consideration to the interests in the United States
sugar market of materially affected contracting parties to the General
Agreement on Tariffs and Trade, the Secretary allocated the global
restrictive quota on a country-by-country basis. Allocations were based
on historical shipments to the U.S. market.
The following procedure was used to determine country sugar quota
allocations. First, data on U.S. sugar imports (by country) from
1975-1981 were obtained from the U.S. Customs Service/U.S. Census. Next,
refined sugar imports were converted to a raw equivalent value by
multiplying refined sugar imports by 1.07. Total sugar imports were the
sum of raw imports plus the raw equivalent value of refined imports. The
next step was to discard the high and low observation for each country.
The remaining five observations (for each country) were then summed. The
next step was to sum all countries' five included observations. The final
step was to divide each country's five observation total by the total for
all countries. These steps yielded each country's percentage of any
import quota. A total of 24 individual country percentage allocations
were presented in paragraph (c) of Presidential Proclamation 4941.
Percentage allocations for these 24 countries totaled 94.1 percent of
total allocation. A "basket" group of small shippers to the United States
market were allocated 5.9 percent of the global quota under a 25th
category of countries as "other specified countries and areas."
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B. Changes Made for Basket Countries (Other Specified Countries and Areas)
Notwithstanding the allocation provisions set forth in paragraph (c) of
Headnote 3, the Secretary may, after consultation with the U.S. Trade
Representative, the Department of State, and the Department of the
Treasury, issue regulations modifying the allocation provisions governing
"other specified countries and areas" if the Secretary determines that
such modifications are appropriate to provide such countries-and areas
reasonable access to the United States sugar market. Such regulations
may, among other things, provide for the establishment of minimum quota
amounts, the establishment of quota periods other than quarterly periods,
and the carrying forward of unused quota amounts into subsequent quota
periods.
After consultations, the Secretary determined that modifications to the
allocation provisions governing "other specified countries and areas" were
appropriate. As a result, on August 11, 1982 regulations governing
allocations of sugar import quotas and other specified countries or areas
were published in the Federal Register (47FR p 34769). These regulations
set forth modified terms and conditioris governing the allocation of sugar
import quotas for the "basket category" countries. Initially, their
percentage allocations had been pooled and they competed on a
first-come-first-serve basis for the entire pool. It was found that this
type of arrangement created considerable difficulties and uncertainties
for countries in the basket category as well as purchasers wishing to
acquire sugar from those countries. It was impossible for such countries
to guarantee that sugar which they had sold would be able to enter the
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United States within the quota. Also, different shipping distances and
harvesting seasons could give some countries a significant advantage over
other countries in this category. Taking these considerations into
account, it was apparent that these problems could be substantially
resolved by providing that each country in the basket category be assigned
a specific quota.
Under the rule published August 11, 1982 each country with a pro-rata.
share greater than 0.5 percent received a quota allocation equal to that
share. For those countries with less than a 0.5 percent share, they are
permitted to ship 16,500 short tons. This quantity approximates the size
of an economically feasible shipment of sugar to the United States from
the most distant exporting countries.
These provisions yielded twelve new individual country allocations
(Barbados, Bolivia, Fiji, Haiti, India, Malagasy Republic, Malawi, Mexico,
Paraguay, St. Christopher-Nevis, Trinidad-Tobago, and Zimbabwe). A
thirteenth country, the Ivory Coast, was also added under a separate
action because of its membership in the International Sugar Organization.
It is evident from the operation of the quota during 1983 that the
modified allocation provisions for the "basket countries" has succeeded in
giving assured access to the U.S. market to these countries. As of August
5, 1983 all these countries, with the exception of Trinidad-Tobago which
is short of exportable supplies this season, has filled or nearly filled
their respective specific quotas for the current quota period.
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IV. PROVISION TO SUSPEND ALLOCATIONS OR MODIFY QUOTA PERIOD
A. Appropriate to Keep Allocations During Period of Restrictive Quotas
In accordance with paragraph (d) of Headnote 3, the Secretary may, after
appropriate consultations, suspend the allocation provisions of paragraph
(c)o if the Secretary determines that such action is appropriate to give
due consideration to the interests in the U.S. sugar market of domestic
producers and materially affected contracting parties to the General
Agreement on Tariffs and Trade.
While some countries have made representations to the Secretary concerning
lower than desired allocation, the overwhelming response to the allocation
provisions has been that they were constructed using an unbiased,
quantitative approach understandable to all. In addition, the operational
functioning of quota allocations has performed well in providing a flow of
sugar which gives due consideration to the interests in the U.S. sugar
market of domestic producers. As of August 5, 1983, 2.48 million tons of
sugar has entered against the 1983 quota from 35 of the 37 countries which
have specific quota allocations.
B. Modification Made to Annual Quotas
Also in accordance with paragraph (d) of Headnote 3, the secretary may, after
appropriate consultations, establish quantitative limitations for periods of
time other than calendar quarters as provided in paragraph (b) if the
Secretary determines that such action is appropriate to give due to
consideration to the interests in the United States sugar market of domestic
producers and m~ to the General Agreement
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Subsequent to appropriate consultations, the Secretary on August 11, 1982,
published in the Federal Register regulations modifying the sugar quarterly
import quota periods to an annual quota beginning October 1, 1982. It was
felt that establishment of an annual quota would facilitate the access of U.S.
trading partners to the U.S. sugar market providing greater flexibility in
shipping schedules and the size of individual shipments. Correspondingly,
exporters and users of foreign sugar would be able to develop purchasing and
production plans with a greater degree of certainly.
It was not anticipated that the movement to an annual quota would have any
adverse impact on domestic market prices. In addition, a "Desired Shipping
Pattern" was published and agreed to by exporting countries which reduced the
potential of "bunching" sugar into any particular part of the year.
This procedure along with the establishment of a certificate of eligibility
system was considered adequate to prevent any bunching of imports which might
otherwise depress domestic prices for certain periods of time.
After ten months of the 1983 quota year as a record, it is evident that prices
have been maintained and the movement to an annual quota, use of desired
shipping pattern plan and the certificate of eligibility system has given due
consideration to the interests in the U.S., sugar market of domestic producers
and materially affected contracting parties to the GATT. Exporters of sugar
under quota have been particularly pleased with the certificate system which
assures that access to the U.S. market be only that sugar which is accompanied
by a certificate.
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V. USTR MODIFICATION OF PERCENTAGES
Two modifications were made in the quota regime for 1982-83
-- The Ivory Coast was allocated a quota of 16,500 short tons. Initially,
the Ivory Coast was not given quota because it had only exported sugar to
the United States in one of the seven years used for the representative
period. As an ISO member, however, the Ivory Coast could not be denied
access to our market. Thus, the decision was made to allocate them a
minimum quota.
--Zimbabwe's quota was increased from 0.1 percent to 1.2 percent. U.N.
sanctions were in place against Zimbabwe (Rhodesia) until December 1979.
Thus, its export performance was limited to two years--1980 and. 1981.
Zimbabwe is a member of the ISA and the GATT and cannot be denied access
to our market. Article XIII, paragraph 2(d) of the GATT requires that
when administering quotas, due consideration should be taken of special
factors that affect trade in a product. Zimbabwe's special factors affect
trade in a product. Zimbabwe's quota was thus adjusted so that it would
not be penalized for nonperformance during those years when it was barred
from the U.S. market.
These following changes in the program are anticipated for quota year 1983-84:
--Uruguay and the Congo will be allocated quota shares of 16,500 short
tons. Both countries recently joined the International Sugar Agreement
and thus must be granted access to the U.S. market.
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--The quota for Nicaragua is to be reduced to 6,000 short tons. Effective
October 1, 10,83, the remainder of Nicaragua's quota will he distributed in
the following way:
Costa Rica 30. percent
El Salvador 18 percent
Honduras 52 percent
The decision to modify Nicaragua's quota was taken due to the extraordinary
situation in Central America and its implications for the United States and
the region as a whole, including Costa Rica, Honduras, and El Salvador.
Nicaragua will retain a minimum quota of 6,000 short tons to fulfill our GATT
and ISA requirements to provide access to our market.
VI. CONCLUSION
The Secretary has determined that the continued operation of paragraphs (b),
c), (d) and (e) of Headnote 3 does give due consideration to the interests in
the U.S. sugar market of domestic producers and materially affected parties to
the GATT. It follows then that paragraph (g), which would allow for entry of
sugar into the United States not to exceed 6.90 million short tons, does not
apply.
Wang Doc. No. 2346H
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10 ~~a v1IIIGIJ VIaLGJ LI,VI IIJI I III,
Department of Research
Agriculture Service
SUBJECT: Calculation of the Market Stabilization Price
(MSP) for the 1983 Crop Sugar Loan Program
TO: James Truran/FAS
August 19, 1983
The attached tables present the procedures used to compute the market
stabilization price (MSP) to support the 1983 sugar loan program. You
will note that the shipping and handling costs are based on raw sugar
movements from Hawaii to Gulf ports. The California and Hawaiian Sugar
Company (C&H) has indicated that it is not likely that they will make raw
sugar sales to ports North of Hatteras in 1984. Therefore, we have
focused only on the costs of shipping raw sugar from Hawaii to Gulf
ports. C&H estimates that raw sales to the Gulf will approximate 173,000
short tons, raw value, in fiscal 1984.
Shipping and handling costs submitted by C&H and estimated by USDA are
shown in table 1. C&H has submitted costs for four time periods
representing actual for calendar 1982, actual for the period 8/1/82
through 7/31/83, partially actual and partially estimated for the period
10/1/82 through 9/30/83, and totally estimated for 10/1/83 through
9/30/84. Depending on the loan rate of interest and based upon C&H's
estimated shipping and handling costs of 2.79 cents a pound for fiscal
year 1984, the estimated MSP for the 1984 fiscal year ranges from 21.28
to 21.37 cents per pound (table 2).
Interest rates used to make the MSP calculations ranged from 9.00 to
10.00 percent. The 9.75 rate is the weighted average cost of money to
the Commodity Credit Corporation (CCC) for fiscal year 1984 as projected
.by the Agricultural Stabilization and Conservation Service (ASCS) and is
based upon the Office of Management and Budget (OMB) approved economic
assumptions. The CCC rate of interest for commodity loans for August
1983 is 10.00 percent.
In calculating the MSP based upon USDA's estimated costs, we have taken
the 1982 actual costs, except for stevedoring and freight, as submitted
by C&H and applied an inflator which is based on a projected increase in
the producer price index (PPI) for finished goods. This index is
published by the Bureau of Labor Statistics. The Economic Indicators and
Statistics (EIS) Branch of the Economic Research Service (ERS) has
estimated that the PPI will increase 8.9 percent between 1982 and 1984.
The PPI index was 280.7 in 1982 and is estimated to be 305.8 in 1984.
The stevedoring and freight costs for 1984 reflect the actual 1983 costs
increased 6.0 percent as projected by ERS and measured by the PPI for
finished goods between 1983 and 1984. The 1.30 cents shown for freight
in C&H's 1982 actual data represent the cost of moving one cargo of
32,000 tons to the Gulf in 1982 in C&H's lowest cost vessel. However,
this is not considered representative of what the costs might be for
fiscal 1984 when 173,000 tons are expected to be shipped to Gulf ports in
a combination of vessels.
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Mr. James Truran 2
The provisions of Section 1435.106 of the loan regulations require
processors to submit information to ASCS on freight costs and related
shipping expenses. The provisions also give the ASCS, the Office of
Inspector General, USDA, and the Comptroller General of the United States
access to processor's premises to inspect, examine, and make copies of
books, records, accounts, etc., as deemed necessary to verify compliance
with the loan regulations.
In view of the foregoing, it is highly unlikely that C&H's cost
information for 1982 would be distorted or not reflect actual costs for
that year. Accordingly, we have taken the 1982 actual costs and applied
the 8.9 percentage increase projected for the 1982-84 period, except for
stevedoring and freight as previously stated, and estimated that the MSP
for the 1983 crop loan program will range (depending on the rate of
interest) between 21.11 and 21.20 cents per pound. This approach appears
much more defensible than if we were to use C&H's estimates for 1984.
The costs of moving Florida raws to North of Hatteras ports which
represent the marginal sales area for these raws were 1.90 cents per
pound for the 1981/82 crop--the last crop year for which data are actual,
complete and currently available. After applying the PPI inflator of 8.9
percent to account for the estimated percentage change between the
1981/82 and 1983/84 crops, the Florida to North Hatteras costs should
total approximately 2.07 cents per pound for the 1983/84 crop year.
Therefore, sales of Hawaiian raws to the Gulf appear to be the marginal
area for the 1983/84 crop year and the use of costs associated with these
sales in establishing the MSP should adequately protect all other
domestic areas.
Using the weighted national average shipping and handling costs of 1.20
cents shown in table 3, the MSP would be 19.78 cents per pound of raw
sugar. At this MSP level, it would be economically feasible for
processors to forfeit about 813 to 975 thousand short tons of raw sugar
to the CCC at a value ranging from 283.4 to 339.8 million dollars. In
addition, 0 to 535 thousand short tons of beet sugar, raw value, with a
loan value ranging from 0 to 208.9 million dollars would be exposed to
CCC acquisition.
FREDERIC L. HOFF
Acting Branch Chief
Fruits, Vegetables, and
Sweeteners Branch
National Economics Division
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Table 1.--Estimated shipping and handling costs for moving raw sugar from Hawaii to Gulf Ports
C & H Sugar Co. USDA
8/1/82 . 10/1/82 . 10/1/83
Item . 1982 2/ . thru thru thru . FY 83 6/ : FY 84 7/
7/31/83 3/: 9/30/83 4/: 9/30/84 5/:
---------------- Cents per pound, raw value ------------------
Shipping and handling costs:
Ocean freight 1.30 2.77 2.27 2.12 2.12 2.00 8/
Other costs
Island outbound loading costs .15 .17 .17 .19 .16 .16
Stevedoring .33 .37 .37 .42 .34 .42 8/
Weighing and sampling .03 .04 .04 .05 .03 .03
Insurance .01 .01 .01 .01 .01 .01
Subtotal .52 .59 .59 .67 .54 .62
Total costs 1 2 T.-16 2.79 2.66 2.62
1/ Represents data supplied by C & H. 2/ Actual calendar year data. 3/ Actual. 4/ Partially actual and
partially estimated. 5/ Estimated. 6/ In effect for FYj 83. 7/ Except for freight and stevedoring represents
C & H actual for calendar 1982 inflated by 8.9 percent which is the projected increase in the producer price
index (PPI) for finished goods between 1982 and 1984 as estimated by the Economic Indicators and Statistics (EIS)
Branch of USDA'S Economic Research Service (ERS). 8/ Represents the weighted average of actual 1983 costs in-
flated by 6.0 percent which is the projected increase in the PPI for finished goods for 1984.
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Table 2.--Market stabilization price (MSP) calculations based upon moving sugar from Hawaii to Gulf
ports at various loan interest rates, 1984 fiscal year
Loan interest rate
percent
:
USDA FY 83
9.00
9.50
9.75 1/ :
10.00 :
10.25
----------- Cents per pound, raw value ---------
MSP for FY 1984 based upon C & H
estimates:
Loan rate
17.50
Costs
Shipping and handling
2.79
2.79
2.79
2.79
N.A.
Loan interest 2/
.79
.83
.85
.88
N.A.
Incentive factor
.20
-
.20
-
.20
.20
N.A.
Total costs
T.79
3.82
-
-
-
-
N.A.
Market stabilization price
21.28
21.32
P
.34
2T
.3
7
N.A.
MSP for FY 1984 based upon USDA
estimates:
Loan rate
17.50
17.50
17.50
17.50
17.00
Costs
Shipping
and handling
2.62
2.62
2.62
2.62
2.66
Loan interest 2/
..79
.83
.85
.88
.87
Incentive factor
.20
.20
.20
.20
.20
Total costs
3.65
3.67
3.70
3.73
Market stabilization price
21.11
-2T-.T-5
21.17
2T.20
20.73
1/ Weighted average cost of money to CCC as projected by ASCS for FY 1984 and based upon 0MB approved economic
assumptions. 2/ Assumes a 6-month maturity date.
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