The U.S. House’s version of the Farm Bill includes a provision where the federal government buys surplus sugar and sells it to ethanol producers to be used with corn.
The program is designed to be a buffer against a North American Free Trade Agreement provision that will let Mexico export an unlimited amount of sugar to the U.S. starting in 2008. That could easily lead to a glut of sugar, and depress the prices… kicking in automatic U.S. government purchases of sugar to prop up prices. This story in the International Herald Tribune says that subsidy could cost taxpayers $1.3 billion over 10 years:
The chairman of the House Agriculture Committee, Minnesota Democrat Collin Peterson, inserted the sugar-to-ethanol provision in the farm bill. Minnesota is the nation’s largest producer of sugar beets, and Peterson represents the state’s sugar beet-growing Red River Valley. U.S. sugar is made from beets in some Northern and Western states, and cane in a few Southern states and Hawaii.
The sugar-to-ethanol program would only kick in when imports lead to an oversupply of sugar in the U.S.
“This a program that blinks on and off,” Peterson said. “It would only be used if needed.” Peterson also included a slight increase in the guaranteed government minimum price for sugar growers, or loan rate, from 18 cents to 18.5 cents a pound.
A similar program in 2001 didn’t work very as the U.S. government tried to sell 100,000 tons of surplus sugar to ethanol producers but only sold about 10,000 tons at a loss. But experts say the market is different than in 2001 and could work out better.
The U.S. Senate is expected to take up the bill when it comes back in after the August recess. And this current provision has the endorsement of the chairman of the Senate Ag Committee, Sen. Tom Harkin (D-Iowa):
“We must continue to look for new sources to produce biofuels — sugar, cellulose, and others,” he said in a statement. “Increasing our renewable energy investments helps increase our energy security and keeps our country competitive.”