By Chris Prentice
WASHINGTON (Reuters) - Food manufacturers and big sugar buyers said on Monday they believe a proposed U.S. sugar-to-ethanol program will cost twice as much as a government estimate and urged congress to repeal it as part of broader changes in sugar policy.
The program, which would allow the government to buy excess sugar and sell it to biofuel manufacturers, stands to cost the U.S. government $100 million in the fiscal year through October 1, said Agralytica food policy consultant Tom Earley on behalf of the Coalition for Sugar Reform. That would be roughly double the Congressional Budget Office's baseline estimate of $51 million.
The sugar-to-ethanol program is allowed under the 2008 farm bill, but it has not been carried out due to mediocre crop yields. This year, however, the government is considering it as a way to deal with a huge sugar surplus.
The coalition said it backs a new sugar policy that would repeal the sugar-for-ethanol program and also roll back price support levels to those that prevailed before 2008. Sugar users also want Congress to remove restrictions that prevent the Secretary of Agriculture from allowing more sugar imports.
The coalition's proposal is expected to come up in the House in about two weeks, following a failed bid in the Senate, as policymakers seek to establish a new farm law that would cover crops for 2014 to 2018.
"We have always been more optimistic about the House," said William Reitsch, president of National Foreign Trade Council, an open market trade advocate and member of the Coalition for Sugar Reform.
Attempts to introduce the sugar reform act did not pass through the Senate, even though many policy makers criticized the cost of existing sugar policy at a time of tight budgets.
The sugar-for-ethanol program allows the U.S. Department of Agriculture (USDA) to buy excess sweetener that sugar processors have used as collateral for government-backed loans. The loans begin to come due in July, and mass defaults are expected because U.S. sugar prices are hovering near price support loan rates.
U.S. sugar processors and producers in favor of the existing support program have said that the excess sugar is the result of increased Mexican sugar production and unrestricted North American trade, rather than U.S. farm policy. They have also said that the sugar program generally operates at no cost to the taxpayer.
But Earley said that because the USDA has underestimated the size of a surplus overhanging the North American sugar market, his group calculates that the program will cost about $250 million over the next two fiscal years.
The USDA has projected a stocks-to-use ratio for the current crop year of 18.5 percent, which indicates a lot of excess sugar.
"This year and next year, the USDA will have to divert a million tons of sugar to ethanol to balance the market," Earley said. He said that would total about 400,000 tons in the crop year through September and another 600,000 tons in the next crop year.
He said the cost of that program could even be higher than the group's estimate if falling corn prices make sugar less attractive as a feedstock.
The last time U.S. prices fell to support levels was during the 2000/01 crop year, when the USDA had to purchase over one million tons of sugar.
(Editing by David Gregorio)