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Sugar’s storage loans benefit many

Sugar’s storage loans benefit many

Fall marks the start of the busy harvest season for sugarcane and sugarbeets across the country.

In Florida, farmers hope for the best as they cut wind-blown cane from fields hit hard by Irma.

In southern Louisiana, the dry weather in recent weeks has made harvesting in the often-muddy soil a little easier.  But, farmers there know that the hurricane season lasts through November and the threat of frost intensifies in December.

Here in Idaho, as well as Minnesota, Michigan and eight other states, farmer-owned sugar processing facilities will soon start running 24 hours a day as we dig beets from the ground, racing against the season’s first freeze.

Harvest is an exciting time, no matter what crop you grow, and it is one of the things that makes agriculture so unique.

In no other business do manufacturers produce so much of their product in such a small window of time.

Using an example from Econ 101, widget makers make widgets all year long – a little at a time.  If fewer widgets are needed, they simply slow down the assembly line.  Farmers, on the other hand, can’t make real-time adjustments and have to harvest all of their “widgets” at once.

But, sugar producers can’t sell everything at once.  That’s because food companies and retailers have chosen not to construct huge on-site warehouses to store ingredients or pay for a year’s worth of inventory in advance of delivery.

Instead, they benefit from “just-in-time delivery,” where sugar producers store, handle and transport the ingredient exactly when it is needed. And the customer typically pays for the sugar 30 days after it is delivered.

While this strategy reduces food company and retailer costs, it pushes those costs onto producers. That’s where the non-recourse loans found in the Farm Bill come into play.

These loans are designed to help producers pay bills associated with the crop while they are marketing it throughout the year.  Then, when crops are sold, the loans are repaid with interest.

These loans are at the heart of U.S. sugar policy, and repayment with interest is why sugar policy operates at no cost to taxpayers.

And these loans are essential to our customers because it enables sugar producers to take on the logistical headaches of warehousing, shipping and handling, which would otherwise fall to confectioners, food makers and retailers.

In a way, it would be more accurate to call non-recourse loans “customer storage loans” because the customer is one of the biggest beneficiaries.

So how would life look if farm policy critics were successful in gutting these loans and leaving America more dependent on foreign suppliers?

McKeany-Flavell, a California-based commodity research firm, examined that very question during the 2008 Farm Bill debate, when food manufacturers were lobbying for the elimination of sugar policy and greater dependence on foreign supplies.

“We must recognize the value U.S. sugar producers offer to consumers,” they wrote at the time.  “Providing consistent quality and supply, in the requested package form, and through just-in-time deliveries … is a very complex and difficult process that cannot be recreated overnight, if at all, through a 100-percent sugar import program.”

In other words, utilizing the Farm Bill’s no-cost storage loans is preferable to waiting for a slow boatload of subsidized sugar to arrive from Brazil, then worrying about getting that sugar from a ship to a food manufacturer’s production line at the precise time it’s needed.

“Our recommendation: be careful,” McKeany-Flavell warned sugar policy’s opponents, because the unintended consequences of disrupting the current delivery infrastructure could be crippling.

Sugar producers are eager to share this warning with lawmakers, as they debate the next Farm Bill and decide the fate of 142,000 U.S. sugar jobs.  But first, there’s a year’s worth of sugar to harvest.

About the author: Galen Lee is an Idaho farmer who serves as president of the American Sugarbeet Growers Association.

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