A bitter battle over sugar subsidies heats up

For U.S. food and beverage companies, life isn't as sweet as they would like.

The industry-backed Coalition for Sugar Reform argues that a trade deal the U.S. announced last week with Mexico will drive up sugar costs for candy makers and others, which are already among the world's highest, and that it will cost U.S. consumers an estimated $1 billion per year. 

High U.S. sugar prices have caused confectioners such a Hershey (HSY) and smaller family-owned businesses such as Atkinson Candy to shift production to lower-cost countries such as Mexico in recent years.

Eric Atkinson, head of Atkinson Candy, resisted pressure from his father, Basil Eric Atkinson Jr., to move the company's manufacturing to Costa Rica in the 1990s. However, Atkinson Candy, best known for its Chick-O-Stick bars, decided to set up a satellite facility in Guatemala that now accounts for roughly 10 percent of its sales.

"The food and beverage manufacturers would like changes in the sugar support program that make it less restrictive [for them]," said economist Tom Earley of the consulting firm Agralytica. "There was a provision added to the 2008 and 2014 Farm Bills that limits the Secretary of Agriculture's ability to adjust a number of imports until halfway through the marketing year (which corresponds to the fiscal year). Basically, we go through half the year without enough sugar in the system and uncertainty about how much sugar is going to be imported."

Sugar subsidies, which cost taxpayers nearly $2 billion, have been controversial for decades. Conservative groups such as The Heritage Foundation and Americans for Tax Reform have called for their abolishment. Other economists have denounced the subsidies as a wasteful form of corporate welfare. However, they enjoy plenty of support in Congress and have for years.

U.S. sugar producers filed complaints with the U.S. Department of Commerce and the International Trade Commission in 2014, accusing Mexican producers of dumping illegally subsidized sugar on the U.S. market. The ITC ruled in favor of the U.S. industry a year later.

Under terms of the agreement worked out last week between the U.S. and Mexico, Mexican prices for raw sugar and refined sugar will rise. The U.S. also reduced the percentage of refined sugar that may be imported and increased the amount of raw sugar available to U.S. refiners.

U.S. producers balked at the agreement, claiming it contained a loophole that would allow Mexican producers to continue dumping their product. 

Commerce Secretary Wilbur Ross expressed confidence that the government could address industry concerns as the agreement gets finalized. The American Sugar Alliance, which represents producers and farmers, raised objections to the deal, which it said needed to clarify that the U.S. Agriculture Department and not Mexico has the power to determine the type and purity level of sugar imports. 

"We oppose it because it's leading to U.S. factory closures and job loss," said Phillip Hayes, an ASA spokesman.

The alliance claims that unfair competition from Mexico has "already cost U.S. sugar farmers and producers more than $4 billion in losses and are jeopardizing 142,000 jobs in 22 states."    

--The Associated Press contributed to this report.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.