U.S. Increases Sugar Quota for Second Time

NEW YORK—The U.S. government is admitting the bitter truth: The country needs more sugar imports to meet demand this year.

The U.S. Department of Agriculture again increased its annual sugar-import quota for the current fiscal year to help offset potential crop shortages in the U.S. and Mexico and said more increases could be on the way.

The USDA raised the quota for low-tariff or duty-free sugar by 120,000 short tons. In April, the department raised the quota by 325,000 short tons. With the latest increase, the total quota is about 1.6 million tons for the year ending Sept. 30.

About 11 million tons of sugar are consumed annually in the U.S., and the country needs to import sugar every year to meet demand. But the USDA operates a limit for low-tariff or duty-free imported sugar to protect domestic sugar-cane and sugar-beet farmers.

Each year, the USDA sets a tariff-rate quota that allows 1.2 million tons of sugar to be imported, a minimum set in a World Trade Organization agreement. Then, it monitors domestic supply and demand to see if this quota should be increased. By law, the USDA can’t raise the quota before April 1.

Wet soil in the Midwest from a particularly snowy winter followed by a rainy spring has delayed the plantings of sugar beets, which account for more than half of U.S.-grown sugar.

Federal farm officials said they might allow even more imports, as a drought is expected to reduce production in Mexico, which supplies around half of the United States’ sugar imports. Under the North American Free Trade Agreement, Mexico exports sugar to the U.S. outside of the quota.

“Additional adjustments to import [tariff-rate quotas] and domestic marketing allotments may be needed later in FY2011 to ensure an adequate sugar supply for the domestic market to prevent market disruptions,” the USDA said in a statement this week.

But a smaller sugar-beet and Mexican crop for the 2011-12 year that starts in October would affect the following year, when the quota is reset at the minimum. An additional weather risk is that Florida’s and Louisiana’s sugar-cane crops, which are harvested over the winter, are susceptible to hurricanes and tropical storms. Federal forecasters expect above-average storm activity in the June 1-Nov. 30 hurricane season.

Some in the sugar industry said the U.S. still needs more imported sugar to meet demand.

“The quota increase they made isn’t going to be enough to cover the gap,” said John Sheptor, chief executive of Imperial Sugar Co., the country’s second-largest sugar manufacturer after Domino Foods Inc.

Mr. Sheptor said his company isn’t ruling out price increases if sugar costs rise. In the past, sugar manufacturers and food makers have had to import sugar at higher tariffs to meet their supply needs.

The problem with the quota, Mr. Shepton said, is that the allocation isn’t practical because some of the quantities—such as the 1,421 tons from landlocked Bolivia—aren’t economically viable to ship.

But defenders of the U.S. sugar policy said food manufacturers are complaining about higher prices for sugar now because, for years, global surpluses have kept prices low.

“There seems to be plenty of sugar out there,” said Jack Roney, director of economics and policy analysis at American Sugar Alliance, a U.S. sugar-industry group. “They’ve been kind of spoiled by sugar surpluses.”

Tight supplies in the U.S. forced the USDA to increase the quota twice in the fiscal year that ended Sept. 30, 2010.

In the coming months, the USDA will set the quota for fiscal-year 2012, which begins Oct. 1. The quota then can’t be changed until April 2012.




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