Washington Insider-- Friday

Sugar Price Pressure on Candy Makers

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

EU Ag Commissioner Hogan Optimistic About TTIP Talks

The ongoing talks on the Transatlantic Trade and Investment Partnership free trade agreement between the European Union and the United States have entered a new phase and hopefully will culminate with a deal by early 2016, EU Agriculture Commissioner Phil Hogan told reporters this week in Washington.

Hogan, who is in town for meetings with government and farm organization officials, said that the two sides need to make progress this year so that the deal will not get side-tracked by the U.S. presidential election campaign in 2016. "If we don't make substantial progress in 2015 we won't get a deal in early 2016," Hogan told reporters.

Hogan acknowledged continuing differences on geographical indications (GIs), but he estimated that 95% of potential GIs will be noncontroversial. A geographical indication is a designation used on products that have a specific geographical origin and possess qualities or a reputation due to that origin. In Europe, GIs are viewed as intellectual property that can be, in effect, copyrighted.

Hogan is correct that the vast majority of EU geographical indications will have no effect on U.S. producers because most apply to products that not only are not sold in the United States, but also have never been heard of by most Americans. However, with approximately 1,100 EU agricultural and foodstuff products currently designated with a GI, there still remain a significant number of items over which the two sides will disagree.

***

EPA May Finally Announce Renewable Fuels Standard for Last Year

The Environmental Protection Agency reportedly plans this spring to issue a proposal that will set out the annual Renewable Fuels Standard for 2014, 2015, and 2016, according to an agency official who was attending an industry conference in Grapevine, Texas. Christopher Grundler, a director at EPA's Office of Air Quality and Transportation, which oversees the RFS program, said the agency will announce all three years at once and plans to look at broader changes to address long-term issues of demand and the "blend wall" which is thwarting the ethanol industry's hopes for increased use.

The Energy Independence and Security Act (EISA) of 2007 requires EPA to announce each year's RFS by Nov. 30 of the preceding year. However, EPA was nearly a year late in announcing the RFS for 2013, is well more than a year late on 2014 and is nearly three months late on 2015.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

When Congress approved EISA, legislators based a number of requirements on faulty assumptions, with one of the largest being that U.S. gasoline use would continue to climb, thus allowing the amount of ethanol blended into gasoline supplies to rise in tandem. However, more efficient vehicles and a reduction in the number of miles driven (in response to high gasoline prices) curbed demand.

EPA thus is in the unenviable position of having to balance EISA's mandate of 15 billion gallons of corn ethanol to be blended this year with the reality that there likely won't be enough gasoline used to absorb 15 billion gallons. That inability appears to be at the heart of the agency's way-overdue announcements.

***

Washington Insider: Sugar Price Pressure on Candy Makers

The Wall Street Journal recently puzzled over the disconnect between sugar prices in the United States and those on world markets. It focused on the market situation faced by a candy manufacturer, PEZ Candy Inc., which says it will need to raise prices next year because of higher costs for sugar.

Sugar and labor account for 95% of the cost of the candy, Joseph Vittoria, the company's chief executive. Vittoria told the Journal that sugar is getting dearer in the United States even as it is getting cheaper in most other places. Prices in the global market traded near 5½-year lows in September, though they have rallied a bit since.

In the U.S. futures market, the sweetener is 58% more expensive than on the global market, the Journal said. The United States is the world's fourth-largest sugar consumer and relies on imports — most of which come from Mexico — for about 25% of its supply.

A year ago, the gap between the two contracts was only 2 cents in response to record imports from Mexico. U.S. sugar prices are typically a few cents higher than the world rate because government policies restrict imports and support growers, the Journal notes. But the gap widened sharply this year after the government threatened to slap taxes on imported Mexican sugar at the behest of U.S. growers.

In response, said Vittoria, "Mexico struck a preliminary deal in October to send less sugar to the United States, which has eased the difference between U.S. and global prices in the futures market. But big buyers like candy makers have been snapping up sugar during the recent pullback because they don't think domestic suppliers can fully replace Mexican imports."

"The scarcity will drive prices up," said Vittoria. "That is a frightening thought, because sugar is the lifeblood of our industry."

Rising prices for sugar could soon start showing up in other products in the US, the Journal says. Large chocolate makers, including Hershey and Mars, raised prices in July. Sugar is the No. 2 ingredient in most chocolate candy after cocoa and a key ingredient in foods ranging from cereal to baked goods.

Unlike other sugar exporters such as Brazil or Thailand, Mexico can sell sugar in the United States tariff free under the North American Free Trade Agreement (NAFTA). However, U.S. growers complained in March that Mexico was subsidizing its sugar industry and dumping supply in the United States.

In response, the U.S. Commerce Department imposed a preliminary tax as high as 64.27% on Mexican sugar, and drafted an agreement to suspend the tariffs only after Mexico agreed to restrict exports and charge higher prices to avoid undercutting U.S. growers.

USDA says it expects Mexico to export about 26% less sugar year over year to the United States during the season that began Oct. 1. Global sugar prices have hovered near five-year lows for much of 2014 as booming production out of Brazil swamped the market. Some analysts see world prices falling further as Mexican sugar once destined for the United States adds to the glut.

Restrictive policies by the United States are designed to prevent price declines that would be harmful to the U.S. sugar-processing and farming industries. However, the federal sugar price-support program has come under fire from food and beverage companies, which argue their costs are higher because sugar gets more protection than other crops. Lawmakers introduced several bills to overhaul the program in Congress last year, but none passed.

The U.S. sugar program has long been highly controversial because of its complexity, its costs for consumers and because it undercuts U.S. efforts to expand competitive global access to growing agriculture and food markets. Nevertheless, the industry is strongly supported and powerful and has been able to resist proposals for change for decades.

However, the recent U.S. efforts to constrain the access Mexico negotiated under NAFTA to U.S. sugar markets have raised concerns among other major agricultural exporters with large stakes in the Mexican market, and who worry about the possibility of Mexican pushback as the United States moves to finalize its recent preliminary sugar deal, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@telventdtn.com

(GH/CZ)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x600] M[320x50] OOP[F] ADUNIT[] T[]