Plant Closures Are Bitter Pills for Sugar Beet Growers
The long, white sugar beet that Larry Hunn pulls from the ground is one of the last that he or any other grower in the Sacramento Delta will harvest.
Although the odd-looking vegetable supplies almost half of the booming demand for refined sugar in the U.S.--the rest coming from sugar cane--the market for the beet has soured as prices have plunged, subsidies come under fire and processing plants close.
Here in California, the fifth-largest sugar beet growing state, two of the four remaining processing plants are scheduled to close by year’s end, putting 400 workers out of work and forcing growers to quit the sugar beet business for lack of buyers for their crop.
For Hunn, the closure of the two Spreckels Sugar plants bring to an end nearly seven decades of sugar beet farming, starting with his grandfather.
“Sugar beets and barley bought this farm,” says Hunn, taking off his cap, which like so many things in his small office bears the Spreckels name. “I don’t know what I’m going to plant. Sugar beets are one of the few things I’ve been able to make a profit on.”
Politicians and government agencies, however, think sugar producers have gotten too sweet a deal, receiving subsidies in the forms of government loans that don’t have to be repaid and strict import quotas that have helped keep prices for consumers artificially high.
Indeed, a report issued this month by the Government Accounting Office estimates that sugar subsidies, the only ones to survive intact after passage of the Freedom to Farm Act, cost consumers $1.9 billion each year in higher prices, and benefit only a handful of large growers.
While the world price for sugar is averaging about 9 cents a pound, the domestic price for sugar is more than double that--about 20 cents per pound, boosting the price of all other products that contain sugar, such as cereal, soft drinks and ice cream.
“Farmers and growers should receive a fair price for their product. However, this program has distorted the sugar market and has hurt consumers,” says Sen. Dianne Feinstein (D-Calif.), who has a bill before a Senate committee that would reduce prices guaranteed to processors and growers and lift import quotas.
Although these artificially high prices may be undermined by legislation and rising imports, analysts say consumers won’t likely see a big decrease in the retail price of sugar and sugary products until subsidies are phased out completely and food manufacturers agree to pass along the savings.
Unlike other types of subsidies, the government does not make direct payments to farmers. Instead it offers loans to sugar processors, with the sugar serving as collateral, based on an established minimum price. If prices rise, processors can buy their sugar back at the loan price and sell it for a profit on the open market. Otherwise, processors can forfeit their sugar and not repay the loan, in effect receiving a guaranteed minimum price from the government, which also serves to prop up the prices processors pay to farmers.
To minimize the likelihood of these expensive forfeitures, strict import quotas have been imposed that keep U.S. sugar prices higher than those in the rest of the world.
Farmers argue that producers in most sugar-producing countries receive some kind of subsidy. Also, they say, if the business is so lucrative why are so many California growers and processors getting out? In the past decade, the number of processing plants has shrunk from eight to four, with the two Spreckels plants scheduled to close by year’s end.
With a shrinking number of buyers for the crop, the state’s sugar beet acreage has been cut in half in the last 20 years, to 115,000 acres this year.
Although the picture looks bleak for growers, demand for refined sugar is soaring, as consumers have quit counting calories and begun indulging themselves. Orders from food manufacturers through March of this year are running 4.3% ahead of the same time last year. Deliveries to ice cream and dairy product manufacturers have surged 20% and candy factory orders have climbed 6%.
But this so far has not translated into higher market prices for producers because the robust demand has yet to outstrip the record supply, according to USDA figures. Sugar beet production has climbed steadily over the decade, mostly in the Midwest, to 1.6 million acres, even as yields have increased, driving U.S. prices down to about one-third of what they were in 1990.
Contributing to the oversupply, growers say, is additional sugar that is being smuggled in from Canada. By “stuffing” molasses used for cattle feed with sugar, which is then extracted by processors in the U.S. and resold, analysts estimate Canadian processors are putting an extra 125,000 tons of sugar into this market illegally.
The glut could be aggravated this fall as import quotas are eased. Sugar imports from Mexico, for example, could increase tenfold, to 250,000 tons, under terms of the North American Free Trade Agreement.
“The fact that that stuff . . . could drop in here at any time is depressing the market,” says Ben Goodwin of the California Beet Growers Assn.
The plunge in sugar prices prompted the Department of Agriculture last month to announce plans to purchase 150,000 tons of surplus sugar to head off some of the expected forfeitures under its loan program and help ease the glut and depressed prices that have plagued the market for three years.
Agriculture Secretary Dan Glickman insists the U.S. sugar industry can become self-sustaining. And the GAO report concludes that the sugar business would continue to thrive if the federal sugar program were eliminated, with most sugar beet acreage remaining in production.
In California, however, it’s a slightly different story. Dependent on processing plants to extract the sugar from their beets, most in the Central Valley will be forced to switch to other crops after the closing of the Spreckels plants, which are owned by Houston-based Imperial Sugar Co.
A grower group was attempting to purchase the two facilities from debt-ridden Imperial, which has seen its stock plunge 84% from last summer to $1.06 in Wednesday trading, as profit has dropped.
However, the price it offered Imperial wasn’t even close to the $40 million that Imperial is asking for the two plants.
Inside the 63-year-old Woodland plant, a visiting salesman, who had once worked at the plant, lamented its demise. “I never thought I’d see it,” he said. “I worked here, my father worked here, even my grandfather. It’s a real shame.”
The plant closure will also have a ripple effect in the Imperial Valley, where many sugar beet growers live.
Danny Walker, who grows 240 acres of beets in Westmorland, says the Spreckels plant closure in Tracy will force him to pull at least 30 acres of beets out of production next year. He’s still not sure what crop he’ll plant instead.
He’s considered planting cotton, another crop that carries a price support. “Unfortunately, there aren’t any other options that have been as good as sugar has been.”
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World sugar futures in New York have resurged recently to just under 9 cents a pound, less than half of the U.S. price. However, world prices remain far below the ‘90s peak of about 15 cents in 1995. Monthly closes and latest for near-term sugar futures, in cents per pound:
8.65 centsSource: Bloomberg News