ROBERT SIEGEL, HOST:
In the U.S., raw sugar can cost as much as twice the world average. Why that is relates to the federal government's sugar policy. There is a subsidy which helps to inflate prices. Even so, this year, the cost of sugar fell unexpectedly.
Now, as NPR's Dan Bobkoff reports, the government is considering using taxpayer dollars to prop prices back up.
DAN BOBKOFF, BYLINE: American sugar starts where you'd expect, in a field like Gary Gravois' in Napoleonville, Louisiana. He grows sugarcane.
GARY GRAVOIS: It's just something in the culture of South Louisiana. If you're a farmer, that's pretty much what you do.
BOBKOFF: And in the end, it might end up in a jelly bean. Bob Simpson is president of Jelly Belly in California.
BOB SIMPSON: Well, its 40 percent of the product and it's the most expensive ingredient.
BOBKOFF: And why that sugar costs what it does is complicated; a combination of import restrictions, production quotas and a kind of guaranteed price.
CHRIS EDWARDS: The U.S. sugar system is essentially a Soviet-style control on production.
BOBKOFF: Chris Edwards is an economist at the Cato Institute. The effect of these policies, he says, is that U.S. sugar prices normally remain artificially high; sometimes twice the world price, hurting food companies and leading to higher prices at the supermarket.
EDWARDS: The core goal of policymakers has been to push up U.S. sugar prices to the benefit of U.S. sugar growers.
BOBKOFF: A big part of this policy is a sweet loan program for the processors that refine sugar. To pay growers like Gravois right away, processors can take out government loans. The sugar itself is the collateral. This leads to an interesting choice. If sugar prices go up, processors sell it on the open market and make a profit. If prices fall, they can just hand over their sugar to the government and keep the loan money.
Joe Glauber is chief economist at the U.S. Department of Agriculture. He says the program is supposed to run at no cost to taxpayers.
JOE GLAUBER: The loans are typically repaid in most years.
BOBKOFF: But that could change this year. Even with all those import restrictions and price supports, sugar prices fell. Farmers like Gravois produced a lot more than expected.
GRAVOIS: Last year was the best crop we ever made.
BOBKOFF: That's why processors might now be tempted to forfeit their sugar to the government instead of selling it. This is where your tax dollars come in. The government is considering buying that surplus sugar directly from processors, and then selling it at a loss to companies that make ethanol. That would take some of the surplus off the market, making processors more profitable, but taxpayers could be on the hook for millions of dollars.
If all this sounds a little crazy, don't blame the USDA. Glauber says the agency just administers what Congress sets in the Farm Bill.
GLAUBER: It's been a program that supports a lot of sugar producers and I think has had a lot of support in Congress over the years.
BOBKOFF: In fact, import tariffs on sugar date back to 1789. Other provisions have origins in the Great Depression. Sugar policy has been so contentious for so long that the two sides have derisive nicknames for each other it's Big Sugar versus Big Candy.
Representing Big Candy, Bob Simpson from Jelly Belly, who also chairs the National Confectioners Association.
SIMPSON: We'd just like them to compete on a fair, open market without the intrusion of the federal government.
BOBKOFF: He says Jelly Belly opened a plant in Thailand, partly to get cheaper sugar for markets overseas.
Defending Big Sugar is Jack Roney of the American Sugar Alliance.
JACK RONEY: Oh, there's really no reason for contention about U.S. sugar policy. It's the most successful of any U.S. commodity policy.
BOBKOFF: He says in most years this program costs taxpayers nothing, unlike other farm supports. And he blames falling prices on Mexican imports which, under the NAFTA, are not controlled by tariffs. All that talk about higher food prices, he says this is really about food companies lobbying to get sugar prices down.
RONEY: Is that out of some altruistic desire to help consumers? Well, no. It's so that they can increase profits.
BOBKOFF: He says ditching the sugar support would put thousands of jobs at risk.
But opposition to the sugar policy has brought together an unusual alliance of libertarian conservatives, environmentalists, food companies and lawmakers from both parties. The government has about six months to decide whether to buy excess sugar using our dollars.
Dan Bobkoff, NPR News.