American sugar producers, sour over a change in Reagan administration policy, apparently are preparing to turn over large amounts of "surplus" sugar to the government and walk away with tasty extra profits.
Hawaiian growers, reportedly buying Filipino sugar to meet their contracts, already have announced plans to put at least 30,000 tons of their own "surplus" sugar crop under loan with the U.S. Department of Agriculture (USDA) this year.
The Hawaiians would stand to make close to $1 million extra if, within the next six months, market prices have not risen significantly and they decide to forfeit their crop collateral.
Other growers are expected to follow the Hawaiians and put their sugar on loan to the government, a move that could send USDA crop-support costs soaring again and renew debate over the controversial sugar program designed to keep domestic prices high.
The program was not supposed to work this way.
Congress, the industry and the administration agreed during the 1981 farm bill debate that a new sugar-support program was needed to insulate the U.S. industry from lower-cost imports. The government would keep the price of sugar high by putting duties, fees and quotas on imports.
And, while that meant more costs for consumers, it also meant government costs would be nil by keeping prices high enough to avoid loan forfeitures by growers participating in the support program.
But the picture changed drastically earlier this year when the White House, in a political gesture to U.S. allies that depend heavily on sugar sales, increased the import quotas in a move that assured more sugar would come into a saturated sweetener market.
Florida growers cited the quota decision as they forfeited about $100 million worth of sugar to the government. The USDA, angry over the forfeiture, accused them of reneging on an agreement to redeem the loan and rejected a contract bid by the Floridians to store the sugar they had just dumped on the government.
The new move by the Hawaiian growers is seen by some trade analysts as a prelude to a series of sugar deliveries to the government that feature a different twist -- filling contracts with foreign sugar and putting the "surplus" homegrown sugar into the loan program.
That could clear the way for the producers -- their contracts met with foreign sugar -- to forfeit the loans and clear about 18 cents per pound with no interest or additional charges. If the loans were redeemed, the growers would have to repay with interest and pay the cost of getting the sugar to market -- a total of roughly 3 cents per pound.
"It is happening, and it is being talked about in the market, but the question is how much it is happening," said one New York trading expert. "Domestic producers may find it more economical to leave their sugar in the loan program than to redeem the loan."
USDA officials said they could not provide additional details about the possibility of large amounts of sugar going under loan. But an aide to Secretary John R. Block said, "It doesn't surprise me if this is going on . . . . It shows again how illogical the whole program is."
Eiler C. Ravnholt, vice president and Washington representative of the Hawaiian Sugar Planters' Association, acknowledged that the Hawaiians intend to put sugar into the loan program. But he said the surplus problem had been caused by the White House decision to allow more imports this year than the domestic market will bear.
"Some might feel that buying world sugar and putting their own on loan might be using the program to their advantage," he said of the Hawaiian move. "Congress and the industry intended that the sugar-support program be operated without cost, but the administration made a conscious decision not to operate it without cost by setting an import quota level that was excessive and that exceeded demand."
Luis Mendoza, a Merrill Lynch sugar specialist, said, "The government expected this to happen, because the quota was made too large for political reasons . . . . If all the foreign sugar comes in that the quota allows, we will have about a 600,000-ton excess -- which means that much domestic sugar will have to go into the loan program."
Such large-scale loan acquisitions could send storage costs soaring and balloon the USDA's already-large commodity storage and sales budget.
After a lapse of several years, the sugar program was resurrected in the 1981 farm bill. The administration opposed the program but switched after sugar-state legislators promised to support President Reagan's budget-cutting proposals.
Now, as Congress debates a new farm bill, the administration and consumer groups again oppose the program. The final House version retains it, freezing the support loan at 18 cents through 1989.