A new approach to sugar is needed in the US to avoid the continuing cost pressures on the industry, the United States Department of Agriculture (USDA) said in a report last week.
The report said that US sugar manufacturers are uncompetitive in the domestic and import markets due to the high prices of US sugar. The report fingers US sugar policy as the main culprit.
"The US sugar programme uses domestic marketing allotments, price supports and tariff-rate quotas to influence the amount of sugar available to the US market," said researchers Stephen Haley and Mir Ali in the report. "The programme's effect has been to support US prices of sugar at levels above world market levels."
They also said the US sugar programme's effectiveness will be challenged in 2008 when the sweetener restrictions with Mexico are removed under the North American Free Trade Agreement.
The sugar policy has also been put under pressure from the high petroleum prices and growing demand for ethanol, causing higher production costs for sugar producers.
However, it said the high petroleum prices has also helped to balance the world sugar prices.
This comes as the Food and Agriculture Organisation (FAO) announced a rising global demand for sugar, which is set to be met by an increase in production. This, it said, will lead to a more stable market and prices.
Sugar deliveries to US food manufacturers peaked in 1999 at 5.63m tonnes and fell to 5m tonnes in 2003. The report said deliveries have resumed their growth, but in 2005 were still 200,000 tonnes below their level in 1999.
It noted particularly strong growth in sugar demand has taken place within non-chocolate confectioneries.
The report suggests the higher world sugar prices may mean higher US domestic prices due to the dependency of the US on imports.
The FAO report said sugar exports are expected to rise from Mexico to the US next year due to the elimination of the trade restrictions under NAFTA. However, the report suggests the rise in demand will reduce Mexico's exportable surplus.
The US produced 7.5m tonnes of sugar in 2004, making it the fifth largest sugar producer in the world after China, India, Western Europe and Brazil.
The USDA report said that the US also has the world's largest corn-based sweetener industry, and so if this production is added to the sugar total, US production of the combined sweeteners would be 16.4m tonnes.
Sugar accounted for only 2.4 per cent of the US crops in 2004, with a value of $1.93bn (€1.4bn).
It said US cane costs of production are twice as high as the world's lowest cost of producers, and is estimated to be higher than the production-weighted world average of all cane-producing countries.
However, the US is the fourth largest importer of sugar in the world after the Middle East, Russian Federation and Western Europe, having imported 1.6m tonnes in 2004. The report said sugar imports into the US are likely to increase, particularly due to the trade agreement with Mexico.
Lower demand and strong domestic production meant from 2000 to 2007, not including 2006, import share of consumption averaged 12.8 per cent. This is compared to the 17.3 to 17.8 per cent import share reported through the 1990s due to higher demand.
The US, however, had to increase imports by 64 per cent in 2006 from that of 2005 due to hurricane damage in various regions, according to the report.