By Sara Schumacher and Michael Boland, Kansas State University; and Gary Brester, Montana State University.

Revised September 2011 by Diane Huntrods, AgMRC, Iowa State University.
 

Overview
Sugar is only one type of sweetener. The other types of caloric sweeteners include corn syrup, honey and other edible syrups like sorghum. In the United States, the most frequently consumed sweeteners are sugar and high-fructose corn syrup (HFCS).

Sugar, or sucrose, is a carbohydrate that occurs naturally in every fruit and vegetable. It is the major product of photosynthesis, the process by which plants transform solar energy into food. Two plants that produce large amounts of sugar from this process are sugarcane and sugarbeets. Refined sugar from each of these plants is indistinguishable.

Demand
Two types of HFCS, HFCS-42 and HFCS-55, are substitutes for refined sugar in certain applications. HFCS-42 is used by the beverage industry (42 percent), processed food manufacturers (21 percent), the cereal and baker industry (13 percent), multiple use food manufacturers (13 percent), the dairy industry (7 percent) and the confectionery industry (1 percent) (ERS, USDA). Around 90 percent of HFCS-55 is used by the beverage industry.

In 2010, per person refined sugar (cane + beet) consumption totaled 45.3 pounds per year, and per person HFCS consumption totaled 35.7 pounds per year. Refined sugar consumption peaked at 72.8 pounds per person in 1972, and HFCS consumption peaked at 45.4 pounds per person in 1999. According to the USDA, recent increases in sugar demand have been offset by decreases in demand for HFCS. However, the total number of deliveries has remained the same. Part of the reason for increased substitution has been high prices for corn sweeteners.  (ERS)

Marketing
The two primary markets for refined sugar are industrial and non-industrial. Industrial market segments include baker and cereal, confectionery (candy), other food uses, dairy (primarily ice cream), beverage and other non-food uses. This market has grown slowly over time. Non-industrial market segments include wholesalers, retailers, other non-industrial uses and hotels, restaurants and institutions. Similar to the industrial market, this market has grown slowly over time (ERS).

Between 1982 and 1996, domestic sugar production was supply controlled through the use of marketing allotments. The 1996 Federal Agriculture Improvement and Reform (FAIR) Act removed these allotments. However, the 2002 Farm Security and Rural Investment Act (FSRI) Act reinstated allotments. Beet sugar is allotted 54.35 percent of expected domestic consumption and cane sugar is allotted 45.65 percent. Sugarbeet processors are assigned allotments based on their sugar production for the 1998-2000 crop years.

Four producer-owned firms dominate the sugar processing industry: American Crystal Sugar Company (37 percent marketing allotment in 2002), Amalgamated Sugar (22 percent), Western Sugar Company (10 percent) and Holly Sugar (7 percent). Sugar beet processors contract with sugar beet producers based on processor allotments. These allotments are adjusted annually.

Supply
Sugarbeets are one of the leading raw materials for the production of manufactured sugar in the United States. They are grown in three primary regions: Upper Midwest (Michigan, Minnesota and North Dakota), Great Plains (Colorado, Montana, Nebraska and Wyoming) and the Far West (California, Idaho, Oregon and Washington). Sugarbeets are grown in the early spring and harvested in late September and October in the Midwest. Sugarbeet yields tend to be higher in the Far West, but production costs tend to be higher as well.

Total sugarbeet production in the United States reached 31.9 million tons in 2010. Minnesota is generally the leading producer of sugarbeets, followed by North Dakota and Idaho. In 2010, Minnesota produced 11.8 million tons of sugarbeets, or 37 percent, of the total crop. North Dakota produced 5.7 million tons and Idaho produced 5.3 million tons.  (NASS 2011)

California is unique in terms of production because sugarbeets are planted every month of the year except July and August. Because of storage losses associated with warm temperatures and given that the ground never freezes in California sugarbeet regions, sugarbeet harvests are scheduled to meet the processing needs of processing facilities. California produced more than 1.0 million tons of sugarbeets in 2010.  (NASS 2011)

The total amount of refined sugar (beet + cane) produced in 2010 was more than 7.9 million tons, slightly less sugar than in 2009. Of that amount, 4.8 million tons, or 60.4 percent, were beet sugar.  (ERS) 
 
Production
Sugarbeets are similar to red beets in shape but have a larger white root and are inedible when harvested. They are susceptible to numerous diseases and pests. The sucrose percentage of a sugarbeet varies, depending on the variety, crop management practices such as timing of nitrogen fertilizer application, moisture and harvest conditions. The value of a sugarbeet crop depends on the sucrose percentage in the sugarbeet, and producers are generally compensated for the amount of sugar (as opposed to tons of sugarbeets) delivered to processing facilities.

Sugarbeets are a root crop that require specialized cultivation and harvesting equipment. Sugarbeets grown in northern climates must be harvested before the soil freezes. In these areas, sugarbeets are piled at receiving stations in the fall for later transport to processing facilities. Once a sugarbeet is harvested, the plant begins to burn sucrose as it decays and the sucrose percentage declines. Sugarbeets in these areas are typically processed over a 6-month period.
 
Production Contracts
The three general contract types used in sugarbeet production are: Western, Eastern and extractable sugar (Hueth and Melkonyan 2004). Under a Western contract, growers are paid according to raw sugar content of the sugarbeets delivered to the processor, adjusted by a fixed sugar extraction rate. Under an Eastern contract, growers are paid a fixed share of gross revenues from sugar and sugar byproducts, less adjustment for marketing costs and storage losses. Implicitly, extractable sugar is the basis for an Eastern contract. Under an extractable sugar contract, growers are paid according to the amount of sugar extracted from sugarbeets rather than raw sugar content. An important distinction among these contract types is that the Western contract does not address extractable sugar, the Eastern contract does so indirectly (by using the less valuable byproduct sales as one determinant of revenue) and extractable sugar contracts do so explicitly.

Processing
During the refining process, sugar stored in beet roots is separated from the rest of the plant material. Sugarbeets are washed, sliced and soaked in hot water to remove sugar-containing juices. The juice is purified, filtered, concentrated and dried in a series of steps to create refined sugar. Byproducts created in this process include molasses and beet pulp. Sugar is, by far, the most valuable product.

From a processor’s perspective, therefore, the goal is to maximize the amount of sugar extracted from sugarbeets. Because sugar content in beet roots deteriorates once sugarbeets are harvested, it is important to process sugarbeets as quickly as possible. However, as long as temperatures remain below freezing, the sucrose content of beets piled and stored outside remains fairly constant. In milder climates or years, unprotected piles of sugarbeets experience cycles of freezing and thawing and are subject to deterioration. Processors use several storage techniques to reduce spoilage of stored sugarbeets, including the use of ventilation tunnels constructed in sugarbeet piles. Some processors also have built storage facilities to extend the sugarbeet storage period.

Sugarbeet processing results in a variety of byproducts used primarily in pet foods, in bakers yeast and as a milk enhancer. Beet molasses is included in animal feed, alcohol, beverages, bakery goods and pharmaceuticals. Recently, sugarbeet molasses was being tested in Ohio and in Washington, D.C. as a green alternative to conventional road deicer. Beet pulp can also be used in animal feed as well as further processed into fiber.   

The ownership of sugarbeet processing plants is dominated by grower-owned cooperatives, which increased from 18 percent in 1977 to 89 percent at the end of 2002. During the same period, the number of sugarbeet processing plants in the United States fell by 46 percent. Of the 27 remaining sugarbeet plants in the United States, 24 are producer-owned cooperatives. The remaining 11 percent consist of three plants, two in California (Holly Sugar) and one in Michigan (Monitor Sugar). The movement to increased use of cooperative-owned processing suggests that extractable contracts may become more prevalent. In addition, the development of cooperative ownership has implications for the bearing of risk. In a cooperative setting, growers have an increase in risk from losses that occur after harvest and from price fluctuations.
 
U.S. Sugar Policy
FSRIA established a processor nonrecourse loan program. Under a nonrecourse loan program, the Commodity Credit Corporation (CCC) of USDA has no recourse in the eventuality of loan default by the processor; the sugar is simply forfeited to the government in full repayment of the loan at maturity. FSRIA also requires that USDA operate the sugar program at no net cost to the government. In practice, this means that USDA should strive to avoid loan forfeitures, as occurred in 2000 in response to 14-year lows in domestic sugar prices. Increasing domestic sugar production has made it difficult for the United States to maintain its sugar import access commitments negotiated under the WTO without severely depressing domestic sugar prices and causing forfeitures. 

FSRIA provided USDA with two ways to control U.S. sugar production. The first is the establishment of a payment-in-kind (PIK) program for sugar. This program allows the USDA to offer CCC sugar inventory to sugarcane and sugar beet processors in exchange for reducing production. The second is the reinstatement of processor marketing allotments, similar to the allotments in effect during the 1990s. The total quantity of sugar to be allocated in any given crop year is determined by subtracting 1.532 million tons (for tariff-rate quote sugar imports) and beginning stocks for USDA’s estimate of domestic sugar consumption and carryover stocks.

The United States establishes separate tariff-rate quotas (TRQs) for imports of raw cane sugar and for imports of certain other sugars, syrups and molasses. A TRQ is a two-tiered tariff in which the tariff rate charged depends on the volume of imports. A lower (in-quota) tariff is charged on imports within the quota volume. A higher (over-quota) tariff is charged on imports in excess of the quota volume. Each year, the Secretary of Agriculture announces the quantity of sugar that may be imported at a nominal tariff rate. Any additional annual quantity may be imported at a higher tariff rate. The United States has agreed to make a minimum quantity (1.256 million ton, raw value) of raw and refined sugar available for import each marketing year (October to September). Included in this amount is a commitment to import at least 24,251 ton, raw value of refined sugar.

The raw cane sugar TRQ is allocated to 40 countries based on a representative period (1975-81) when trade was relatively unrestricted. An additional allocation is made available to Mexico to satisfy U.S. obligations under the North American Free Trade Agreement (NAFTA). The refined sugar tariff rate quota includes several components, including specific allocations to Canada and Mexico, and a quantity of refined sugar that is available to all countries on a first-come, first-served basis. 

The United States also operates two re-export programs to help U.S. sugar refiners and manufacturers of sugar-containing products compete in world markets. The NAFTA also contains sugar provisions that provided Mexico with limited duty-free access to the U.S. raw cane sugar market.
 
Competitiveness
Since HFCS is a suitable substitute for refined sugar in certain applications, its price plays a role in the demand for sugar. The demand for HFCS is a derived demand by the products that use the syrups as inputs. As previously explained, since HFCS has an inherent cost advantage, food manufacturers have switched from sugar to HFCS in their manufacturing process. High-fructose corn syrup is one of several products derived from the wet milling of domestically produced corn. Corn refiners produce HFCS by first converting corn starch to a syrup that is nearly all dextrose. Further processing the syrup results in a 42 percent fructose syrup called HFCS-42, which is used by the beverage industry and food manufacturers. Further processing of 42-HFCS-42 results in two other syrups: 90 percent HFCS (which is used in natural and “light” foods where very little is needed to provide sweetness) and HFCS-55 (which is primarily used by the beverage industry).

The HFCS industry is dominated by five companies: Archer Daniels Midland (ADM) Company, Tate and Lyle, Cargill, Corn Products Company (CPC) International and American Maize. This industry is highly concentrated by large grain merchandising firms who are vertically integrated because they own grain-handling assets such as grain elevators, rail cars and barges.

Exports and Imports
U.S. exports of refined sugar (beet + cane) totaled 136,000 metric tons (MT) in 2009. Mexico and Canada were the top destinations for U.S. sugar.  (ERS 2010)
  
The United States is the world’s largest importer of refined sugar. From 1980 to 2004, the nation imported an average of 2.5 million tons. However, U.S. sugar imports have declined significantly compared to import levels prior to 1980, which averaged 5.3 million tons from 1960 to 1979. Imports totaled 2.3 million MT in 2009. Mexico supplies more than 30 percent of the sugar imported into the United States, followed by Guatemala and Canada.  (ERS 2010)

Outlook
U.S. sugar producers and processors face increasing import competition. No duties or restraints remain in effect for either Mexican sugar shipments to the United States or U.S. HFCS shipments to Mexico. In addition, Mexico’s over-quota tariff on U.S. sugar was eliminated, as required by the North American Free Trade Agreement (NAFTA).

Sugar imports will likely increase as a result of other free trade agreements, such as the Dominican Republic and Central American Free Trade Agreement (DR/CAFTA). The Doha round of the World Trade Organization's multilateral trade negotiations could also eventually result in more foreign sugar gaining access to the U.S. market.

The  2008 Farm Bill creates a program to divert sugar into ethanol production if government stocks are likely to accumulate. The Food and Ag Policy Research Institute at the University of Missouri (2009) says no sugar will be used for ethanol production unless sugar supplies are unusually large or sugar demand is unusually weak.  
            

Sources
Brester, G. and M.A. Boland, “The Rocky Mountain Sugar Growers Cooperative: Sweet or Sugar-Coated Visions of the Future,” Review of Agricultural Economics, 2004.

Crop Production 2010 Summary, National Ag Statistics Service, USDA, 2011.

Global Agricultural Trade System (GATS), Foreign Ag Service, USDA, 2010.

Hueth, B. and T. Melkonyan, “Quality Measurement and Contract Design: Lessons from the North American Sugar Beet Industry,” University of Wisconsin, 2004 - This paper examines contracts used in the U.S. sugarbeet industry. The authors found that processors use different quality measures to determine contract payments to growers.

Sugar, U.S. Baseline Briefing Book, Food and Ag Policy Research Institute (FAPRI), University of Missouri, 2011.

Sugars and Sweeteners, Economic Research Service (ERS), USDA.

Sugar and Sweeteners Outlook, ERS, USDA.

Sugar and Sweeteners Yearbook 2008, ERS, USDA, 2009.