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US Government Increases FY2011 Sugar Quota

Published Tuesday, 12th April 2011 04:36 am - © 2011 Dow Jones


(Adds industrial sugar users' reaction in seventh paragraph and background throughout.)

By Leslie Josephs

Of Dow Jones NEWSWIRES

NEW YORK -(Dow Jones)- The U.S. government raised its sugar import quota Monday for the first time this season to counter shortfalls caused by record cold that blasted through Florida's cane-growing areas late last year.

The U.S. needs to import sugar every year, but the Department of Agriculture operates a limit for low-tariff or duty-free imported sugar to protect domestic producers.

The USDA said Monday that it is increasing the quota by 325,000 short tons.

"The net quantity will offset the domestic raw sugar production lost because of the January 2011 Florida freezes, as estimated by Florida processors' reports to the USDA during the January-March 2011 period," the USDA said in a statement.

Every year, the U.S. Department of Agriculture sets a tariff rate quota that allows in 1,231,497 tons of imported sugar--a minimum set in a World Trade Organization agreement--and then monitors domestic supply and demand to see if that quota should be increased. The USDA is bound by Congress not to raise the quota before April 1. Tight supplies in the U.S. forced the USDA to increase the quota twice last year.

Pinched by the higher costs for the sweetener, industrial sugar users have been petitioning the government to raise the quota.

"This action will provide additional sugar to a domestic market that needs it badly, but we believe that additional quota increases will be necessary to ensure adequate supplies," said the Sweetener Users Association in a statement.

USDA data show that while U.S. raw-sugar futures prices from 1989 to 2009 hovered around the 20-cent mark per pound, they surged in 2010 as world raw-sugar prices rose. As a result, U.S. sugar manufacturers raised their prices. U.S. raw sugar futures recently traded at a 12.5-cent premium to global sugar prices on IntercontinentalExchange.

Some industry groups are lobbying for the government to scrap the quota system entirely, arguing that it denies them access to cheaper, global sugar.

Several lawmakers this year have introduced bills to do away with the sugar quota program. Most recently, Sen. Richard Lugar (R, Ind.) unveiled the "Free Sugar Act of 2011," a bill supported by large industrial food makers, including Kraft Foods Inc. (KFT).

-By Leslie Josephs, Dow Jones Newswires; 212-416-4055; leslie.josephs@dowjones.com

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