Craig Gustafson | Star Tribune
WASHINGTON, D.C. -- Last year, when sugar prices hit a 22-year low, the federal government paid Jay and Carl Nord to destroy 40 acres of their sugar beet crops.
The Wolverton, Minn., farmers blame their woes on the nation's free-trade policies: When Congress passed the North American Free Trade Agreement (NAFTA) in 1993, it opened the door for more sugar imports from Mexico, and now the United States faces a glut of sugar that threatens to collapse the industry.
"It's sinking all of us," said Jay Nord, who farms 660 acres of land with his brother.
Seeking a bold fix, sugar producers are asking Congress to renegotiate the historic free-trade agreement, a pact that the industry once supported. But those prospects appear dim.
"There's no other support to do this, other than in the sugar industry," said Rep. Collin Peterson, D-Minn., a member of the House Agriculture Committee. "I fought so hard against NAFTA because this is exactly what I was afraid of. ... Sure it's hurting them, but my question is why they supported NAFTA in the first place."
In Minnesota, the nation's top sugar beet producer, the stakes are high:
The state's $1.2 billion sugar industry supports more than 10,000 jobs, with three companies processing roughly 40 percent of the U.S. sugar beet supply.
Supporters of free trade aren't too sympathetic.
"If the domestic sugar industry is feeling the pain from imports, tough," said Jerry Taylor of the Cato Institute in Washington, D.C., a libertarian foundation that favors free markets and limited government. "We have a free-market economy for a reason." He said the government "shouldn't be in the business of propping up uncompetitive industries."
Ken Cook, president of the Washington-based Environmental Working Group, a longtime critic of agricultural subsidies, said the industry brought the problem on itself by getting what it asked for in the first place: free trade.
"When it comes back to bite them, they're the first to go to the government and say you've got to fix it," Cook said.
Sugar industry leaders disagree, saying they were duped into supporting NAFTA.
"Our trade people always are assuming the other country is going to do what's good for everybody, and that's not the case," Nord said. "The other countries are going to do what's best for them."
Sugar leaders recently took their plight to the House Agriculture Committee, asking Congress to tighten trade laws as Congress begins deliberations on the 2002 farm bill.
"We're treading on some very uncertain times right now," said Mark Weber, executive director of the Red River Valley Sugarbeet Association.
The dilemma
Under NAFTA, the United States is required to accept 250,000 metric tons of sugar from Mexico tariff-free beginning this year. Sugar accepted beyond that is charged with a fee, which decreases each year until 2008, when no-holds-barred free trade between the two countries goes into effect.
Industry experts are afraid that government subsidies could lead to Mexican sugar becoming cheaper to buy than U.S. sugar, despite the import tax.
"It's getting close. ... We're near that type of break-even point," Weber said. As much as a million tons could then be dumped on the U.S. market, leaving a large chunk of domestic sugar with no place to go, he said.
Buoyed by a U.S. price support system, domestically produced raw sugar sells for about 21 cents a pound. The market price for foreign sugar is less than half of that.
As a member of the World Trade Organization, the United States also has agreed to annual imports of 1.25 million metric tons of sugar from the rest of the world.
The imports, coupled with increased production on the domestic side, has caused a surplus. To combat the sugar glut, Minnesota's more than 2,500 sugar growers plowed under more than 36,000 acres last year. Under a federal program, they were paid with money from surplus sugar in exchange for destroying some of their current crops. Peterson said a similar plan will likely be used this year.
Weber said the federal program demonstrates why the problem with Mexico needs to be fixed.
"We don't need one more spoonful of sugar -- period," Weber said. "Any extra sugar coming in is causing even greater problems for our producers."
Peterson said that while he sympathizes with the industry he doesn't see how the trade agreement can be reworked.
"I just don't see where you get any leverage to change things at this point," he said.
Rep. Gil Gutknecht, R-Minn., another member of the House Agriculture Committee, said that other countries are circumventing trade laws in creative ways and have changed the equation since NAFTA was approved.
"Just because you support NAFTA doesn't mean you support unfair trading practices," he said.
'Upside is gone'
In Minnesota, roughly half of the growers are losing money, while the rest barely break even, according to industry officials.
Even though a rewrite of NAFTA is unlikely, members of Congress are scrambling to do something.
In February, Peterson and Sen. Mark Dayton, D-Minn., toured the American Crystal Sugar Co. plant in East Grand Forks, Minn.
Dayton co-sponsored a bill to plug a loophole involving "stuffed molasses," a sugarladen syrup that comes from Canada. Since there is no tariff on molasses, companies mix sugar, molasses and water together and ship it into the United States.
"They spin out the molasses, and they've got sugar left," said Jim Horvath, president of American Crystal, whose farmers work 500,000 acres of the Red River Valley. "They're able to do that for less than the cost of producing the sugar domestically."
Peterson, whose sprawling district in northwestern Minnesota encompasses many agricultural concerns, believes that free trade has turned agriculture into "a nonprofitable enterprise."
"The last thing I had in my district that made money was sugar and now that's not profitable," Peterson said. "In just about every case, the culprit is these trade agreements."
Farmer Jay Nord, whose family has owned their Wolverton farm since 1887, agrees with his congressman.
"There's too much sugar coming in and the market knows that," he said. "Why pay for our sugar when you can get cheaper sugar somewhere else?"
Despite the low prices, Nord said that he has no plans to leave the business. He said that the allure of sugar crops always has been the high-risk, high-reward gamble.
"The downside is still there, but the upside is gone," he said. "At least with wheat you can farm it pretty cheap and hopefully not lose too much."
-- Craig Gustafson is atintern@mcclatchydc.comCraig Gustafson:
