Sugar producers try to sweeten CAFTA with ethanol subsidy

As the Senate prepared to vote on the Central America Free Trade Agreement (CAFTA), the sugar lobby proposed a sweet deal for itself.

To compensate for more sugar imports, both from CAFTA and the North American Free Trade Agreement, lobbyists suggested in negotiations with the administration that the industry get an extra $1-per-gallon subsidy to make sugar-based ethanol. The extra help would have been in addition to the current 51 cents ethanol-subsidy blenders now receive.

The ethanol deal would have made CAFTA palatable, said Phillip Hayes of the American Sugar Alliance, an umbrella group of sugar growers and refiners.

“We said it would take care of NAFTA, CAFTA and the ever-afta,” Hayes said, referring to the decade-old North American Free Trade Agreement, whose sugar provissions are only about to kick in.

Production of sugar-based ethanol would have been capped at 100 million gallons, for a total cost to the U.S. Treasury of $100 million a year, under the deal. That cost was too bitter a pill for the administration to swallow, however, and it rejected the plan to the relief of another powerful Washington lobby: corn growers, who now dominate the American ethanol industry.

Lawmakers from states with a big sugar presence — be it from beets or cane — are continuing to fight for sugar-based ethanol, however, as supporters of the free-trade pact scramble for votes in the House for CAFTA.

Sen. Bill Nelson of Florida, who supported CAFTA despite reservations about its impact on his state’s sugar industry, urged conferees to the energy bill to include the 100-million-gallon mandate for sugar ethanol.

“Sugar cane stalks, or bagasse, produce almost twice as much ethanol per acre as corn, and several countries use sugar-based ethanol to fuel their motor vehicles,” Nelson wrote in a June 30 letter.

“Specifying that 100 million gallons of sugar-based ethanol be required as part of the overall ethanol motor vehicle program would be an important step towards decreasing our use of fossil fuel and increasing our use of renewable fuels.”

The Senate energy bill, passed with broad bipartisan support, already includes federal loan guarantees to build plants to produce ethanol from cellulosic biomass or cane sugar. And it includes a mandate for ethanol production to reach 8 billion gallons a year by 2012.

An amendment accepted during floor debate added the requirement that 250 million gallons of the 8 billion target come from cellulosic biomass by 2015 to the Senate bill.

But Rep. Mark Foley (R-Fla.), whose district is home to sugar growers and refiners, has reportedly sought a stronger sugar-ethanol program as he weighs his decision on whether to support CAFTA.

Countries such as Brazil have embraced sugar-based ethanol, which accounts for 40 percent of the fuel Brazilians pump into their gas tanks. But sugar is less expensive in that country than in the United States, where critics contend import quotas artificially raise sugar prices. The industry should not get both trade protections and a subsidy to make sugar-ethanol competitive, critics said.

“You get into a bidding war. If you give sugar $1 a gallon, what about the guys who make ethanol out of wheat or barley?” one lobbyist for the corn industry said.
Though the administration rejected the expansion of the ethanol subsidy, it did seek to delay the impact of CAFTA on sugar farmers.

There are three points to the agreement negotiated with the administration. Sugar imports cannot exceed the limit, 1.5 million tons, set by the 2002 farm bill, which will likely extend through 2007.

The U.S. Department of Agriculture will purchase CAFTA sugar that exceeds that limit to produce ethanol under the agreement. And the department will also conduct a feasibility study on sugar-based ethanol.

“I do believe that this proposal offered by [Agriculture] Secretary [Mike] Johanns and the administration is the best-case scenario for Florida’s sugar producers,” said Sen. Mel Martinez, a Florida Republican who, like Nelson, voted for the free-trade deal despite sugar’s lobbying efforts.

Republican senators from Western states with large sugar-beet farms weren’t convinced, however. Larry Craig and Mike Crapo of Idaho and Mike Enzi and Craig Thomas of Wyoming voted no on CAFTA.

Hayes, of the Sugar Alliance, said the industry is “staring down the barrel of a gun.”

The industry now believes that no acceptable deal is in the offing and is lobbying to defeat the free-trade pact in the House.