Pricey holiday sweets? Why sugar outpaces grocery inflation.

With five trucks and a tractor to his left and a sea of leafy green before him, Dean Haubenstricker lines up his harvester and starts it forward. The high-tech machine digs up brown sugar beets, lops off their tops, and conveys them to an onboard storage bin. 

Mr. Haubenstricker’s son Josh arrives alongside with the tractor and a trailer, allowing his father to discharge his beets even as he continues to harvest, and then shuttles them to a waiting truck, which whisks them off to storage. It’s as elegant and efficient a harvest as one will see in American industrial agriculture.

And this harvest, Mr. Haubenstricker’s 41st, might be his best ever. “The combination of having a little better sugar in the beets and the price outlook looks very good,” he says.

But what looks great from America’s sugar beet fields seems far less positive in the nation’s grocery aisles. At a time when overall food inflation is decelerating, sugar prices continue to rise at a stubbornly high rate. That’s helping to boost the price of sweets – from Christmas chocolates to Girl Scout cookies – and many other foods that use sweeteners. And it’s focusing a harsh light on a federal sugar program that Congress has to reauthorize as part of an overall farm bill.

A key issue is fairness. How far should the federal government go to support farmers’ income if that causes consumers to pay more for food? That tension, inherent in many commodity programs, runs especially high in the sugar program, which goes to great lengths to protect farmers by keeping prices above world market levels. A global squeeze in sugar supplies is pushing prices even higher at a time when consumers and voters are especially sensitive about food inflation.

“There’s a lot of fresh thinking and perspective on this that comes with the inflationary environment,” says Grant Colvin, executive director of the Alliance for Fair Sugar Policy, a broad coalition of industrial and family-owned sugar-using companies and other groups opposed to the sugar program. “But really, what I think captured the imagination of a lot of folks is the unique supply challenges that we’re facing now.”

Tight global market

The tightness in sugar supplies is global. Dryness in key exporting nations has cut into world stocks and caused sugar prices to soar. While some developing nations are having to do without, rich nations, including the United States, are paying more for the sweetener.

When prices for U.S. sugar and substitutes soared more than 11% last year, complaints were muted because prices for all food at home (groceries) rose at a nearly identical rate. But now prices for sugar and sweets (a slightly different category) are expected to jump another 9%, according to the U.S. Department of Agriculture, even as overall inflation at the grocery store has slowed to less than half of last year’s level.

Those price increases make the sugar program stand out – and not in a good way. Unlike most major commodity programs, which rely on taxpayer-financed insurance and other measures to protect farmers from bad years or plummeting prices, the sugar program hits consumer pocketbooks directly. 

An October report by the U.S. Government Accountability Office (GAO) cites studies suggesting the program costs consumers $2.5 billion to $3.5 billion per year in higher prices. That inflation doesn’t just show up in 4-pound bags of sugar on the grocery shelf. “It’s also peanut butter and cereal, and it’s salad dressing and tomato sauce,” says Mr. Colvin of the Alliance for Fair Sugar Policy. 

The program does benefit farmers to the tune of $1.4 billion to $2.7 billion per year, the GAO found. But that’s still a net cost of about $1 billion a year to the U.S. economy. The GAO mentions other studies that show high prices cause job loss in American industries. Confectioners, for example, last year had to contend with prices that were twice the world price for sugar.

In previous reauthorizations of the farm bill, sugar-using companies have tried to kill the sugar program because it strictly limits how much each sugar farmer can produce and how much each sugar-producing nation can sell into the U.S. market. But ditching it completely would put American farmers like Mr. Haubenstricker at the mercy of a global marketplace where many developing nations can produce sugar for less and many industrialized nations also protect their sugar producers.

Farmers got a taste of that marketplace after 2008 when Mexico, under the North American Free Trade Agreement, won the right to sell unlimited amounts of sugar into the U.S. Over the next six years, Mexican sugar flooded in and prices eventually swooned. The premium that American beet and cane farmers had enjoyed over the world market for raw sugar narrowed from an average 11.7 cents a pound to 8.4 cents, according to the GAO.

By 2013, Mexican imports “sunk our price and drove the Hawaiian [sugar cane] industry and a lot of other people out of business,” Rob Johansson, director of economics and policy analysis at the American Sugar Alliance, wrote in an emailed statement.

A year later, Mexico agreed to limit its sugar exports to the U.S. in return for set prices on that sugar. American sugar farmers’ premium over world market prices snapped back and reached new highs, averaging more than 13 cents a pound – nearly 90% higher than world sugar prices, the GAO found.

A push for smaller reforms

This time, sugar users are pushing for smaller changes that would bring imports in line with current trade patterns and make them more timely. 

“We’re not talking about major reform of the program,” says Rick Pasco, president of the Sweetener Users Association in Washington. “Should we have reforms, they would be modest reforms.”

At this stage, sugar producers and refiners aren’t showing much flexibility. “They are just trying to weaken the sugar program so that more sugar is brought in than is needed,” Mr. Johansson of the sugar alliance wrote. 

It will be up to Congress to decide the fairest way forward. Lawmakers punted the farm bill to next fall, and the sugar program amounts to just a teaspoonful in this massive bill. When Congress does focus on sugar, the outcome is more likely to fall along regional, rather than party, lines – and the push for smaller changes by sugar and sweetener users may open the door to compromise.