Feng, Hongli; Hart, Chad E.

Contemporary Economic Policy Vol. 28 no. 3 (July 2010): 429-437.

Sugar production and supply are managed in the United States in order to support minimum prices set by the law. The government is required to run the sugar program at no net cost to taxpayers. The sugar-to-ethanol program of the 2008 farm bill was created by the government to sell surplus sugar to ethanol producers. The sugar program of the same bill also authorizes, but does not require, the government to accept bids on surplus sugar from sugar processors, similar to a payment-in-kind program. We analyze the bid prices for surplus sugar under different scenarios regarding how the bill is implemented and how surplus sugar affects sugar and ethanol production. If sugar processors are allowed to bid for surplus sugar, their bids are higher than bids from ethanol producers given current prices of ethanol. At present, surplus sugar, if any, will not be sold at prices higher than the minimum prices and the sugar-to-ethanol program will not be able to help the government achieve the goal of no program costs. In the future, when sugar ethanol production facilities currently under preparation come into operation, the highest bids for surplus sugar can be close to the minimum prices set by the law.

JEL Classification: Q10

Keywords: ethanol, farm bill, raw cane sugar, refined beet sugar, sugar-to-ethanol program