(NewsMax.com) – The U.S. government has a ton of sugar on its hands — 85,000 short tons, in fact — after domestic processors defaulted on federal loans for the first time in nine years.
Under the loan program, the government extends credit each year to sugar processors, and the loans are due to be repaid mostly in September or October.
But if raw sugar prices fall below a certain price, as they did for much of the year, processors can hand over sugar instead of repaying cash.
So processors have handed over 85,000 tons of sugar worth about $35 million, the Department of Agriculture disclosed on Thursday. The agency also warned that there is a “substantial risk” of additional defaults at the end of September, when over $300 million in loans come due for repayment.
“The forfeitures are a direct result of the pioneering North American Free Trade Agreement between the United States, Canada, and Mexico,” the Financial Times reported.
“Since the pact took effect for sugar in 2008, Mexican exports across its northern border have surged.”
The government determines each year how much sugar most foreign countries can export to the United States without steep tariffs. Mexico is excluded from those limits due to NAFTA.
American sugar cane and sugar beet crops hit record levels in 2012, and Mexico’s cane farmers harvested a record 7.4 million tons, with exports to the United States totaling 2.1 tons in the year ending in September — a 93 percent increase over the previous year.
The glut has pushed down prices by 25 percent from a year ago, impacting borrowers who have had to “repay” their loans with sugar.
Jack Roney, chief economist at the American Sugar Alliance, a processors’ group, called the forfeitures “an unfortunate consequence of the brutally excessive amounts of sugar sent to the U.S. by Mexico this year.”
