Preserving the Sweet Life in Minnesota

By: Sam Brodey, MINNPOST.com
10/20/16

Rep. Collin Peterson’s office in the U.S. Capitol’s Rayburn Building is more homey rural western Minnesota than D.C. neoclassical grandeur.

The greenish-brown walls bear photos of Peterson, the Democrat who has represented Minnesota’s 7th District since 1991, clad in hunting camo and grinning with colleagues and family.

There is a framed newspaper clipping of a 15-year old Peterson accepting a 4-H award, joined by more recent photos of the congressman with 4-H kids from across his vast, agricultural district.

There is more than one — way more than one — taxidermied animal. A wooden sign on the wall reads, “If farming were easy, congressmen would do it.” T-shirts for Peterson’s workouts at the House gym rest on hangers on the doorknobs.

But on a shelf behind the receptionist’s desk, tucked amid the mini-flags and tchotchkes, sits perhaps the most important memento to Peterson’s career: a bag of sugar.

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To make a living growing sugar beets, you need the conditions to be just right. Rich, fertile soil. A long, cool fall. Plenty of rainfall.

And a lot of help from the United States federal government.

Minnesota’s got those first parts covered: the area centered around the Red River has the richest land and best climate for sugar beets in the U.S., making one of the most productive growing regions in the world.

Those things won’t change, at least not anytime soon. But what could change is the other thing you need to profit from sugar beets: deep commitment from Uncle Sam to support this industry.

The federal government effectively subsidizes the business of sugar beets through a set of policies — collectively referred to as the sugar program — that Congress has approved largely without incident since the early 1980s in its twice-a-decade farm bills.

Without the sugar program, beet farmers and their allies say that their industry would wither and maybe even die, outperformed by competitors like Mexico and Brazil, who strongly subsidize their sugar industries and employ aggressive trade policies.

But the sugar program is under threat. Recently, a well-funded coalition of interests has emerged, and they’re arguing the sugar program is outdated and harmful to the broader U.S. economy. These food industry interests, business groups, and conservative activist organizations have grown more organized and more determined in recent years, and are committed to getting rid of the program.

They will soon have their next chance: when the new Congress meets this upcoming January, talks and negotiations will begin on the next farm bill.

Can the sugar program — and the Minnesota sugar beet industry — survive?

How the sugar beet industry works

That the sugar industry is such a force in Minnesota — a state more commonly associated with Spam and cereal, corn and grain — surprises even people who grew up here.

But sugar beets have long been part of Minnesota’s economy.

German immigrants to the upper Midwest tested the viability of sugar beets — a popular crop in Europe, then and now — when they arrived at the turn of the 20th century. The Red River Valley proved fertile ground, and large-scale commercial sugar beet production was humming in the area by the end of World War II.

The years since the 1980s — when the modern sugar program was implemented — have been good to the industry in Minnesota. A study from North Dakota State University found that the “economic size and importance of the sugarbeet industry in eastern North Dakota and Minnesota has increased substantially” from 1987 to 2010 — a 185 percent increase.

Today, of the 22 U.S. states that produce either beet or cane sugar, Minnesota ranks first in tons of sugar beets produced, and second in overall tonnage of sugar produced, with 12.3 million tons in 2013. Florida produced 15.3 million tons of cane sugar, making it the nation’s largest sugar producer. (Beet-made crystal sugar makes up about 55 percent of the domestic market; the rest is cane.)

It is the Red River Valley region that makes Minnesota and North Dakota the country’s top names in sugar beets. Together, the two states account for over half of total U.S. sugar beet production, coming from 678,000 cultivated acres.

Sugar beets do well in this part of the upper Midwest thanks to a combination of adequate rainfall, temperate summers, and a cool harvest climate that keeps sugar beets fresh before processing.

The American Sugar Alliance, a sugar industry group, claims that Minnesota leads all states in economic impact from the industry. It estimates that sugar beet production is a $3.3 billion industry in Minnesota that supports 28,000 jobs.

Most Minnesota sugar beets are grown by farmers belonging to one of three dominant co-operatives: Southern Minnesota Beet Sugar Cooperative, Minn-Dak Farmers Cooperative, and American Crystal Sugar, the area’s oldest, largest, and most profitable co-op. Over 4,000 farmers in the Red River Valley belong to one of those three cooperatives, the majority with American Crystal Sugar.

The sugar beet growing and processing chain used to be very labor-intensive, and up until the 1940s, relied on a large workforce consisting of many migrant workers from Latin America.

Today, it is an industry that requires specific, expensive machinery that can’t be used to harvest other crops like corn or soybeans, so growers can’t switch to growing another crop without incurring a huge cost.

But sugar beet growers don’t tend to switch crops — though they are expensive to cultivate, growing sugar beets can be very profitable, both for the grower and the co-operatives they belong to.

The harvest season is hectic: come October 1, growers across the Red River Valley pluck their beets out of the ground and deliver them to co-op owned processing facilities around the region.

American Crystal Sugar operates five, the largest and most productive of which is at East Grand Forks, which processes about two million tons of beets each year, yielding 465,000 tons of sugar.

For just a few weeks through fall, those facilities are humming constantly: they must handle the influx of beets coming in from all over the region. A typical yield for sugar beets is approximately 25 tons an acre, and an average farm has around 200 acres of land.

Multiply that by the 4,000 or so growers in the Red River Valley, and you have a lot of beets to deal with. To handle the intake, the co-ops will hire thousands of temporary workers, many of whom come from around the country and Canada to work.

Once the beets are at the facilities, they are weighed, and tested for sugar content and impurities. The beets are mostly water, and contain anywhere from 16.5 to 17.5 percent sugar. Growers are paid not by weight of the beet but by sugar content, so they try a variety of methods to grow the beets sweeter.

The Red River Valley has a natural advantage that makes it ideal for sugar beet harvesting: it’s cold. Because they are mostly water, sugar beets freeze on cold upper Midwest nights, and after harvest, it rarely gets warm enough for them to thaw and spoil. Since they can be processed frozen, the major co-ops simply store the beets outside.

As the harvest ends and sugar beets begin being processed into sugar and sold, farmers are paid based on a calculation that takes into account the weight of their haul and its sugar content.

In 2015, a good year for sugar prices, a sugar beet farmer who owns his or her own land — the kind of grower best positioned to profit — averaged $1,231 gross revenue per acre, which comes out to a $210 per acre profit after expenses, according to the annual report by Minnesota and North Dakota Farm Business Management, an agriculture trade group. By way of comparison, the average soybean farmer in the Red River Valley in 2015 took home a $39 per acre profit.

2013, on the other hand, was a disastrous year for the global sugar market, and for sugar beet growing. Prices tanked for several reasons, and after accounting for all overhead costs, Red River Valley farmers lost, on average, $252 per acre.

The sugar program: how the industry stays afloat

Understandably, sugar beet farmers would like to avoid those kinds of losses, which means they rely on consistent, high sugar prices. That’s what the federal sugar program is designed to ensure, and why it’s the centerpiece of the sugar industry’s lobbying efforts in Washington.

The sugar program keeps the price of sugar high using several tools: minimum price guarantees, production limits, and import quotas that are aimed at ensuring that there is no oversupply, or undersupply, in the domestic sugar market. The policy’s goal is to keep the price of sugar in the U.S. stable and insulated, as much as possible, from the fluctuations of the global commodities trade.

The program as it exists today has its roots in the Great Depression. In 1934, Congress voted to put sugar with the other crops governed under the Agricultural Adjustment Act, a key plank of Franklin D. Roosevelt’s New Deal that aimed to raise crop prices by tightly controlling production and imposing quotas.

In 1974, those sugar protections expired, and the intervening years saw major fluctuations in the global sugar market — a time remembered bitterly by the sugar industry.

By 1981, Congress passed a farm bill re-establishing sugar protections, and they’ve renewed them in each subsequent farm bill, with varying degrees of opposition from Congress and presidential administrations.

The sugar program protects farmers by establishing a minimum price for sugar — currently 24 cents per pound of refined sugar. If the market price of sugar drops below that rate, sugar farmers can sell their sugar to the federal government at that guaranteed price.

That doesn’t happen too often, but it did in 2013. That year, sugar prices cratered due to a combination of delayed North American Free Trade Agreement provisions taking effect and a few years of overproduction buoyed by high prices. Domestic sugar prices fell below the sugar program’s price supports, so sugar growers sold their product to Uncle Sam.

While lower prices hurt growers, the government took on a huge burden, assuming about $300 million in losses. The federal government cannot put the sugar it buys back into the domestic market, so they turned most of it into ethanol.

That’s not an ideal outcome from the government’s point of view, so to ensure that hitting the price floor happens rarely, the government takes steps to stabilize the price of sugar by limiting the amount that U.S. producers can sell, and by tightly controlling how much foreign sugar can enter the U.S. market.

Each year, the USDA determines exactly how much sugar domestic producers can sell, and how much foreign producers can import into the U.S.

That annual decision is intended to make sure, as much as is possible, that there is no oversupply of sugar that might bring prices below the price floor.

To do that, the USDA sets limits on how much sugar refiners — the co-ops and other sugar companies — are allowed to sell annually. From 2013 to 2015, U.S. producers have accounted for about three-quarters of demand.

The rest of U.S. demand is met by imports from foreign producers. Through organizations like the World Trade Organization and free trade pacts like NAFTA, the U.S. has commitments to buy sugar from other countries.

The majority of imported sugar comes from Mexico; Brazil, the Dominican Republic, and the Philippines make up a significant portion of imports, too.

The imports are valuable in that they satisfy trade agreements, and if domestic producers have a bad year, the USDA has the authority to make up for the supply shortfall with increased imports.

But free trade pacts have also caused a lot of trouble for the industry: under NAFTA, Mexico enjoyed far less restricted access to the U.S. sugar market after delayed sugar provisions kicked in about 15 years after the pact was signed.

Mexico, which heavily subsidizes its cane sugar industry, overproduced and dumped its sugar into the U.S., causing the price decreases that rocked the industry in 2013.

After that, the U.S. filed, and won, suits in International Trade Court against the Mexican government over dumping actions. Now, the USDA each year decides how much sugar Mexico can export to the U.S.

The legendary sugar lobby

All of these federal-level actions, from farm bills to trade enforcement actions, deeply affect the bottom line of the sugar industry.

To protect that bottom line, the industry does what many industries do — it hires dedicated lobbyists to advance its interests in Washington. And Minnesota’s sugar growers employ some of the best lobbyists in the business.

The broad support that Congress has given the sugar program over the years didn’t just materialize — it’s the result of decades of work by lobbyists in the employ of American Crystal Sugar, Southern Minnesota Beet Sugar Cooperative, and other top sugar growers’ organizations.

Kevin Price, of Stephen, Minnesota — a town of 658, about 40 miles north of East Grand Forks — has represented American Crystal Sugar in the nation’s capital for 20 years. David Bieging, a Stillwater native and former aide to Walter Mondale and the late DFL Rep. Martin Sabo, is the lead for Southern Minnesota Beet Sugar Cooperative in the capital, and has been doing work for them since the 1990s.

Adjectives like “legendary” are sometimes used to describe their work, but Price and Bieging are humble when talking about the big things they’ve managed to accomplish for the relatively small sector they represent.

They describe a lobbying approach that isn’t different from what other industries do — educating policymakers about their policy priorities, contributing money to allies and potential allies and, occasionally, taking on rivals.

But by pretty much every measure, the sugar beet lobby punches far above its weight. American Crystal Sugar — the Moorhead-based ag cooperative with operations in a handful of states — is the number two overall political spender in agribusiness, according to OpenSecrets.

American Crystal Sugar’s PAC has spent over $2 million this election cycle to date, and it has spent over $1.7 million lobbying the federal government in 2016.

American Crystal Sugar far outpaces multinational agribusiness corporations in the money game, like tobacco conglomerate Altria. This election cycle, Crystal Sugar has spent four times what Monsanto has.

How does Crystal Sugar’s D.C. game stack up to powerhouses in other sectors? Pretty well: on campaigns, it has outspent pharma players like Pfizer, big retailers like Walmart, and energy giants like Exxon. The only PACs that really blow American Crystal away are real titans of the political money game, like Koch Industries or Goldman Sachs.

In the past decade, American Crystal Sugar’s PAC has given $550,000 to Minnesota members of Congress, congressional candidates, and their PACs; Southern Minnesota Beet Sugar Cooperative’s PAC has given just shy of $400,000.

The biggest beneficiary of sugar’s largesse over the years has been Peterson, who represents the vast majority of Minnesota beet sugar country.

One lobbyist called Peterson — the current ranking member and former chair of the House Agriculture Committee — the “godfather” of the sugar beet industry. Since 2006, Crystal Sugar and Southern Minn have combined to give over $200,000 to Peterson’s campaigns and his leadership PAC.

Peterson, Price told MinnPost, “has been our champion for decades, and we enjoy his wonderful knowledge of agriculture and sugar. There’s no better relationship in Congress than with him.”

But Price touts a great relationship with all Minnesota members of Congress, regardless of party or district.

Other top recipients of their money include Sen. Amy Klobuchar, a reliable agriculture ally, who has cashed over $80,000 in checks from Crystal Sugar and Southern Minn since running for U.S. Senate in 2006.

First District Rep. Tim Walz, who has some sugar beet farmers in his district, has gotten over $100,000 from the two big co-ops since winning his congressional seat in 2006.

Even Reps. Betty McCollum and Keith Ellison, who do not have any sugar beet growers in their districts, consistently get the industry’s money. Crystal Sugar has given $64,000 to McCollum and her leadership PAC since 2006, and Ellison has received $45,000.

There’s strategy in making friends: McCollum, for example, serves on the powerful House Appropriations Committee, a venue where sugar’s political foes often launch attacks on the industry. (Though the farm bill is the main event for ag policy, congressional appropriators still must determine funding levels for federal ag programs in yearly spending bills.)

McCollum, Price said, “has been a great defender of us in that committee.”

Minnesota’s recipients of the generosity of sugar do not find it difficult to defend accepting the industry’s money.

“In my area, 25 percent of the economy is driven by this industry,” Peterson said. “So why wouldn’t I be for it? I mean, my people make their living and they prosper because of this industry.”

In a statement to MinnPost, McCollum said that Minnesota’s urban and rural economies depend on one another, and that the sugar beet industry is “important to all Minnesotans.” She praised how the industry provides good jobs — many of them union jobs — and has a positive ripple effect that extends to the transit and service industries.

“I understand the importance of Minnesota’s sugar beet industry,” McCollum said, “and strongly support the federal programs that strengthen our economy and sustain jobs.”

Peterson has said in the past that he’d fully back the sugar beet industry whether they gave him any money or not. “I support wheat, and I support canola, and I support the grass seed industry and all these other industries in my district, and they don’t have PACs and they don’t have any money, but I work just as hard for them as I do for sugar,” he told MinnPost.

The sugar beet growers are a good friend to have, and a bad adversary. American Crystal Sugar’s PAC has, in the past, funded challengers to legislators who haven’t been so friendly to its interests.

Take the example of Rep. Tim Huelskamp. The Kansas Republican congressman and strident tea partier represents a major agricultural district, but opposed subsidy programs on ideological grounds.

This summer, he faced a primary challenger, Roger Marshall, who specifically hammered Huelskamp over his stance on ag issues. Crystal Sugar cut him a $5,000 check, along with other big ag players. In the August 2 primary, Huelskamp lost by 13 points.

Price told MinnPost that the PAC evaluates funding challengers like Marshall on a case by case basis. “Mr. Marshall said he supported farm policy and had a more carefully tuned focus on ag policy than Mr. Huelskamp,” he said. “We were pleased by the outcome.”

The sugar PACs’ big-spending ways aren’t enabled by fat, corporate-style bottom lines, however. These are co-ops, and their leaders go to their shareholders — the growers — and make a simple case: support us, and we’ll take care of what needs taking care of in Washington.

The growers’ willingness to buy into that has earned them a reputation for being one of the most politically savvy agriculture groups — or interest groups, period — in the country.

“The farmers I represent are politically astute,” Price said. “It’s not just policymaking…they have the belief if they’re not just good at making policy arguments but being politically astute, they improve the odds that their message is heard on the Hill.”

Those familiar with the growers’ D.C. efforts cited a willingness — even an enthusiasm — to come out to Washington to actually meet with lawmakers as a hallmark of their success.

Though it’s a common ritual for interest groups of all stripes to fly out to Washington every year or two and pound the marble halls of the Capitol, the sugar beet growers do it frequently.

Peterson said, “I’ll bet you there’s 200, 300 growers in my district who have been to D.C. more than once. They come out here and they see how it works.”

“The farmers who grow sugar beets tend to be innovative and entrepreneurial, and are willing to take some risks, and willing to get on an airplane and come to Washington and walk into a congressional office and explain how it works,” Bieging said.

“They’re not an apathetic group.”

Beyond that, the sugar growers have proven skilled at tailoring their messages to lawmakers representing urban and suburban districts who may have no ties to agriculture.

They make the case, as McCollum explained, that the sugar beet industry is a healthy contributor to a good economy; in urban districts in particular, they hold up the industry as one that provides solid jobs — and union jobs. (From 2011 to 2013, American Crystal Sugar locked out 1,300 union workers during a 22-month strike over a contract dispute.)

Their activism has brought wide success. The sugar lobby has suffered few defeats, which have mostly been in the arena of international trade deals — which sugar tends to oppose — not subsidies.

The sugar lobby and its allies have managed to not only maintain the sugar program as-is, but they’ve successfully pushed Congress to modify it to reflect changes in the market. And, along with other ag groups and typically unfriendly food industry groups, sugar-backers pushed to block stronger labeling requirements for genetically modified foods in Congress. (Beet sugar is almost always genetically modified, while some cane sugar is organic.)

A coalition emerges to fight the sugar lobby

Not everyone is so happy with the sugar program, though. And in recent years, they’ve gotten savvier and more organized than ever.

There are three main interest groups that oppose the sugar program.

The so-called “sugar users” — companies like Nestle and Hershey that buy sugar and put it in their products — have long opposed the federal program. They argue that it keeps sugar prices far higher than they should be, and say those costs are passed onto consumers, making the sugar program akin to a “hidden tax” that Americans pay for at the cash register, if not in their actual taxes.

Groups that advocate conservative policy, like the Heritage Foundation think tank and Americans for Tax Reform, oppose virtually all commodity programs — not just sugar —on the basis of free-market ideology. They argue that the domestic sugar industry is a cartel, and that everyone will be better off if it is liberalized and subjected to the global market.

Pro-business groups, like the U.S. Chamber of Commerce and the National Association of Manufacturers, oppose the sugar program on the broad basis that sugar prices are a drag on businesses, and that aid for commodity programs depresses growth and employment in other sectors of the economy.

The Coalition for Sugar Reform is a non-profit umbrella group for these kinds of interests, and its member rolls include the U.S. Chamber, the American Beverage Association, and the National Confectioners Association.

Jennifer Cummings, a spokesperson for the Coalition for Sugar Reform, said that what unites these interests is a desire to reform what she calls an outdated program that hurts consumers, taxpayers, and businesses.

“It’s a program that’s existed since the Great Depression,” Cummings told MinnPost. “One should call into question whether it’s necessary. In its current form, it doesn’t make sense. The program has to be reformed.”

To make that case, the Coalition leans heavily on 2013 — the year sugar prices plummeted and growers sold to the government, which sustained the losses — and on research they claim illustrates the impact of the sugar program on other sectors of the economy.

Cummings said the “hidden cost” of high sugar prices to consumers is $3 billion per year, and cited a study finding that, from 1997 to 2014, sugar-using industries such as candy companies shed 18 percent of their jobs.

“Our coalition believes sugar prices are behind a lot of that decline,” Cummings said. “For every sugar-growing job saved through higher sugar prices, three American manufacturing jobs are lost.”

She seemed keenly aware that it is not hard to discern the motivations of many of the Coalition’s members in dissembling the sugar program —lower sugar prices would be good for business. But she said the battle isn’t just about “Big Sugar vs. Big Candy,” and emphasized that sugar users want to see a thriving U.S. sugar industry.

It’s an odd element of the sugar discussion: the sugar growers and the sugar users are each other’s clients. They need each other. Yet, they expend a lot of resources thwarting each other’s policy agenda in Washington.

“We’re not talking about gutting the program,” Cummings explains. “We’re not eliminating price supports for sugar, it’s bringing them in line with what’s reasonable. The U.S. sugar industry is very competitive, and they would continue to be.”

The sugar growers, though, are skeptical of that claim, and of groups like the Coalition that claim to merely want to “reform” the sugar program.

“Their rhetoric portrays their reforms as moderate but the actual application of what they’re advocating for isn’t moderate,” Crystal Sugar’s Price says.

Without a strong sugar program, he says, “we’d be losing production, and farmers would stop raising sugar beets or sugarcane.”

Those in the beet world believe that decreased price supports and opening up the domestic market more to foreign trade would devastate growers, many of whom are struggling to begin with.

Ask any pro-sugar person about the Coalition’s free market-centered arguments, and they’ll tell you that the global sugar market is far from a free one —it’s a market where foreign governments use robust subsidies and strategic commodity dumping to get an edge, as Mexico did after NAFTA gave them increased access to the U.S. market.

Without the protections of the sugar program, many sugar experts say that U.S. producers,  though they are efficient, would find it hard to stay as competitive.

Skip Taylor, a sugar beet expert at North Dakota State University, said “my feeling is that, without the sugar program, we would probably grow sugar in Florida, but that would be about it.”

“The Valley and the Minnesota growers would convert to soybeans and corn,” he said. “A lot of sugar growers around the country, in Nebraska, Wyoming, California, they’ve all quit and have gone back to other crops because they’re not competitive.”

“Without the sugar program, they would probably not grow sugar here in the Valley,” Taylor said. “It’s just too expensive.”

Southern Minnesota Co-op’s Bieging said that the end of the sugar program would be bad for the broader ag commodity market. If sugar beet growers replace that crop with grain, soybeans, or corn on that land, the glut of additional supply would depress prices lower than they are now.

“There are 120,000 acres of sugar beets growing in the area where the cooperative is,” Bieging said. “Imagine if all of that were switched to corn or soybeans…It’d lower the prices.”