Cover Story

Sticky Situation

While politicians tangle with the Central American Free Trade Agreement and proposed new mills, growers and managers try to hang on.

Mike Comb of the Louisiana Sugarcane Cooperative feels tired these days.

"This year's crop is not a good one. The tonnage is low," says Comb, assistant manager of the cooperative sugarcane mill in St. Martinville. "We had too much rain early and not enough later. In addition we had a lot of acreage in one variety that's possibly reducing its yield. And there's carryover from the 2002 hurricane."

As usual, this year's grinding season hung a pall of smoke over much of Acadiana and employed hundreds of seasonal workers. But Comb's words about the wrong weather at the wrong time came at the end of the third bad year in a row for Louisiana's sweetest cash crop, a year that saw the amount of cane harvested as well as the amount of sugar per stalk drop across the region. At the end of a discouraging harvest, two established mills, Jeanerette Sugar Co. and Iberia Sugar Cooperative, announced they would not re-open for grinding next fall. Against that news, Agriculture Commissioner Bob Odom's plans to build not one but two new high-tech mills on the rim of Louisiana's sugar bowl seemed odd if not surreal.

Hanging over all of this like another storm cloud is the Central American Free Trade Agreement, the first of what many feel may be a series of bilateral trade agreements that will drive down the price of sugar. In cane fields around Acadiana, "CAFTA" is a dirty word. In Washington, it's a document already signed by President Bush and awaiting debate in Congress. The treaty between the United States and six Central American and Caribbean countries would bring more sugar into this country, battering one of the two price supports that have kept the price of sugar between 20 and 23 cents a pound for more than two decades. The other price support ' limited production ' seems to be firmly in place. But the fact that the U. S. Department of Agriculture tells each mill exactly how much sugar it can make in a season means that the industry can't grow.

In this climate, the goal is to control as much cane as you can profitably turn into sugar. The only other way up is to find a nonfood use for sugar cane, since the USDA only limits the amount of sugar made for human consumption.

Local politics on the issue heated up in January as Odom announced a deal that would bring just such a use, an ethanol plant, to land adjoining to the new state-funded plant in Lacassine, near Lake Charles. The same week he sought immediate approval for a second new plant in Bunkie, an $85-million diffusion-process mill. Like Lacassine, a $45 million state-funded mill now under construction, this mill would produce only syrup, not sugar. Also like Lacassine, it would co-generate electricity for sale.

Odom announced that the project would be up and running by fall of 2006. But Odom's haste sent up alarms, and the state bond commission balked. Gov. Kathleen Blanco requested more research. Republican legislators, meanwhile, cried foul. With CAFTA threatening to lower revenues, they wrote, what was the sense of investing millions in new mills for sugar?

Odom's response was that agriculture had to find ways to explore alternative uses, like ethanol, for crops in order to survive. He also stressed that the mills at Lacassine and Bunkie were high-tech facilities capable of extracting more of the sugar from each stalk of cane.

Some see an effort to support farmers who had to ship their cane hundreds of miles round-trip to have it milled. Others see it as political payback that would benefit a small group of mills, those owned and operated by M.A. Patout & Son Ltd. in particular.

Sugar is no stranger to politics ' and political upsets. In 2002, incumbent Sen. Mary Landrieu defeated challenger Suzanne Terrell by rallying the support of sugar growers, even though Terrell had President Bush stumping for her. Nationally, members of the sugar-growing Fanjul family of Florida are among the top tier of donors to both the Democratic and the Republican parties. Sugar cane is grown only in four states ' Florida, Louisiana, Texas and Hawaii ' but its growers usually ally themselves with sugar beet growers, who cover a much wider stretch of political territory. Sugar beets are grown in 14 U.S. states, with Minnesota, Idaho, North Dakota and California leading production. Both beets and cane are used to make granulated sugar.

Nationally, sugar's political clout is legendary. Advocates and lobbyists flexed their muscle last winter when they converged on Congress to successfully exclude sugar from a free trade agreement with Australia. But last winter also brought a jolt to the industry when sugar unexpectedly became part of ongoing CAFTA negotiations. Despite the efforts of the Louisiana delegation, led by Sens. John Breaux and Mary Landrieu, the final draft of the treaty contained language that would increase the amount of foreign sugar allowed into the United States.

Now, political and business forces are lining up to defeat sugar's price supports. In December, Congressman Mark Kirk, R-Ill., founded the 16-member Congressional Caucus for Sugar Reform with the goal of ditching sugar subsidies. According to Bloomberg News Service, Kirk intends to use his seat on the House Appropriations Committee to strip the USDA of funding for the 70-year-old price-support system, claiming that it inflates the cost of food while driving jobs offshore. Fellow caucus member Phil Crane, R-Ill., chair of the Trade Subcommittee of the House Ways and Means Committee, blames America's sugar policies for giving other countries an excuse to keep U.S. products out of their markets. Longtime sugar ally Sen. Richard Durbin, D-Ill., meanwhile, has switched sides, suggesting that his corn-rich district no longer shares sugar's concerns. And incoming Secretary of Commerce Carlo Gutierrez showed no love of price supports on sugar when he served as CEO of Kellogg Co.

Industry is mustering its ranks as well. On Tuesday, Jan. 25, lobbyists for Procter and Gamble Co., Pfizer Inc., food maker Atria Group Inc. and more than 200 other companies and associations initiated a campaign to persuade members of Congress to ratify CAFTA. The spokesmen argued that the agreement would set precedents for patent protections, investment rules and other legal matters. In other words, it would provide a great proving ground for the rights of corporations in a free trade environment.

"This deal is as much about free trade throughout the hemisphere," Justin McCarthy, director of government relations for Pfizer Inc. told Bloomberg. "This moves us closer to a Free Trade Area of the Americas, and that's a priority for us."

Anthony Joe Judice of New Iberia's Cajun Sugar Cooperative winces at the idea that lower sugar prices will mean lower prices for candy bars and drinks. "Let's say it takes about 2 cents to sweeten a can of pop, and it sells for 50 cents," he says. "If it suddenly costs half a cent less to sweeten that can of pop, do you think you're going to pay 49 cents for it?"

He shakes his head slowly. "You know what a windfall profit is," he says. He remembers 1974, when the price of sugar spiked to about 45 cents a pound. The price of candy bars shot up ' and stayed up after sugar tumbled to 11 cents a pound two years later. "We were used as patsies," says Judice. "Those prices went up because of sugar, but they never came down."

Between sessions at a weekend conference on sustainable agriculture in New Orleans, Judice ticks off the rising costs of farming cane. Fertilizer went up, he says. Diesel went up ' 40 percent up. "Still they want to keep the price for sugar at 20 cents," says Judice. "Unless we can do something to increase the value of what we do without increasing fixed costs, we're history."

Judice's family has farmed cane in New Iberia for 200 years. In 1964, they helped found the Cajun Sugar Cooperative after the private mill they worked with refused to take 1,500 tons of their harvest ' or to take responsibility for leaving the family, which ended up hauling the cane to Franklin, in a lurch. Today, as Cajun's vice-president, Judice is passionate about the co-op system, which gives farmers control over their crop and its processing. He's equally passionate about recent advances at Cajun, such as the new high-efficiency boiler and the storage area for excess bagasse.

But Judice is also concerned about the recent developments, including the new state-funded mill proposed for Bunkie. Several Bunkie growers truck their cane to Cajun, and, if the mill goes through, Cajun expects to continue to work with those growers. But the mill will have to add storage tanks and an unloading area if it's going to receive syrup instead of raw cane from them. And he'll have to figure out how to fire the mill's boilers for a "crop" that, unlike raw cane, doesn't come with its own fuel.

There's also the question of when in the process of grinding a sugar mill will be able to take in sugar syrup ' or how it will incorporate shipped-in syrup with the stuff moving forward in its own vats. During the season, loading bays at boiler-type sugar mills are filled with cane day and night, so loading's an issue. Mill operators are not even clear how long sugar syrup can be held in storage without spoiling.

Judice, for one, is not comfortable about rushing forward to build the Bunkie plant in time for the 2006 growing season. Cajun helps defray the cost of hauling by paying Bunkie growers a fixed hauling fee per load. "Let's just wait and see what Lacassine can do," he says. "What's the rush?"

The rush, for some, is a Department of Transportation rule requiring a third axle on sugar rigs that run with 100,000 pounds (load and rig) of weight. Haulers must have the third axle in place by 2008 or pay a fine. Not only will farmers need to cover large mechanics' bills, the rule will also displace about 4,000 pounds of cane ' about the weight of an axle ' from each truckload. By completing the Bunkie mill sooner, the area's farmers could dodge that expense.

Sugar growers can't just shop around for a mill to process their cane. Instead, they're tied to particular mills in arrangements that make marriage look like an iffy commitment. Once a farmer signs on with a particular mill and decides how much cane he'll grow for them, he's counted as part of that mill's "marketing allotment," the magical number of tons of sugar that the USDA allows that mill to sell.

Other arrangements, including loans and technical assistance, can tie growers to particular mills. But the marketing allotment makes the tie a legal one. Once a grower is counted as part of a mill's marketing allotment, he can't take that allotted cane anywhere else. Barring closure or sale of a mill, the only way to switch mills is to ask for your bit of allotment back. In the current competitive environment, that kind of release is not likely.

But it's different if a mill closes. The news that the Jeanerette Sugar Co. and Iberia Sugar Cooperative mills, each of which had an allotment of about 65,000 tons of sugar, don't plan to grind next fall places those allotments in play.

To the mills hoping to grow, an allotment from just one of these mills is gold. But it's not certain yet how the allotments will move. According to the USDA, a mill that hasn't formally gone out of business can be sold, allotment intact, to another mill. Once a mill has formally ceased to do business, its growers can petition USDA to get their piece of the mill's allotment. They can then take those "pieces," free-agent style, to the mill of their choice. The USDA can also divvy up a dormant mill's allotment between Louisiana's other mills, but that's not the agency's first choice.

Who gets the Jeanerette and Iberia allotments might determine which mills live and which will be next to close. Mills increase profits as they increase volume, and the ability to sell more sugar obviously allows them to grow further.

"Sugar mills are a high fixed cost manufacturing operation," says Dr. Mike Salassi, an agricultural economist with the AgCenter at LSU. "That's why they're expanding ' to lower fixed cost per unit of output." In general, he says, the two shuttered mills decided to close because they either were not currently grinding enough cane, or did not foresee being able to grind enough cane in the near future, to remain economically viable.

Excess milling capacity will continue to be a drag on the remaining mills that can't increase the volume of the cane they process, Salassi says. This condition is especially critical now that marketing allotments limit the amount of raw sugar produced and sold annually. "Over the next five to 10 years, we're probably going to see more mills go out for the same reason," says Salassi. "This same trend has been happening in the sugar industry for the last 50 or 60 years." In the 1930s, Salassi says, Louisiana probably had 50 or 60 mills, all of them working on a much smaller scale. With the closure of Jeanerette Sugar Co. and Iberia Sugar Cooperative, only 13 mills remain.

"Existing mills that can expand their capacity and obtain the additional tonnage to operate at near capacity will be the ones with the best chance of remaining economically viable into the future," he predicts.

In other words, the mills that get the cane will be the mills that can last. But how that cane makes the trip ' in syrup form or straight from the field ' makes a difference. And then there are those allotments.

Commissioner Odom stresses that not one penny of taxpayer money will go into either the Lacassine or Bunkie projects. "The guarantee on the notes comes from slots at the track," says Odom, sounding consternated. To him, that aspect has been overlooked in the press.

Odom is referring to the $12 million annual revenue stream from slot machines that was pledged to LDAF for boll weevil eradication. The boll weevil program is now complete, but the law gives Odom freedom to use the slot revenue for agriculture-related projects of his choosing. His notion of using the money to fund new sugar mills, however, prompted Republican legislators to ask Gov. Blanco to intervene. "These projects reflect the 'Old Louisiana Way' of doing business and can only be stopped by you," read the letter, which was signed by the chairs of the Republican Senate and House delegations.

To hear it from Odom, the two new mills are all about transportation. But the growers they'll serve already have ties to existing mills. That means they're expected to keep delivering their crops ' whether in cane or syrup form ' to the mills they're working with currently. In effect, the new state projects will actually function as branch operations for those mills that already work with growers in Lacassine and Bunkie.

To some, that arrangement is the "Old Louisiana Way" at its finest. Lake Charles growers invested in cane in the 1990s with the help of four mills, three of them owned by M.A. Patout & Son Ltd. The fourth mill is the farmer-owned St. Mary Co-op. As a result, the farmers in that area ship their crops to two of Patout's operations and to St. Mary Co-op. Because the area has different soils that were historically used for growing rice and other crops, the Lake Charles area has never had a sugar mill of its own.

Bunkie growers, on the other hand, let their own cooperative sugar mill in Meeker go under in the 1980s. At that time, it was more profitable to plant soybean and cotton than sugar, and the minority who continued to grow sugar cane couldn't support the co-op. Now the Bunkie area is rich in sugar cane again. Unlike the hotter, wetter areas south of I-10, though, Bunkie can support other crops. As a result, skeptics wonder what would keep those growers from switching again. They also wonder why the state should come to their rescue for making a bad decision 20-odd years ago.

There's nothing new about carrying cane from the Lake Charles area to just a few mills. In fact, the state has been involved in doing that for years, pumping about $4.3 million into a "cane train" for hauling crops from the region to the St. Mary Co-op and Patout's Sterling Sugars Ltd. and Enterprise mills by 1998. Funding for the cane train continued under Gov. Mike Foster, who gave the project $3 million between 1998 and 2000. But the train still cost its users more than expected, and delays and bruising of sugar cane caused problems.

The new $45 million mill in Lacassine will simply turn the same cane shipments that came in via train and truck from the Lake Charles area into syrup shipments. The syrup will continue to come to the same three mills, with the majority of it going to Patout's big Enterprise mill. The advantage is that those shipments will have about one-fifth the volume of cane ' and they won't bruise. Because syrup isn't food-grade sugar, it can be produced at a mill, like Lacassine, that has no USDA allotment at all.

M.A. Patout & Son Ltd. CEO Craig Caillier is comfortable that his company's big diffusion-based mill at Patoutville will be able to handle the syrup, which will roll right into the facility on its 3.5 mile rail spur. He doesn't even think Patout will have to build new syrup tanks for storage. That's good, because Caillier says that 75 percent of the Lacassine syrup will flow to this plant and to Patout-owned Sterling Sugars Ltd. in Franklin. According to Caillier, Patout also has relationships with about half of the farmers in Bunkie and would expect to receive syrup from the new Bunkie plant as well.

Caillier says not all of the project's particulars have been hammered out. What no one has addressed, he points out, is the fee that the receiving plant will get to process the syrup. "Growers don't know what fee we're going to charge to take their syrup the final step," he notes.

Unknown mill fees may be only one soft spot in Lacassine's projections. Some say that the Lake Charles Cane Co-op doesn't have enough cane to operate the new mill profitably ' a claim borne out by the USDA's 2002 crop tally. The price at which the state's projections say the coop would be able to sell electricity may also be inflated, critics say. And the new Ethanol facility planned for an adjacent site will have a tough time paying the going cost for cane if ethanol's market price stays below $2 a gallon.

The farmers will take over the Lacassine mill when it's finished, Odom says. And if they fail to keep it afloat? "If the co-op can't make a go of it, then we'd take everything the co-op has," says Odom.

Then what? The state would have to find someone to run the facility, probably taking it over for pennies on the dollar. The logical party would M.A. Patout.

The delay on the Bunkie project is good news to Mike Comb, who can't help but see it as competing with Louisiana's other mills.

"They're going to open another factory and suck a million tons away from us," says Comb. "You're going to have more mills going out of business. They've already got a plant going up in Lacassine. Let's see how that works."

The Louisiana Sugarcane Cooperative currently works with many of the farmers who would presumably be served by the Bunkie syrup mill. But receiving syrup instead of cane is no simple proposition. The cooperative is at a disadvantage for handling syrup because it doesn't have a rail spur, Comb says. Even if it trucks the syrup in ' an added expense ' the co-op would need to build storage tanks and possibly add pans to handle the volume. Given the last years' harvests, the co-op doesn't have funds for improvements. And there's still the question of when to process sugar syrup if the mills are busy grinding cane.

"If the state could use the money that's going to the Lacassine and Bunkie mills to improve the infrastructure at current mills, anything to improve our current efficiencies, it would make more sense," says Comb.

Relatively small improvements, like building a more efficient boiler, could help mills like LASUCA increase their production, Comb says. At present, though, no one's coming forward with that kind of help.

Charlie and CAFTA
Louisiana congressman Charlie Melancon brings his anti-CAFTA stance to Washington.

Congressman Charlie Melancon likes to joke these days that he feels a little like Tom Hanks' character in Big when he sits in the generous desk chair left by his office's former occupant, Billy Tauzin II. "I also lost a little weight during the election, so my clothes are big, too," Melancon says.

For many of his supporters, though, Melancon's new status as a member of Congress calls to mind a different movie: Mr. Smith Goes to Washington. Melancon likes the Mister Smith movie, he admits, and considers a comparison to the Jimmy Stewart character a compliment. "I used to sit in the gallery of Congress and think, 'What don't y'all understand?'" Melancon says. During his swearing-in on the floor of the House of Representatives, he glanced up at the gallery and the reality of being a member of Congress came home. "I'm inside now," says Melancon. "But I think I can still speak common sense to the other members."

Washington is actually familiar turf to Melancon. As president of the Thibodaux-based American Sugar Cane League for the last 11 years, Melancon has had plenty of opportunities to present what he sees as common sense on sugar issues to Louisiana's congressional delegation and to other members of Congress. In the third week of January, Melancon said he was still interviewing to hire key staff members before Congress kicks into high gear in February. "We're a month behind the rest of the freshman class," said Melancon, whose seat was assured only after a hard-won December runoff against his predecessor's son, Billy Tauzin III. But the freshman representative already has his appointment to the House Agriculture Committee, where he'll be able to present his anti-CAFTA arguments to colleagues from other agricultural states ' and to help shape the 2009 Farm Bill, which will also influence sugar's future viability in Louisiana.

What would the passage of CAFTA mean for Louisiana sugar?

It's not just Louisiana sugar I'm concerned about, it's jobs. Realize that our biggest export in this country right now is our jobs, whether they're in sugar, manufacturing, shrimping or whether it's our crawfishermen. We have been exporting jobs through these bilateral agreements.

I've come to realize that the best position for all U.S. industry is to try to bring everything, all free trade negotiations, together at the World Trade Organization level, where all the countries could come to the table at the same time. Every time you do a bilateral free trade agreement, because we are the country that has the resources, the money and the market, we always have to give up something under the pretense of helping the poorer countries participating in those agreements to get to the level of the U.S. or of Europe. In reality it's like, instead of going to church and tithing, we go to church and give up everything we have. A good deal is where everyone walks away a little unhappy because everyone has given up something.

These bilaterals are free trade, but they're not free to America.

Where do you stand now on CAFTA?

I have to be against CAFTA, for more reasons than just the sugar industry. I have to try and convince those people who are out that and haven't made up their minds that is not the way America needs to go because all we're doing is selling off American industry. We are now, in America, needing two people working in every household working to live somewhat comfortably ' and I don't mean really comfortably, but just the basics. Our buying power is decreasing while our cost of living is increasing because we're giving away jobs.

Where does CAFTA stand?

Physically and literally, we are at the will of this administration. Fast track authority, or "TPA," means there's no stipulation that you have to bring this kind of treaty to Congress for a vote in any kind of time frame. The administration has signed off on it but there's no rush to bring it up for a vote before Congress until they do enough vote-swapping to get it through. And then they'll bring it to the floor for a vote. My efforts are to start working now to convince as many people as I can to be against it.

Who do you see as opposing CAFTA? Who do you see supporting it?

Some members feel they're getting a little something out of CAFTA, that it's good for their constituents, because they get a little something for some of the commodity or industry groups in their states, like they can sell a little more rice abroad or a little more soybeans. My job is to urge those people to see that what they're getting is a drop in the bucket compared to what they're losing, that the costs will outstrip the rewards for their constituencies.

You're on the agricultural committee. How is that helpful to Louisiana sugar?

Sometime in the next two years we'll start negotiating farm policy for the 2009 Farm Bill and I want to put some teeth in it. I'll have the opportunity to work with commodity groups that worked on CAFTA and NAFTA. I'll be urging them to take their blinders off and look around them.

Steel should be a great lesson on this stuff. This administration promised the steel industry five years so they could make technological advances in their manufacturing, then pulled the rug out from under them by removing the tariffs just two years later. You can't trust people who do business like that. Today contractors can't get steel in this country without a six-month wait, and they can't tell you how much it will cost when they get it.

We've been giving away one industry at a time with these bilaterals. The U.S. balance of trade, imports versus exports, is heavily tipped in favor of imports from abroad. As a result, we are moving away from a manufacturing economy and towards a service economy.

Tell us about the Congressional Caucus for Sugar Reform, Illinois Rep. Mark Kirk's group, which seems to be the largest organized opposition to price supports for sugar in the Congress.

Those members represent the commercial users, multinationals headquartered in the U.S. who buy their raw materials and manufacture products in foreign countries where they don't have to adhere to labor and safety and sanitary standards and requirements. Their biggest cost is transport. Meanwhile our manufacturers in this country have to pay attention to how many parts-per-billion they have of this or that in their products.

But Kirk is from a corn state, Illinois.

They think they'll benefit from free trade because of volume. The corn people believe ethanol is their domain and theirs alone, so they see more opportunities for growth. See, corn is the beneficiary of the U.S. green policy that's evolving right now. You can actually make ethanol from a whole lot of things, including wood and bagasse, but the only place you've got support for ethanol production is in the farm bill ' and it's supporting the corn guys.

If the corn guys get an opening [to export to] Mexico, [like in NAFTA] or to Guatemala [like in CAFTA], they're for it. But they need to watch out, because Brazil is quickly becoming the 800-lb gorilla that can out-produce everybody in agriculture. They can literally take over markets. They're clearing the rain forest as fast as you can walk through it. And their government is subsidizing ethanol production from sugar cane.

What should the federal government be doing now to help the sugar industry?

Farmers need to know what's ahead. Once borders become open, they can flow either way. But it would take three years for sugar cane farmers to build up their volume, and they can't do that now because of allotments. You have to plant the year before you harvest. So our farmers have been taken out of the competition, if they need to compete internationally.

The U.S. also needs to go in and make the customs people start enforcing the law on shipments of sugar-containing products from Mexico and Canada. This is how people are sneaking around the import limits in place now under NAFTA. Big companies like Nestlé, for example, are circumventing the law knowingly, knowing that only 2 percent of products coming across border are being checked. All this sugar is sneaking in and running the price down.

Anything else folks back home should know about what you're doing on sugar?

The day of the swearing-in, I talked to two members that were not committed on CAFTA. That was two on the first day.

I had one rice guy call me a protectionist. I said, no, I'm not. I believe in having everybody have the ability to compete in a world market. [The U.S. sugar industry produces sugar in top 30th percentile of the cheapest sugar in world.] American sugar farmers can compete toe to toe with every sugar farmer in the world, and there's a place in the world market for them.

Killing CAFTA will send a message to our administration and to those people that don't care if we have a sugar-producing industry. I've been talking with colleagues that are anti-CAFTA, and I'll be working with the Democratic leadership and others to identify those members who haven't yet made up their minds. I think we'll get votes on both sides of the aisle, though the administration may try to whip all their guys into line to vote.