The sugar program is designed to guarantee the minimum price received by growers of sugarcane and sugar beets, and by the firms (raw sugar mills and beet refiners) that process these crops into sugar. To accomplish this, the USDA limits the amount of sugar that processors can sell domestically under "marketing allotments" and restricts imports. USDA is required to operate the sugar program on a "no-cost" basis. This means USDA must regulate the U.S. sugar supply using allotments, import quotas, and related authorities so that domestic market prices do not fall below minimum price levels. These are based on the loan rates for raw cane sugar and refined beet sugar set out in law, which USDA uses to derive effective support levels (see " Level of Sugar Price Support " below, for explanation). If the market price is below the support level when a sugar price support loan comes due, its "non-recourse" feature means a processor can exercise the legal right to forfeit, or hand over, sugar offered to USDA as collateral for the loan in fulfillment of its repayment obligation. Should this occur, USDA would record a budgetary expense, or outlay, for such a transaction. This report focuses on the issues raised by the sugar program provisions in the House and Senate farm bills. Also, see the Appendix for a side-by-side comparison of the sugar provisions in the enacted 2008 farm bill with previous law and the House and Senate farm bill provisions. Consideration of future U.S. sugar policy revolved primarily around four issues. These were where to set the level of minimum price guarantees to be made available to processors, how to use two tools to manage U.S. sugar supply, authorizing any sugar surplus to be used as a feedstock for ethanol, and accounting for projected program costs. Though industrial users of sugar in food and beverage products initially explored converting the sugar program to operate similar to the programs in place for the major grains, oilseeds and cotton, this policy option did not receive further attention. USDA is required to extend price support loans to sugar processors that meet certain conditions on passing program benefits to the farmers that supply them with sugar beets or sugarcane. These loans are made at statutorily set loan rates, and account for most of the effective support level made available to producers and processors. USDA is required to use its other tools to protect this price guarantee. Loan rates for raw cane sugar have not changed since 1985; for refined beet sugar, since 1992. These minimum prices have guaranteed producers of sugar crops and the processors that convert these crops into sugar, a U.S. price that since the early 1980s has ranged from two to four times the price of sugar traded in the world marketplace. The enacted 2008 farm bill will increase sugar loan rates by 4% to 5% by FY2012. Conferees split the difference between the House- and Senate-proposed rate increases and adopted the Senate approach that proposed to increase rates in stages each year. The loan rate for raw cane sugar would rise in quarter-cent increments from the current 18.0¢ per pound to 18.75¢/lb., beginning with the 2009 sugarcane crop. The refined beet sugar loan rate, beginning with the 2009 sugar beet crop, would similarly increase in stages, from the current 22.9¢ per pound to 24.1¢/lb in FY2012. The Appendix provides loan rates for each of the fiscal years covered by 2008 farm bill authority. Growers and processors had initially sought a one cent increase in the raw cane sugar loan rate (with a corresponding increase in the refined beet sugar rate), and had acknowledged their satisfaction with receiving half of their request in the House-passed farm bill. They argued that the increase in the loan rate is needed to cover increased production costs, particularly energy inputs. Sugar users countered that the House-proposed higher loan rates would increase costs to taxpayers by an additional $100 million annually. They also noted that while the bill's ethanol provisions (see " Sugar for Ethanol " below) "are supposedly designed to deal with surpluses," the loan rate increase "can only encourage higher surplus production." The Bush Administration, in its statement of administration policy on the House and Senate farm bills, opposed the increase in the loan rates for sugar. On September 30, 2008, USDA announced loan rates for 2008-crop sugar as required by the 2008 farm bill. The national average loan rate is 18.0¢/lb. for raw cane sugar, and 22.9¢/lb. for refined beet sugar, the same as for the previous year's crop. In turn, these national loan rates are adjusted to reflect transportation cost differentials. Reflecting this, the raw cane sugar loan rate will range from 16.37¢/lb. in Hawaii (if sugar pledged for a loan is stored on the islands) to 18.22¢/lb. in Louisiana. The refined beet sugar loan rate will range from 21.95¢/lb. in Idaho, Oregon, and Washington to 24.34¢/lb. in Michigan and Ohio. The sugar program uses two tools—import quotas and marketing allotments—to ensure that producers and processors receive price support benefits. By regulating the amount of foreign sugar allowed to enter and the quantity of sugar that processors can sell, USDA can for the most part keep market prices above effective support levels, meet the no-cost objective, and ensure that domestic sugar demand is met. If these tools are implemented as intended, the likelihood that USDA acquires sugar due to loan forfeitures is remote. The United States must import sugar to cover demand that the U.S. sugar production sector cannot supply. However, USDA restricts the quantity of foreign sugar allowed to enter for refining and/or sale to manufacturers for domestic food and beverage use. Quotas are used to ensure that the quantity that enters does not depress the domestic market price to below support levels. Quota amounts are laid out in U.S. market access commitments made under World Trade Organization (WTO) rules and under bilateral free trade agreements (FTAs). The sugar program authorized by the 2002 farm bill accommodated, or made room for, imports of up to 1.532 million short tons raw value (STRV) each year. This import level is one of the four factors that USDA used to establish the national sugar allotment (called the "overall allotment quantity"), and reflected U.S. trade commitments under two trade agreements in effect when the 2002 program was authorized ( Table 1 ). Since January 1, 2008, however, U.S. sugar imports from Mexico are no longer restricted. Under NAFTA, Mexico no longer faces any tariff or quantitative limit on the amount of sugar exported to the U.S. market. With this opening, though, imports could fluctuate from year to year for various reasons. First, the amount of Mexican sugar exported to the U.S. market will depend largely upon the extent that U.S. exports of historically cheaper high-fructose corn syrup (HFCS) displace Mexican consumption of Mexican-produced sugar. Surplus Mexican sugar, in turn, would then likely move north to the United States. Second, Mexico's sugar output, though trending upward, does vary from year to year, depending upon weather and growing conditions. Mexican government policy also is to hold three months worth of sugar stocks in reserve and to allow sugar imports when needed to meet demand and lower prices. Third, Mexican sugar prices in recent years have for the most part been higher than U.S. sugar prices. To the extent that this occurs in the future, the incentive for a Mexican sugar mill to export sugar north in search of a better price is reduced. Fourth, U.S. buyers' concerns about the quality of Mexican sugar may limit the amount that actually flows north in the next few years. Also, the United States has committed under other existing and pending bilateral FTAs to allow for additional sugar imports. Such imports in 2013, the fifth year of the sugar program authorized by the 2008 farm bill, could total from about 420,000 tons to 1.215 million tons above existing WTO and FTA trade commitments and above the maximum amount of sugar allowed to enter from Mexico in 2007. The wide range reflects two varying assumptions made to estimate by how much HFCS use in Mexico might displace sugar consumption in Mexico and create a surplus available for export to the U.S. market. The sugar program provisions in the enacted 2008 farm bill did not directly address the issue of additional sugar imports. Instead, a new sugar-for-ethanol program is authorized to handle the price-related impact of such imports (Section 9001 in the energy title; see " Sugar for Ethanol " and " Sugar Program Costs " below). However, other provisions prescribe how USDA must now administer import quotas. To cover shortfalls (because of hurricanes or other disastrous events) in what domestic sugar processors can sell under allotments, USDA is directed to ensure that most imports enter in the form of raw cane sugar rather than refined sugar. While most permitted imports have historically entered in raw form, USDA decisions to allow large quantities of refined sugar to enter after the late 2005 hurricanes significantly affected the competitive position of cane refineries in Louisiana and Florida that process raw sugar. Unlike 2001-2002, when the Congress considered the last farm bill, most cane refineries are now a key part of vertically integrated operations owned by raw sugar processors and/or sugarcane producers. The 2008 farm bill's policy change is intended to ensure that these cane refineries (which process raw sugar into refined sugar) can more fully use their operating capacity. Also, limiting the entry of refined sugar enhances the position of the domestic beet sector to increase their sales of refined sugar.