Last week's 1.75 billion dollar (perhaps now even $2.2 billion!) deal Florida Governor Charlie Crist offered to U.S. Sugar for its 187 million acres (nearly 300 sq. miles) was naturally greeted with much enthusiasm by environmentalists. After all, the Everglades has shrunk to just half of its original size, when Europeans first arrived on the Florida peninsula over 500 years ago, and here is a chance to finally reverse the course of development, and literally begin to release the "River of Grass" from the clutches of civilization. The apparent main benefit, being to reestablish the natural water supply of Lake Okeechobee with the Everglades to the south. However, a cursory analysis of this deal, while obviously a positive development for the Everglades future, reveals an even sweeter deal for agribusiness.
Future Profits for Sugar in the US are trending down no matter what happens.
One thing that should be clear right off the bat is the unique financial advantage US Sugar producers have enjoyed in the regulatory environment- a regulatory advantage that will soon change:
Thanks to a complicated price support program implemented by the federal government in the 1970s, free market principles of supply and demand do not apply to the domestic sugar market.
Though U.S. Sugar produces 700,000 tons of the sweet stuff annually, which represents 10 percent of U.S. supply, the United States can easily make up that shortfall by opening its doors to imports.
"The only reason the U.S. price would go higher is if we don't let in world supply," said Benjamin W. Powell, assistant professor of economics at Suffolk University in Boston. "If imports are allowed in, then the impact on prices would be absolutely zero."
And, yes that will be changing soon, and US Sugar even admits this is the case:
Asked about what drove the company -- owned mainly by Mott's heirs and their foundations and about 30 percent by employees -- to sell now, Coker said it was largely concerns about the long-term sustainability of the business.
"What drove these decisions were very serious concerns about regulatory matters and environmental matters," he said.
Coker said Washington's recently passed farm bill was a "positive" for sugar growers but the company was disappointed by talks with the Bush administration over provisions of the Central American Free Trade Agreement that allowed more foreign sugar into U.S. markets.
The U.S. domestic sugar industry has long enjoyed the protection of import quotas and the benefits of costly subsidies that consumer rights groups say result in U.S. consumers paying artificially inflated prices for sugar.
So... ‘Big Sugar’ already had a sweet deal. Yet, long term prospects for Sugar in the US are questionable, because these import and price protections will be changing soon. While at the same time, the environmental noose is tightening.
And even just short term, there are the adverse impacts of a current and ongoing drought which we have US Sugar itself citing:
Heading into what is expected to be another year of drought, South Florida can expect "massive crop losses," said Malcolm Wade Jr., a U.S. Sugar Corp. vice president who serves on the governing board of the South Florida Water Management District.
(It should be noted here that the South Florida Water Management District (SFWMM) is a key agency in determining Everglades policy, and its approval of the deal is required. Funny the boards these guys end up on). But the net affect of the drought:
Sugar yields are down and indicate 10 percent to 20 percent crop loss, according to U.S. Sugar Corp.
And from the same article, a smaller farmer lays it out:
For growers who struggled to ride out last year's water supply crunch, a repeat in 2008 could be much worse than just crop damage, said Charles Shinn, of the Florida Farm Bureau.
"The concern is permanent damage," Shinn said. "Growers who are at the bottom of the barrel financially, and they sell out."
Yes, indeed we couldn’t help but notice. Selling out can be good- very good. (and at over $9,000 an acre, obscenely profitable).
But in the big picture, one must ask
Was the deal necessary to sustain and protect the Everglades?
On its face, obviously this has to be an absolute positive and intrinsic good, since it returns land currently under human control to a more natural and original state. But to answer the specific issue of water management, one has to understand the goals of the Comprehensive Everglades Restoration Plan (CERP), primary of which is restoring the historic water flow through the Everglades. Acquiring some (not all) of the land in the US Sugar deal does this, however, even CERP qualifies this goal by stating that:
...replicating the exact flows is not possible. Further, it has been found that replicating the exact flows in one area of the Everglades may result in damaging flows and levels in other places.
I will not profess to know precisely how acquiring this land fits into CERP. That involves a sophisticated engineering analysis of the hydrology- an analysis so complex that SFWMM uses a computer program called MODFLOW to do this. But consider that agricultural land, and specifically the already established uses in the "Everglades Agricultural Area" (EAA on map) have long been accepted, as noted in this comment from the Loxahatchee Sierra Club’s Conservation Chair, Drew Martin:
One of the most important areas to be protected from future development is the Everglades Agricultural Area. We need to stop all development projects, rock mining and industrial projects there and preserve the land for agriculture and environmental restoration only.
And regardless of land acquisitions, primary to the goal of restoring sheetflow, and allowing the seasonal floods to pour south, is the specific removal of 240 miles of canals and levees, which have been diverting Lake Okeechobee water east and west to the cities and farms of South Florida- a man made barrier to the natural "sheetflow" of the Everglades to the south. (See maps for explanation).
Another goal of CERP is to reduce phosphorus levels, which allow cattails to thrive, and choke out the natural sawgrass of the Everglades. Eliminating such a vast tract of farmland will absolutely help realize this goal, but phosphorus levels are already improving due to extremely successful efforts to limit their use and filter stormwater runoff from adjacent urbanized areas.
Nevertheless, according to reports, the current deal (still not finalized) generously allows US Sugar to keep farming for 6 more years!
The deal's structure, however, will allow U.S. Sugar to farm the land for the next six years, and it could take a decade after that to build giant reservoirs and marshes that will allow more and cleaner water to flow south from Lake Okeechobee to the Everglades and Florida Bay.
Finally, there is the long term damage from farming:
In the past 75 years more than 6 feet of peat has disappeared from the Everglades. Farmers may soon strike bedrock. The organic soils of the Everglades were formed underwater, in the absence of oxygen and oxygen-loving microorganisms, whose voracious appetites would have consumed the gathering mess of stems, leaves, roots, and rhizomes. Because periodic and often prolonged flooding held aerobic microbes at bay, peat deposits built up. A positive feedback loop was created: peat, covering the irregular surface of the limestone, built deep, even deposits that were supported, and in turn nourished, by an inland sea of sawgrass, dense enough in the northern glades to keep out alligators.
When canals dropped the water table below the surface and the sawgrass was painstakingly cleared, the peat dried, shrank, and blew away, or burnt like a cigar, smoldering for months and years, filling the sky with black smoke. Worse, the dry soil oxidized, as hungry aerobic bacteria gorged. Already the rate of soil subsidence in the Everglades has reached one inch a year.
What does this mean? It means that long term prospects for farming in the Everglades region are finite. Decidedly so. And through force of law, these agrifarms may even have been compelled to cease operation in any case.
And by another reckoning, we are not only rewarding and paying off an environmental polluter but letting them get away without fixing the damage they have wrought.
If you would like concurrence on that harsh assessment. I urge you to go to this USGS page, where the subsidence issue is explained in detail, and includes this:
In the Everglades agricultural area, the initial peat thickness tapered southward from approximately 12 feet near Lake Okeechobee to about 5 feet near the southern boundary. In 1951, Stephens and Johnson extrapolated contemporary subsidence trends to predict that by the year 2000 the peat soil would be less than 1 foot thick in about half of the area. They further inferred that much of the area will by then have gone out of agricultural production, assuming that cultivation would not be possible with less than 1 foot of soil over limestone bedrock.
Yet, US sugar can continue to farm another 6 years!
Finally, (and yet again to reemphasize) the long term outlook was for diminished profits.
...previously U.S. Sugar Corp. executives have said, they're worried about the long-term future of the sugar-cane industry in the United States. While Congress continues to protect the industry by limiting imports and propping up prices for domestic sugar, cane production faces growing regulatory and environmental hurdles.
And moves toward more open trade have boosted pressure to increase sugar imports, with recent free-trade pacts with Mexico, the Dominican Republic and Central America already raising or soon to augment supplies from those nations, executives said.
"Producers are looking out not to next year, but two or three years ahead," said investment analyst Hamed Khorsand of BWS Financial of Mission Hills, Calif., who tracks sugar refineries. "As the border opens up, profit margins are diminished."
.... "There has been a real sense of pessimism," said Phillip Hayes, spokesman for the American Sugar Alliance, a group representing sugar producers and refiners, in Arlington, Va.
In Conclusion
we can step back and say Crist was simply being a good environmentalist. But in this case, I’d say he was being a better Republican- by making sure there was yet another transfer of wealth- into a private corporate pocket from the public treasury.
Even the Wall Street Journal simarly concludes its article from last Wednesday "Is Everglades Deal Just a Pol’s Bid to Be Veep?" :
Whatever the political calculus, the sugar deal isn’t just about the environment. The biggest U.S. cane sugar maker was already under pressure from cheaper sugar imports from Latin America. After the latest farm bill and Central American Free Trade Agreement provisions that would allow more cheap imports, Reuters notes, the writing was on the wall.
Which makes the Everglades deal look like a win-win for an embattled company and a governor taking green flak. Now to see if the deal pays dividends for Gov. Crist in the fall.
And consider again, the duplicitous motives of the players involved:
Some environmentalists are even in bed with Big Sugar. The Charles Stewart Mott Foundation, a generous supporter of environmental causes - it spent $800,000 in the 1990s to protect a South American wetland - still has financial and managerial control of U.S. Sugar, which in 1996 spent $3 million to defeat amendments to protect the Everglades. The foundation declined to comment on its involvement with U.S. Sugar.
I'll end with this perspective from Robert Kennedy Jr., which might help us assess the deal with a properly critical and skeptical eye. Here he critcizes the other big sugar family of Florida- the Fanjuls:
"Under the current system," Kennedy wrote in a letter, "individuals like yourself can pilfer America's natural wealth and heritage, destroy publicly owned resources, garner subsidies in the form of below-cost natural resources and artificial price controls, poison our rivers and streams, mistreat workers, and then protect their place at the public trough by sharing their loot with public officials with payoffs disguised as campaign contributions."
So... could the 1.7 2.2 billion dollars have been better spent?
The original spending for CERP was budgeted at 8 billion dollars over 30 years. Recent estimates are for it to be closer to 20 billion. See the GAO pdf link below:
http://www.gao.gov/...
Clearly, I am of the opinion it could be better spent- and that Florida is paying a ransom for an environmental hostage taking.