In spite of America's sweet tooth, the country is awash in sugar. So much so that the Agriculture Dept. wants to use a little-known portion of the 2008 Farm Bill to buy up surplus supplies to raise the commodity's price. At the same time, it will sell the surplus to ethanol producers at a loss. The likely big winner in all this? Monsanto .

Big rock candy mountain
The U.S. produced 8-million metric tons of sugar last year, making it one of the world's largest producers. Of that amount, 55% of it was derived from sugar beets, of which Monsanto's genetically modified seeds own 95% of that portion.

The remaining 45% came from sugarcane. As the USDA notes, U.S. sugar prices have been well above world prices since 1982 because the government supports domestic sugar prices through loans to processors and a marketing allotment program. Lately, though, sugar has been selling at its lowest level in four years, which jeopardizes growers who've taken out loans from the USDA when prices were higher. Last week, the agency asked the Obama administration to allow it to buy hundreds of thousands of tons of sugar under a sugar-for-ethanol program called the Feedstock Flexibility Program. Since it's required by law to prop up sugar processors, it says that this is the cheapest way it can do it.


Yet, by ensuring that sugar prices stay high, it guarantees farmers will continue to process more sugar than necessary, particularly sugar beets, as they're the most popular way of producing, thus giving an indirect subsidy to Monsanto, which will happily ply the market with its GMO seeds.

Sticky sweet
Most ethanol producers, however, can't use sugar, because corn is the preferred feedstock (though it is possible to add some sugar into the mix), meaning they're going to have to unload the sugar onto others. Archer-Daniels Midland, the largest U.S. corn-based ethanol producer, does have a sugarcane-based ethanol production facility in Brazil. 

So, while sugar and ethanol processors will make out handsomely on this sweet deal, sugar users and consumers are going to get hurt. Everyone from candy makers like Hershey, beverage companies such as Coca-Cola, and cereal makers like Kellogg will feel the pinch of higher prices. Consumers will suffer at the checkout line as the increased input costs are passed along in the form of higher food prices. 

Sugar high
According to the National Confectioners Association, which represents candy industry stalwarts such as Hershey, Mars, and Nestle, the sugar subsidy program has cost consumers about $14 billion since the Farm Bill's adoption.

It's a deal so sweet for Big Sugar, Monsanto, and probably even Archer-Daniels that it makes your teeth hurt. It also shows that taxpayer subsidies are being passed along to those least in need of them.

Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started!

The article Sweet Deal for Monsanto originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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