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Sugar growers ask if protectionism really works. White House expected to offer plan to cut price supports by one-third

It is harvest time along the southern rim of Florida's Lake Okeechobee. Men and machines are cutting down tall green and brown sugar cane. Loaded trucks roar off to a nearby processing plant. Inside, local grower Fritz Stein Jr. has other things on his mind. He tosses small paper packets onto his desk.

``Taste it,'' he urges a visitor, tearing a packet open. Inside are white granules that look and taste like sugar.

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``We understand the uses are going to be very limited,'' Mr. Stein says of the corn-based substitute. But ``we don't know.''

The product, known as crystalline fructose, is one of several challenges to the sugar industry. Among the biggest beneficiaries of trade protection in the United States, sugar growers and processors face tests that may help answer a ticklish question: Does protectionism really work?

The industry's most obvious challenge is probably the least important. The Reagan administration is expected to announce shortly its plan to cut sugar price supports by one-third, while easing the impact on growers with a series of transition payments. Even supporters of the measure doubt it will go very far in Congress.

But other pressures are mounting.

After more than a century of nearly unbroken trade protection, the sugar industry started to feel the squeeze in 1974, when the Sugar Act lapsed. Severe and often subsidized competition from the Caribbean, Latin America, and other areas pushed growers and processors out of business.

In 1981, they pushed through Congress tough legislation that guaranteed a high protected sugar price and limits on imports. The program helped the nation's 11,500 sugar beet and sugar cane growers, but it had some unintended consequences. One of the least appealing was new competition from the domestic corn industry.

With sugar prices relatively high, at 21 cents a pound compared with less than 9 cents on the world market, soft-drink makers and other big sugar users began using new and cheaper corn sweeteners. Use of liquid corn sweeteners more than doubled. They now account for 40 percent of all sweeteners used in the country.

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Up to now, the sugar program has largely insulated US growers from this competition. Each time demand for sugar has fallen, the program has required the US to cut back sugar imports by a corresponding amount.

But sugar imports have been cut back so severely, down to 1 million tons, that this safety valve does not work too well anymore.

That prospect concerns growers. ``It has set off an alarm bell in the industry,'' says Pat Mahar, president of the Red River Valley Sugarbeet Growers Association in Fargo, N.D.

``You run the risk of losing the whole program,'' adds Rep. Jerry Huckaby (D) of Louisiana, a key proponent of sugar policy.

He is warning producers that they must restrict their own recent expansion, because sugar imports totaling less than 1 million tons would raise political pressure to change the program.

Even a curb on expansion may not be enough to save the program, points out Robert Barry, head of the sweeteners section of the US Department of Agriculture's economic research service. More sugar substitutes are coming on line. A.E. Staley, the Illinois corn-processing company, is completing a plant in Lafayette, Ind., that will begin producing crystalline fructose this summer.

A technological breakthrough would mean a dramatic increase in the use of this product. Even without a breakthrough, sugar analysts predict the US could become self-sufficient in sweeteners by 1991. That would mean the sugar industry would start building surpluses, which would depress prices and ruin the industry's political argument that the sugar program costs the US government virtually nothing.

``The thinking people in the production of beets and sugar cane want to keep a no-cost program,'' says Horace Godfrey, a lobbyist in Washington for Florida and Texas cane growers.

``To have an effective sugar program that doesn't cost the government any money, you need a foreign quota at some level,'' he adds.

Growers like Stein are confident they can survive these growing threats. ``We've weathered 'em,'' he says of previous challenges. ``We've got a commitment here. When I put my cane in [the ground], I don't plan to take it out for six years.''

Mr. Barry of the Agriculture Department is more skeptical. ``There's definitely some head-in-the-sand positions being taken,'' he says. ``I think we're really at the crossroads now.''

Winners, losers in sugar program Chicago

Sorting out the winners and losers from protectionism is not easy.

When the United States enacted a sugar program in 1981, it aimed to help producers. What it could not anticipate were the effects of the protectionism, which have been estimated by the Australian government. Among the findings: Uneven benefits. While an indirect subsidy of $6 billion has flowed to the US sugar industry in five years, big sugar-cane growers in Hawaii and Florida have grabbed the lion's share of the benefits. In the 1984-85 crop year, the average Florida producer got $1.6 million; in Hawaii, $500,000. But in Louisiana, dominated by small growers, the average was only $97,000. Sugar-beet growers in the Red River Valley averaged $47,000; around the Great Lakes, $17,000. Unintended winners. Domestic corn processors, makers of a sugar substitute, have fared almost as well as the sugar industry, grabbing at least $3.9 billion from 1982 to 1986. The Soviet Union, China, and Japan also saved millions of dollars by buying sugar on the depressed world market. World prices are artificially low because big producers, like the European Community, dump their unwanted sugar and because big users, such as the US, restrict imports. Unintended losers. Because of falling demand, US sugar refiners have had to close eight plants and eliminate at least 6,000 jobs since 1981. In the same period, US consumers have spent an extra $14 billion or so for high-priced sugar. Other countries are hurting, too. The Philippines and several Caribbean nations have seen their fragile economies hurt by the loss of sugar exports to the US. ``We don't know what we're going to do at the end of this year,'' says a Costa Rican trade representative, who expects three sugar plantations to fail in 1987. The country will sell twice as much to the Soviet Union as it does to the US this year.

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