APRIL 17, 1923
A FEW weeks ago the Department of Commerce issued a newspaper statement about sugar. It was highly statistical and painfully dull in style, but it contained a few words destined to have results sensational enough for anybody.
“Production for 1923 only 125,000 tons higher than last year,” said a note at the beginning. “Consumption needs estimated at 725,000 tons above production.”
Five hundred newspaper editors and sub-editors read this and said to themselves, “Sugar shortage.” Forthwith, they wrote headlines for their papers which also said: “Sugar shortage.”
Thirty-three million readers glanced at those headlines and thought: “Sugar shortage. Better lay in a supply before the price goes up.”
Some hundreds of brokers on the exchange in New York (though they should have known better) said to one another, “Shortage coming,” and proceeded to bid the price up. It rose a hundred points in a day––the largest movement permitted. Next trading day, it rose again––and kept on rising. Raw sugar went up; refined went up; the grocer changed his signs. Two months after the Department of Commerce said its say, sugar is still up three cents. That is a fifty percent increase, an added burden on the nation’s pocketbook of $3,000,000 a week––not much less in a year, if you want a comparison, than Great Britain has agreed to pay us on her war debt.
All this happened despite the fact that three days after the misleading statement appeared, Secretary Hoover assured the country that there was no shortage; that, on the contrary, we may expect a surplus of 476,000 tons, about five-eights as much as the average surplus before the war. The leading trade journals, and the other authorities, said the same thing. So did all the newspaper editors in their editorial columns. The Department of Justice announced that the price is unjustified, and that it will investigate at once to see who is keeping it so high. The Tariff Commission, spurred on by a noble telegram from President Harding, announced that the price is unjustified, and that it will investigate to see whether the tariff on sugar needs to be reduced fifty percent. The Department of Commerce, generally credited with having kicked over the lamp in the first place, announced that the price is unjustified and that it will investigate. The New York District Attorney announced that the price is unjustified, and he will investigate. The People’s Legislative Service of Washington, which exists for the purpose of making wrongdoers unhappy and which started much of the public excitement by appealing to President Harding, announces that it is investigating. All that is needed is for somebody to investigate the investigations, and the happy cycle will be complete. And in the meantime you and I and all the rest of us go on paying an extra $500,000 a day for our sugar, with no assurance at all that it will not be presently $1,500,000 a day.
What lies behind all this? A great deal, and well worth looking into. The production and distribution of sugar being one of the most complicated and puzzling of industries, perhaps the best way to explain what has happened and is happening, is by means of a catechism, as follows:
Is the present high price justified? It is not. It is true that in 1922 the world consumed a little more sugar than it produced, the Department of Commerce guess being 19,000,000 tons as against 18,000,000. If this process went on for another year or two, we might run into a real shortage: but it won’t. At present prices, or even at the average price of the past six months, the production of sugar is sure to be very largely increased. In the United States, for instance, nearly half a million acres devoted to sugar beets were turned to something else (potatoes, mostly) last year because the sugar market had been smashed the year before. Europe’s production has been less, by two million tons a year, than before the war, and may be expected to increase. Cuba, which used to produce two and a half million tons and has lately been producing four, could go higher if conditions warranted it.
The heavy consumption last year was partly due to the fact that sugar was very cheap. At the beginning of the year it was selling for less than the cost of production; and while the price moved steadily upward throughout the year, it was still a cheap food. (Dietitians insist that it is cheap even at ten cents, but it is unlikely that the housewife will agree with this.) All past experience indicates that high prices are followed by increased production and curtailed consumption, which are followed by a surplus which is followed by a break in price which is followed by curtailed production which is followed by an increase in prices which is followed by curtailed consumption––and so on. This is a clumsy, stupid and needlessly painful method of doing things; but it is the only one we have.
Did the Department of Commerce deliberately issue a misleading statement in order to aid the sugar profiteers in running up the price? This charge has not yet been proved, and in my judgment is false; though several men who are watching the sugar situation believe that it is true. The department issues a weekly magazine called Commerce Reports; and in the issue of Monday, February 12th, it had a routine article on Trend of World Sugar Production and Consumption. At the beginning was a summary of the article in large bold type, which said:
In 1921-22 the world sugar consumption was 500,000 tons greater than production, and the prospects are that it will be 700,000 tons greater in 1922-23. If these prospects materialize, the heavy accumulated stocks of the end of the 1920-21 season will have given way by the end of 1922-23 to a carry-over below the pre-war normal figure.
The department, in the laudable ambition to get its facts and figures published as widely as possible, issues newspaper “releases” of many of its articles; and these are furnished to the newspapers some days in advance, with a “release date” to insure simultaneous publication. The newspaper version of this article on sugar was verbatim except for the omission of three things––two unimportant sections near the close, and the summary. Instead of the latter, the copy for newspapers used the words quoted in my second paragraph.
If the editors had read the article carefully they would have seen in the third paragraph a neat little table with four columns––“carry over, first of year,” “estimated production,” “estimated consumption,” and “final carry over, end of year.” The last column would have told them that the surplus was estimated at 476,000 tons, which is nearly five weeks’ supply for the United States. Unhappily, careful reading and analysis of statistical matter is not one of the strong points of the average journalist.
In my judgment the unfortunate heading on the newspaper release was no more than a blunder. It was a very bad blunder; it is costing the country a great deal of money; but I have no evidence that it was deliberately intended to produce a bull market for sugar.
Did someone in the Department of Commerce supply advance information of this sugar report to Wall Street gamblers? The answer is Yes and No. The newspaper article, “released” for Monday, February 12th, was sent to large numbers of newspapers, press associations and ticker services some days earlier. Such advance material is usually held in strict confidence by editors; but in this case the representative of a Wall street ticker service broke faith and used the bulletin on the preceding Friday. Thereupon the department did the only thing it could do, and notified the press associations and such newspapers as it could reach, to use the material at once.
It is clear that the method of distributing news by the department is wrong and should be abolished at once. Statements should be given only to men who assemble in one room at one time, and for immediate release. Obviously, some one ought to make sure also that the “facts” in these statements happen to be true.
Is there a Sugar Trust which controls the output and can dictate prices? Pending a full answer to this by the numerous investigations, one may point out that during at least half of the year the price is practically controlled unless there is a glut. Of America’s 5,000,000 tons a quarter is grown at home, a quarter comes from our insular possessions, and the other half comes, normally, from Cuba. Cuban sugar comes between February and October, when no other source is available; and nearly all of it comes through the eight or ten big companies known as the “Atlantic refiners.” The value of their strategic position in times of scarcity is obvious.
Did Herbert Hoover, Senator Smoot of Utah, and General Crowder conspire with Cuban growers to reduce the crop in 1922 and cause a shortage? The answer is, first, that the reduction hasn’t happened; Cuba is producing 4,000,000 tons. It is true, however, that after a conference at which General Crowder was present, Senator Smoot agreed to work for a reduction in the tariff on Cuba sugar from $1.60 to $1.40 if the Cuban growers would restrict their crop. It is also true that when the Cuban growers believed themselves to be ruined by the catastrophic price-collapse of 1921 they discussed crop limitation in Mr. Hoover’s presence, and he referred them to the American growers. Whether or not this seems reprehensible to you will depend on your own point of view. Mr. Hoover, whose first instinctive thought is always for the producer, may very well have considered that crop limitation was the only way out for the growers who were confronted by bankruptcy.
If he thought so, however, he was wrong. After the 400 American banks had been persuaded “by person or persons unknown” not to foreclose their mortgage on Cuba’s 1,200,000 tons and thereby smash the market, all of that sugar was purchased and most of it no doubt was eaten, in less than six months––and the price was going up.
What caused the recent increase in price, aside from the Department of Commerce statement? Efforts of sugar speculators, who had for some time been trying to create a bull market; general knowledge in the trade that the world surplus was dwindling; increasing consumption with returning prosperity and higher wages in the United States; and the new tariff, which raised the cost directly sixteen-hundredths of a cent a pound and indirectly more than that by unsettling prices and starting a general upward movement. Under the circumstances, the department statement probably did no more than give the speculators a beautiful excuse for which they had long been waiting.
When will sugar go down again? When the great American housewife, in her millions, goes on strike and refuses to pay the unfair price…perhaps!
This article appeared in the April 18, 1923 issue of the magazine.