POLITICS NOVEMBER 23, 1974
What would this country be without all those candies and cookies and cakes and sugar-coated cereals? It would be healthier and wealthier, with more good teeth and more to spend on products more essential than sugar. We are the world's most voracious consumers of sweets, as we are of everything else. An average American consumes about 100 pounds of sugar a year (not counting 30 pounds of other liquid sweeteners), a figure that marks him as a sugar addict when compared to his ancestors. The earliest Agriculture Department records, from 1822, show that the average American then ate about 9.5 pounds of sugar a year. Today sugars and sweeteners provide 17 percent of our caloric intake. Some doctors believe we pay a price for our overindulgence in a high incidence of heart disease and intestinal disorders, but that judgment is disputed by some. The high price in nickels and dimes is not.
Last January a five-pound bag of sugar at retail cost 85 cents; this month it costs around $2,35, nearly a 200 percent increase. Wholesale raw sugar sold for 18 cents a pound in January; the latest figures show it selling for around 50 cents a pound or higher. Analysts in the government and private industry agree that demand for sugar has grown at unprecedented rates, not only in the US but in countries that in the past were considered marginal importers. During the past three years, production has outpaced demand. A hurricane damaged some of the American cane fields this year, and a spate of bad weather turned the European and Russian sugar-beet crops into a disaster. As this natural shortage developed, some experts say, Arab speculators began putting money into sugar futures on the commodities market, thus further boosting the price. Then early this month the Soviet Union decided to make up for its sugar losses at home by buying on the world market. It moved swiftly, purchasing 400,000 tons in one stroke and that catapulted the market into its present frenzy.
In the center of the frenzy lies a Rube Goldberg contraption called the Sugar Act. It now has few friends and is fortunately scheduled to go out of commission at the end of the year. But the story of the sugar crisis of 1974 is in part the story of the disintegration of this outmoded piece of legislation. The act was passed in 1934 at the request of Franklin Roosevelt who saw it as a way to aid consumers, farmworkers and refiners by insulating American sugar from the leaps and tumbles of the international market. Roosevelt believed the government could assure a steady supply of sugar at reasonable prices, and at the same time protect our domestic industry from foreign competition by keeping prices high. The act was designed for an age of abundance. Through an elaborate arrangement of domestic subsidies, import quotas and tariffs, it attempted to keep the world's cheap sugar from pouring into American ports and overwhelming our market. By maintaining the price of sugar at a slightly higher level in the US and by making foreigners compete for import quotas, the system kept American farmers happy, meanwhile allowing millions of tons of sugar to enter the country without upsetting prices. Then the shortage hit, creating a crisis reminiscent of the big grain sales of 1972 in that it was fueled by a general crop failure and aggressive Russian buying. But in the case of sugar, unlike that of grain, the United States is not an exporter but a net importer. Other countries are pushing American sugar prices up. The high price of raw sugar throughout the world has taught producers that holding an American import quota is not necessarily a privilege any more.
There is no free trade in sugar; again the parallel is with oil, except oil is an essential import and sugar is not. All the major importers —except Canada —have preferential agreements with traditional sources: Russia with Cuba, Britain (now the Common Market) with Australia, and the United States with the Philippines, the Dominican Republic, Mexico and Brazil (but not with Cuba). Japan joined the club recently, signing agreements with Australia, South Africa, the Philippines and Brazil.
Tom Murphy, a leading sugar-beet lobbyist and a former director of the Agriculture Department's sugar division, argues that when officials at USDA began talking about getting rid of the Sugar Act last November, foreign sugar producers got the message and prepared to seek new markets. Realizing that access to the US market would no longer be privileged. Murphy claims, foreign growers ignored the threat of exclusion that the Sugar Act carries and sold to the highest bidder. But a sugar specialist at USDA strongly disagrees with this view, and we suspect he's nearer the truth. He says that wholesale prices began to skyrocket long before the act was doomed this June. Anyway, he points out, receipts of sugar from abroad were 10 percent higher this year than the year before. At current prices the demand for sugar may drop off, but so far the only noticeable effect of high prices has been to provide a wave of panic buying, driving prices stilly higher. American consumers bought $750 million worth of sugar in September, and deliveries to stores have been almost as high in the weeks since then.
The government can do nothing about bad weather and rotten crops, which are among the reasons for speculation in sugar this year. Nevertheless it is not a helpless bystander. It could, as with oil, help depress consumer demand for sugar by tax policies that discourage extravagant consumption. It could encourage greater price stability by requiring that raw sugar from abroad be delivered in American ports on a quarterly basis, rather than in a year-end rush, as is done now. Furthermore the government could prevent windfall profits domestic firms earn through their inventory mark-ups, a common occurrence in times of scarcity. And finally the Justice Department could keep a hawk’s eye on possible price fixing and go after the offenders. The director of the antitrust division has given notice that he is watching sugar refiners, and the department has taken new interest in a review of northern California. Complaints about price fixing have been received from Sen. Peter Domenici (R, NM), among others, who’s discovered that there’s no difference in price for wholesale sugar in Albuquerque, whether from beets or cane, delivered from Utah, Texas, Arizona or California. The profits of the nation’s largest sugar company, Amstar, increased 250 percent in the last year and those of Great Western Sugar Company rose 1200 percent. Having scrutinized these figures, the Justice Department will decide in the next few weeks whether to file indictments for price fixing.
This article originally ran in the November 23, 1974, issue of the magazine.