| The 327 U.S. Sugar workers laid off last week were victims
of supply and demand -- namely too much supply of the commodity they
produce, and not enough demand for it.
Sugar prices have been depressed since last year simply because there's
more of it than soda makers, candy companies and consumers need, sugar
experts say. In explaining the layoffs last week, Clewiston-based U.S.
Sugar said its bottom line has been hurt by the lowest sugar prices in 25
years.
Domestic sugar traded for 18.7 cents a pound Monday on the New York
Board of Trade's Coffee, Sugar and Cocoa Exchange.
While the price of sugar has risen slightly in recent months, it's not
enough to make the crop profitable. Sugar growers say it costs 19.5 cents
to make a pound of sugar; when the price dips below that number, they lose
money by selling for the market rate.
The annual demand for sugar in the United States is 10.5 million tons,
said Dalton Yancey, executive vice president of the Florida Sugar Cane
League, which lobbies in Washington on behalf of U.S. Sugar, as well as
Florida Crystals, which controls three Palm Beach County sugar companies.
Domestic growers produce 8.5 million tons, and trade agreements require
the United States to import 1.25 million tons. Add stockpiles in
warehouses and other sugar that enters the country thanks to import
loopholes, and there's a surplus, Yancey said.
Once American consumers and companies such as Coca-Cola and Nabisco
have bought 10.5 million tons of sugar, they won't buy more no matter how
low the price dips. As a result, even a small surplus hurts prices.
``An oversupply of 50,000 tons can knock a hole in the market,'' Yancey
said.
While lower prices for many goods translate to more demand, that isn't
the case with sugar. Demand for sugar is what economists call
``inelastic,'' meaning users don't buy more when the price drops or less
when the price rises.
``People hardly ever notice how much sugar costs in the supermarket,''
said Reg McQuaid, who writes a sugar newsletter for D.W. Dyer & Co. of
New Jersey. ``You don't postpone your purchase of sugar, no matter what
the price. You just buy it.''
The supply of sugar exceeds demand because of increased domestic
production, growing imports and ineffective federal policy that actually
has encouraged more farmers to get into the market.
Domestically, depressed grain prices have led grain farmers in the
Dakotas to grow sugar beets instead. Their decision added to the glut.
What's more, a World Trade Organization agreement requires the United
States to import 1.25 million tons a year.
The Dominican Republic is the largest foreign supplier to the United
States, McQuaid said. About half the sugar produced in the Dominican
Republic is the product of Florida Crystals, the company run by the
politically influential Fanjul family of Palm Beach.
Growers in the Philippines, Brazil, Australia, Guatemala and Argentina
also export sugar to the United States.
The federal government attempts to stabilize prices by limiting
imports, but there are loopholes. A Michigan company avoids sugar import
tariffs by shipping molasses syrup from Canada and extracting the sugar
once it's in the United States.
Meanwhile, the sugar surplus promises to grow next month, when the
North American Free Trade Agreement allows Mexico to send at least 250,000
tons of sugar a year to the United States, up from the 25,000 tons now
allowed.
For American sugar companies, exporting the commodity isn't an option.
World sugar prices are even lower than domestic prices; world sugar traded
for 10 cents a pound Monday on the Coffee, Sugar and Cocoa Exchange.
Experts say that's because sugar producers dump crops, heavily
subsidized by governments, on the world market.
The federal government has been unable to boost prices. In June,
taxpayers paid $54 million for 130,000 tons of surplus U.S. sugar in an
attempt to raise prices. |