Tuesday, November 07, 2006

The Sugar Racket

The graph below is for the March 2007 sugar futures contracts, traded on the NY Board of Trade, quoted in cents per pound for DOMESTIC SUGAR. The contracts were trading at 22-23 cents per pound last summer and are now trading at 19.74 cents.

This next graph is for March 2007 sugar futures contracts at the NYBOT that are traded for the WORLD price of sugar. The prices were 15-16 cents/lb. last summer, and are now trading at 11.75 cents, more than 40% below the price for domestic sugar.

Q1. Why is the world price of sugar 40% below the domestic price? World prices for sugar reflect the cost of producing sugar from the most cost-effective, efficient source: sugar cane. Domestic prices reflect the more inefficient production of sugar from an inferior source: sugar beets.

Q2. How can high-cost, inefficient sugar beet-sugar producers in the U.S. stay in business when their sugar prices are 40% above the world price of sugar? SUGAR PROTECTIONISM in the form of tariffs and restrictions on cheap, imported sugar at the world price.

This sugar protection costs consumers about $3 billion per year in higher prices. There are only about 11,000 sugar farms in the U.S., so that is an annual subsidy of almost $260,000 per farm!

Read more about sugar protection here.


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