Sugar shock: Will the 'Domino' effect drive up food prices?
Filed under: Technology, Economy, Investing
In a recent letter to Agriculture Secretary Thomas Vilsack, several large food producers warned that unless the U.S. increases its quota of tariff-free sugar imports, it may, "run out of sugar" in the next year. This, in turn, would lead to layoffs, skyrocketing prices, and a serious shift in trade.Part of the problem lies in a worldwide sugar run as Brazil diverts part of its sugar crop into ethanol production and monsoons have wiped out much of India's sugar crop. All told, the Department of Agriculture expects sugar supplies to drop by 43 percent over the next year.
In many ways, the government is caught in a squeeze play. On the one side, there are domestic sugar beet and cane growers who are strongly invested in maintaining a high price for American sugar. Perhaps more importantly, they also have a very strong lobby that helps them to control import quotas. This ultimately translates into an American sugar market that is priced at two to three times the global market rate and American companies that make billions per year in inflated profits.
Of course, this comes with a considerable cost, particularly to food producers, who form the other part of the government's squeeze. Sugar futures have already gone up by 95 percent this year, hitting a 28-year high. In their letter, the sugar producers proposed an almost apocalyptic scenario, in which the country would have only "13 days' worth of sugar on hand." While nutritionists might see this as a good thing, an astounding array of foods contain sugar and higher sugar prices lead to higher prepared food prices. In the case of Kraft Foods (KFT), sugar currently accounts for six percent of food costs; for Hershey's (HSY), it is eight percent. Added in with increases in the cost of corn -- also due to ethanol production -- and food manufacturers are looking at a major spike in production costs.
As food prices rise, consumers will feel the change every time they visit the supermarket, a trend that is bound to increase voter irritation and which may translate into pain at the polls. On the other hand, with big sugar calling the shots, any move toward increasing imports is also fraught with peril.
One solution is to use high fructose corn syrup (HFCS); as the price of sugar rises, the compound becomes comparatively cheaper and thus more attractive to food manufacturers. However, as more customers become aware of the health dangers associated with HFCS, many food companies are shying away from it. In fact, even the soft drink industry -- long a bastion of HFCS -- has begun experimenting with new sugar-sweetened sodas.
As they currently stand, sugar quotas are driving up food costs, weakening international trade and driving an already-overpowered corn industry. As the price of candy bars is poised to shoot up, perhaps it is time for the government to put Big Sugar on a big diet.
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Reader Comments (Page 2 of 5)
8-13-2009 @ 9:16PM
Tony said...
Maybe it's because everyone's a**hole is black, no matter the skin color.
8-13-2009 @ 4:36PM
Bug said...
This is just the gov's way to manipulate us...they want us thin because it is preventing those in the insurance and drug industry to buy the newer yachts. Don't kid yourself...they are going to to do heavy folks what they did to smokers.
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8-13-2009 @ 4:42PM
Chuck said...
But don't we need that ethanol? Shouldn't all of the crops go to making it.
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8-13-2009 @ 5:48PM
Beth said...
Correct me if I'm wrong, but doesn't it take 8/10ths of a gallon of gas to make ethanol, not to mention the 'sugar process"? Ethanol isn't cost efficient let alone the fact that the process uses up valuable food sources. This is just another government instituted plan gone CRAZY!!! Bush signed this into law as a way of pleasing all of the left wing lib whackos. Obama, Gore, Pelosi, and Co. are continuing to perpetuate this stupidity as a good thing, no suprize.
8-13-2009 @ 6:37PM
Marv said...
yes beth you are wrong,, it takes no gas to make Ethanol
it takes 10 pounds of corn and 1/8 cup of yeast and some heat,, for 3 hours to make 1 gal. of E100
8-13-2009 @ 4:44PM
krhouser99 said...
Macdaddy, you certainly must have eaten too many hamburgers! The fat has gone to your brain and made it rancid. Instead of calling the pres a chimp why don't you offer a real solution to the problems at hand. Typical rants.
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8-13-2009 @ 4:44PM
Lotek7 said...
Time to flush?Everytime we do the toilet just backs up Ibe!We get the same old turds!
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8-13-2009 @ 4:51PM
Greg said...
SHOULD WEplease get this obama healthcare passed. i can't wait. the lines to find any good doctor stupid enough to stay in america, will take days. if you are lucky. plus the only doctors left will be like the micheal jackson doctor. in fact obama better get him pardoned quickly....we are going to need that doctor under the obama health plan. idiot liberals wake up. we are already broke. the rich in america aren't as rich anymore. where are you going to get funding for this without going after social security and medicare and without taxing the middle class to death? there is no other money to be had without shutting down massive programs like welfare which you all love. i'd love to hear your made up answers, but i who has the time to listen to morons repeat what keith oberman said yesterday TAX IT ?? TO PAY FOR HEALTH CARE
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8-13-2009 @ 4:53PM
NMslim said...
It is about time someone did something about all the fat people out there. Why should I have to pay the same to fly as someone twice my size? And all because they have no self-control over how much sugar they consume. Look around you...75 % of Americans are at least 20 lbs overweight and 50 % are obese. The Great American Waistland
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8-13-2009 @ 4:52PM
Tom said...
GREAT. Now, maybe people can avoid obesity, diabetes, heart disease, and lead healthier lives.
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8-13-2009 @ 5:00PM
rip300rog said...
A "perfect storm" of price protection, import restrictions and the real sin diverting food production to fuel production. The previous poster who asked how much longer are Americans going to be forced to support everyone is asking the right question.
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8-13-2009 @ 5:13PM
bumfuzeled said...
guess we should still be producing sugar in Sugarland Texas. The Pure Cane factory shut down several years ago due to the overwhelming amount of tarrif free sugar imports. Maybe we should not have outsourced those jobs afterall?
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8-13-2009 @ 5:30PM
Treedeco said...
OffRoad2224 said...
time to break out the torches and pitchforks, we the American people are in for higher prices for everyday goods....yet again
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
I like the "torches and pitchforks" idea.......but you forgot to include "ropes" so we can hang a few of those traitors in Washington!!
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8-13-2009 @ 5:33PM
Janet Harris said...
Start with you, VOTE out the congressman of your state and start letting them know you won't take this any longer. The longer they stay in office the more they do to us. It's your country people, get out and vote them out of office. It's your choice.
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8-13-2009 @ 5:37PM
v.demarco said...
Just another example of how our elected jerks use taxpayer money to buy votes! American consumers get screwed so that a select group of farmers may remain millionaires!
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8-13-2009 @ 5:46PM
michale collins said...
corn syrup has mercury in it, do your research, as well as flu shots. shortage of sugar. bs they closed down plant after plant on the Islands, more than enough cane sugar, but why allow Americans who need jobs to produce it , when they can go off shore and rip us off.Won't be long and we will be Germany 1920 . What the heck we are just americans. This bs makes me want to spit. People wake up, the trillions spent , will make us beg on the land our forefathers faught and died for, vote them all out.
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8-13-2009 @ 5:47PM
Rocky said...
NO SUGAR? That's means more and more people will not get diabetes or other life-threatening diseases. What will become of the pharmaceutical companies??? OH MY!!!
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8-13-2009 @ 5:58PM
mauel said...
im so tired of hearing the rich and middle class complaining about the prices on everything when they r the ones who keep rasing the prices everything . and saying they r realy haveing a hard time . thats so funny well at least uall can still go out and buy shit what about us poor people were the one who really pay for everything then u take every last cent from us and then complain ,when we ask for help,i guess if u dont have money you aint worth shit, so u might as well die off so we dont have to support u. u,all want the poor to work but the middle and upper class are finding it hard to find jobs themselfs. so explain to me how a poor person is supposed to.oh yeah clean your toilets for shit then get paid shit and still have nothing to buy cause we cant afford to buy anything or just a little to squeak by till next check. hahahahehe so funny ........................NOT!!!!!!!!!
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8-13-2009 @ 6:14PM
dan langan said...
that would be one of the best things to happen...we can all do without sugar
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8-13-2009 @ 6:30PM
Bill said...
The Obama administration is trying to create a new crisis called famine. This way they can get the things achomplished that otherwise wouldn't happen. Hey maybe after that we can turn the water back on in California's central valley.
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