World sugar prices are rising rapidly to the highest level in more than four years, according to an article that appeared last week in this newspaper. The article did not note, however, that this price spike wouldn’t affect U.S. consumers.
Thanks to our sugar policies, U.S. families don’t face such fluctuations. Such policies are a good example of how we might achieve energy independence by restricting imports and promoting domestic production.
The article noted that international prices for bulk sugar “surged 59 percent last year” and that prices continue to rise. That is as much as gasoline prices have risen since 2001. As with petroleum, supply shocks are the culprit. There is a drought in India, the world’s largest sugar consumer and a large producer. Thailand’s crop also may fall by 20 percent. Brazilian consumption is rising and exports are falling.
U.S. consumers won’t see higher prices on sugar in our supermarkets, however. Nor are we likely to see increases in the prices of soft drinks, canned fruits or other sweetening-intensive food items.
Prices won’t increase because of U.S. Department of Agriculture sugar programs. While details have varied somewhat over the years, these policies have achieved virtual sugar independence.
A few decades ago, the United States imported substantial amounts of sugar from the Philippines, the Dominican Republic and Cuba (before 1961). Sugar refining was a major business at port cities such as New Orleans and New York City. These facilities were largely shuttered as a result of import restrictions to make the U.S. sugar program work.
Insulated from world market turbulence, prices for U.S. consumers stay the same even as world prices increase by 59 percent. Wouldn’t it be great to face the same situation with gasoline and other petroleum products?
But as the attorney, faced with a Faustian offer for his soul, reportedly said, “There’s got to be a catch here somewhere.” To achieve sweetener independence, U.S. consumers pay substantially more all the time. The increase in world prices from under 7 cents per pound to nearly 10 cents means that instead of being three times as high as world markets, U.S. wholesale prices are only twice as high. We got away from fluctuations in prices by keeping them high. We do so by limiting trade.
This is the little catch that advocates of “energy independence” never mention. The United States certainly could wean itself from all energy imports. But it could only do so by substantially increasing the costs of driving, heating houses and flying. It would also increase the costs for any energy-intensive manufacturing sector, cutting their competitiveness compared to firms in countries that import oil and gas.
This is nothing new. For 230 years, economists have argued that restricting imports inevitably raises costs to consumers. Those who blather mindlessly about the wonders of energy independence just never learned that lesson.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.