Chapter Eight

Sugar Prices and Economics

G

ENERALLY speaking, prices for cane and beet refined sugar consumed in the United States have followed closely the prices for offshore raw cane sugar delivered in the Port of New York from Cuba, Puerto Rico, the Philippines, Hawaii, and a few relatively minor sources. In addition to the New York market for actual raw sugar, the New York Coffee and Sugar Exchange affords a market place for trading in futures contracts for dutiable or duty-free raw sugar deliverable in New York warehouses in specified months. The prices quoted in the actual and futures markets usually do not include the duty payable on Cuban sugar and have been described variously as cost and freight (c.&f.) or cost, insurance, and freight (c.i.f.) or ex-ship delivered New York basis prices. These prices for Cuban sugar are lower than comparable prices for dutyfree sugar by the amount of the tariff.

Raw Sugar Prices in the United States and Cuba-The average annual delivered New York price per pound before payment of duty of Cuban raw sugar from 1900 to 1951 has varied from a high of 11.35 cents in 1920 to a low of 0.93 cent in 1932, as shown in Table 17. At one time in 1920 it rose to 22.565 cents a pound and in 1932 it fell to 0.57 cent. With the exception of 1920, however, the highest average price for any entire year was 6.65 cents in 1919. The average price was continuously below 3 cents from 1900 through 1910 and from 1925 through 1944. The final New York price under price control was fixed in 1947 at 5.57 cents, duty unpaid, or 6.32 cents, duty paid. After price controls were removed October 31, 1947, raw sugar prices declined somewhat, and, as Table 17 shows, annual average prices have remained below the final figure under price control through 1951.

The import duty on raw sugar from Cuba was 1.0048 cents per pound from March 1914 to May 1921. In 1921 it was raised to 1.60 cents per pound, in 1922 to 1.7648 cents and in June 1930 to 2.00 cents until June 1934 when it was reduced to 1.50 cents. Thus, the import duty was highest during the worst part of the business depression when sugar prices were lowest. The import duty was reduced to 0.90 cent late in 1934, to 0.75 cent at the end of 1941, and to 0.50 cent January 1, 1948.

The average prices of raw sugar in public warehouses in Cuba, shown in Table 18, have followed the same general trend as in New York, but

TABLE 17

AVERAGE PRICE OF RAW SUGAR, COST AND FREIGHT
NEW YORK; AVERAGE IMPORT DUTY PAID ON RAW SUGAR
FROM CUBA AND AVERAGE DUTY-PAID PRICE NEW YORK,

SOURCE: United States Department of Agriculture.

1 Based on price paid by the United States Government for Cuban sugar. 2 c.i.f. prices.

at a lower level because of the cost of transporting sugar from Cuba to New York. However, the average price of raw sugar in Cuba in 1920 was higher than the c.&f. price in New York, because of extremely wide fluctuations in prices during the year and the use of different methods of calculating the average prices. Average annual prices in Cuba have varied from a high of 11.78 cents per pound in 1920 to a low of 0.70 cent in 1932. From 1934 through 1941, a period of severely restrictive United States quotas on the importation of sugar from Cuba, the average price of raw sugar in Cuba varied from 1.17 cents to 1.73 cents per pound, only slightly

per pound - cents

higher than during most of the depression of the early 1930's. During this period the price of sugar from Cuba which could be sold in the United States was consistently higher than the prices for that exported to other countries.

Trends in Sugar Prices Relative to Prices of Other Foods -During the past 90 years, as shown in Chart XVII, there has been a marked decline in the price of sugar relative to the prices of other foods in the United States.

TABLE 18

AVERAGE PRICE OF RAW SUGAR IN PUBLIC

WAREHOUSES IN CUBA, 1885-1951

SOURCE: Cuba Sugar Yearbook. Prices, in cents per Spanish pound, have been converted to prices in cents per avoirdupois pound.

Following its Civil War peak of about 22.50 cents reached in 1864, the wholesale price of sugar in this country declined almost continuously until 1892 when it was 80 per cent below the peak. The index of wholesale prices of all foods also declined during this period but at a slower rate, the index for 1892 being only 58 per cent below that for 1864.

In 1940 the wholesale price of sugar was almost identical with that of 1892, but the index of all food prices increased 42 per cent during the period. From 1940 to 1950 the price of sugar rose 84 per cent and the index for all foods 131 per cent.

As a result of these changes, sugar in 1950 cost only about one-fourth as much relative to other foods as in 1864. During the same period, as shown in Table 9, per capita consumption in the United States increased more than five times.

Effect of Sugar Quotas on Prices-Prior to the adoption of the United States quota system in 1934, the price of Cuban raw sugar in New York, duty paid, was generally the same as the world price at New York plus approximately the 20 per cent tariff preferential received by Cuba in the United States market. At times, market conditions were such that Cuba obtained no price benefit from the preferential. The United States price for Hawaiian, Puerto Rican, and other duty-free raw sugar, during the pre-quota period, was generally the c.&f. price for Cuban raw sugar, plus the Cuban duty.

The quota system was adopted because the tariff, even when raised as high as it was in 1930, failed to meet the economic problems of the domestic sugar industry. The effect of the excessively high tariff upon Cuba, at the same time, was, of course, ruinous.

Under the present quota system, the price of raw sugar in the United States depends upon the market's estimate of the demand situation, as compared with the supplies made available by the total quotas. If the combined quotas are considered too large for the demand for sugar at the then current prices, the market declines. If it is believed that demand exceeds the combined quotas, the price rises. Frequently, however, these price effects of the total quotas are modified by the market's estimate of prospects for a change in the determination of consumption requirements, which are, of course, equal to the total quotas.

The Secretary of Agriculture has no statutory power to fix prices as such, but his power to fix the estimate of total consumption requirements and to revise it from time to time, gives him some control of price trends. The quota system, in effect, divorces the United States raw sugar price from the price in the so-called world market.

The amount of the United States duty on Cuban raw sugar constitutes the difference between the price in this country of Cuban quota raw sugar, duty unpaid, and the free-entry quota raw sugar from Hawaii, Puerto Rico and the Philippines.