Sugar Producer

www.SugarProducer.com 23 It's because the other 75-80 percent of production sells, in the markets where it is produced, at prices much higher than world prices, and higher than production costs. See Chart 2, showing actual average wholesale refined sugar prices among the largest sugar-consuming countries averaging nearly 50 percent higher than the world dump market price for refined sugar over time. The governments in all these countries buffer their producers, and consumers, from the vagaries of the world dump market so that their producers can survive and their consumers can depend on reliable supplies and prices. If one wishes to evaluate American consumer cost or benefit from sugar policy, one need only look at relative retail refined sugar prices around the world. Chart 3 illustrates that world average consumer prices for sugar are 14 percent higher than U.S. prices; the developed- country average is 24 percent higher. The benefit to American consumers is obvious. Unfortunately, sugar policy critics compare U.S. and world dump-market raw sugar prices (though consum- ers do not consume raw sugar), assume the U.S. could access all its needs at a low world-market price without that price rising at all, and, incredibly, assume that food manufacturers and retailers will pass every penny of their savings on the cheaper sugar along to consumers. Historically there is, in fact, no evidence that sweetened-product manufacturers pass their savings from lower sugar costs along to consumers. In practice, the manufacturers and retailers absorb lower input costs as increased profits. Hence, all the benefits from lower sugar prices have accrued to one narrow sector and have not flowed to consumers. (Chart 4 provides a recent illustration: producer prices for sugar down 40 percent since 2010, but retail sugar and sweetened- product prices continue to rise. Chart 5 provides a mini- case study: The producer price of sugar is irrelevant to the consumer cost of a Hershey bar over time.) In conclusion, there are two legitimate ways to measure the deadweight benefit or loss to the economy from sugar policy: 1. Compare U.S. wholesale refined sugar prices with the domestic wholesale refined sugar prices in major sugar producing/consuming countries. 2. Compare U.S. retail refined sugar prices with prices paid by foreign consumers. In both cases, the calculations would show a sub- stantial gain to society from U.S. sugar policy, which also generates 142,000 jobs in 20 states and $20 billion per year in economic activity. Absent U.S. sugar policy, these jobs would flow to foreign producers, likely heav- ily subsidized. And history has shown that if U.S. sugar producer prices were to drop, the benefits would accrue strictly to the food-manufacturing sector and not to consumers, nor to the economy in general. In short, your professor's views are not surprising relative to economic theory but are inconsistent with market realities. n Chart 3 Chart 4 Chart 5 Source: SIS International Research, "Global Retail Sugar Prices," May 2012, from Euromonitor, International Monetary Fund; 2011 prices. Surveyed countries represent 60% of global sugar consumption. Developed countries include OECD member countries and Hong Kong. Source: Wholesale sugar – USDA. Retail products – Bureau of Labor Statistics. Monthly average prices through 2014. Sources. Sugar prices: USDA, wholesale refined sugar, Midwest market, calendar year averages. Hershey bars: Hershey Bar Index http://www.foodtimeline.org/foodfaq5.html (not available for all years) and survey of Safeway market prices; Arlington, VA. Based on 44-gram bar with 23 grams of sugar. 2010 price spike due to temporary global sugar shortage.

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