Leslie Joseph of the Wall Street Journal reported this week that “Raw-sugar futures are up about 10% this year, even as most commodities continue to decline.”
Joseph explains that “Sugar’s gains come amid dry weather in No. 1 producer Brazil, which is expected to result in the smallest global surplus of the sweetener in five years.”
This is important in debates related to the U.S. sugar program.
Sugar program critics consistently maintain that food companies – especially candy and sweets companies – should be able to buy the cheapest sugar on the market, even if that sugar is artificially cheap thanks to government subsidies and even if it means destroying the U.S. domestic sugar industry.
The argument is that even if there’s no domestically produced sugar, American sugar consumers and food manufacturers will always be able to get cheap sugar from the global market. But as Joseph’s report shows, that’s not necessarily true.
The Brazilian drought isn’t the only natural disaster that could affect global sugar supplies and prices. Nor are market-distorting occurrences limited to acts of God. There are coups and civil unrests that can shake the export business of a number of sugar-producing countries.
And what will American food manufacturers do when the global supply tightens up and prices go through the roof with no domestic sugar industry to protect us?
Indeed, even with “just” the drought affecting the Brazilian exports, Kevin Kerr, a commodities-trading consultant, predicts that “prices will likely rise even more later this year once the surplus shrinks.”
“We see sugar prices significantly higher” in the last quarter of the year, he told the Journal.
In addition, the WSJ reports that the “International Sugar Organization expects production to surpass global demand by 473,000 metric tons, the least since the 2009-10 season, when the market was in a deficit.”
Any argument that the U.S. national security interest is served by relying 100% on imported sugar from unreliable governments that are subject to natural disasters of immense proportions simply isn’t responsible.