The sour news -- higher sugar prices
This is not a sweet story. The price of sugar, a staple in American foods and beverages, has soared over the past year and some analysts believe the prospects for any price relief after the new crop is harvested in August are bleak.Skip to next paragraph
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For consumers of sodas, candy bars, gelatins, and cereals this news has the taste of a sour pickle. Indeed, according to the Bureau of Statistics, the price of sugar rose 2.3 percent between the months of April and May, giving the consumer good cause to grimace.
Behind the price rise is an assortment of maladies that have afflicted the crops around the world.
In the Soviet Union, for example, the crop got off to a slow start due to late spring plantings. So the Soviets, with a bad crop in 1979-80, could be back in the market again for foreign sugar.
Cuba, historically an exporter of sugar to the USSR, also had a rough year. A rust disease cut the crop to an expected 6.7 million tons, down from 8 million tons in the 1978-79 season.
Similarly, several other Caribbean suppliers, including Jamaica and Trinidad, are having a poor harvest -- possibly turning them into importers of sugar. In South Africa, India, and Thailand drought has cut the sugar crop considerably.
Because of the poor crop there has been a record drawdown of the world's stocks of sugar, says Robert Saatoff, director of commodity research at Bache Halsey Stuart Shields Inc.
F. O. Licht, one of the leading sugar research firms, estimates that some 4.8 million tons of sugar will be withdrawn from the world's stockpiles. Licht figures there will be supplies of 86.4 million tons this year compared with an actual demand of 91.2 million tons. The drawdown in the stockpiles will leave 25 .8 million tons, or 28 percent of the world's normal annual production.
Last year, stocks were abnormally high, containing 34 percent of the world's normal production.
Because of these large stocks, John Mount, vice-president of Coca Cola, the world's largest user of sugar, "There is no shortage of sugar." Rather, he points out, "There is a lot of anticipation of a shortage."
One of these anticipators is Bache's Mr. Saatoff. "We figure sugar prices will stay around the 30-cent level this year and be significantly higher next year," he predicts.
It doesn't take much of a decline in the world's production of sugar, notes Robert Quittmeyer, president of Amstar Corporation, a sugar refiner, "to send sugar prices bounding upward."
In fact, the price of the sweetener has been rising since 1971. At the point , a pound of sugar cost 5 cents, a price level it had maintained for over a decade. Then in 1974, a tight supply and demand situation, combined with speculation from the Middle East, drove the price over 40 cents a pound for a short time.
Since then the price has fluctuated at around 15 cents a pound until recently when it soared to 39 cents a pound. According to the Bureau of Labor Statistics , the price of sugar and other sweeteners has risen 56.9 percent since 1977 while the consumer price index has gained 30.3 percent.
In spite of the rising prices, sugar consumption has been rising. According to Mr. Quittmeyer, consumers now eat about 130 pounds of sugar per year, up from 111 pounds in 1960. However, demand is elastic and if the price of sugar gets too high, Mr. Mount says, demand for sugar may dr up like it did in 1974-75.
Already, large users of sugar have been searching for alternative types of sweeteners.
For example, Coca Cola decided to switch to a 50-50 mix of fructose sugar, made from corn, and sucrose, the traditional cane or beet sugar, in its formulation of its syrup which it ships to its bottlers. According to a spokesman for Coke, the move has had a modest success since the price of fructose based sugar hasn't risen as much as sucrose-based sugar. Prices of sucrose are $43 per hundredweight and for fructose $29 per hundredweight. However, there is not enough fructose around to meet demand.
Although prices have risen, consumers so far appears to be still buying the soft drinks. Whether they would have bought more if the price were lower is an open question. In an average case of 12-ounce soft drinks, a bottler includes 2 1/2 pounds of sugar.
General foods Corporation, reportedly the nation's second largest consumer of sugar, says it has only been able to pass on a limited amount of the increase in sugar prices to consumers.
"We are aware of the plight of the consumer," says a spokesman, "and have tried to maintain a stable pricing policy." As a result, the White Plains, N.Y., company admits, profit margins are under some pressure. The company says it is too early to talk about sugar substitutes for its various products, including Jell-O, Kool-Aid, Log Cabin syrups, Baker's chocolate, and Gaines dog food.