Saturday, January 30, 2010

'How SWWEEETTT it is, Alice"---well, that depends on where the Sugar comes from...

Sugar is an integral part of our food supply, mostly as an input into making a vast number of food items.  We can buy sugar either from domestic producers or foreign producers. However, there are many trade restrictions in the form or quotas (limits on the amount that can be imported) or tarriffs (a direct tax on sugar by the pound).   Either way, it increases the price of imported sugar.  The graph shows over time the US domestic price of sugar and the world price of sugar.  The world price is consistently well below the US price of sugar.  Here is some basic facts/information (Carpe Diem):
1. Americans consume about 9.412 million metric tons (20.75 billion pounds) of sugar per year, and therefore every 1 cent increase in sugar prices costs Americans an additional $207 million per year in higher prices.
2. The U.S. produces about 6.9 million metric tons (15.4 billion pounds) of sugar annually, mostly from sugar beets.
3. Due to quotas, Americans are only allowed to import about 2.2 metric tons (4.85 billion pounds) of cane sugar every year, or about 23% of the total sugar consumed.
4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% their sugar in 2009 at the world price in 2009 (average of 22.1 cents per pound) instead of the average U.S. price of 38.1 cents, they would have saved almost $2.5 billion.
Questions to ask:
1. Why do we not import more of the inexpensive sugar from foreign sources?
2. Who benefits the most from the quotas?
3. Why is Domestic sugar more expensive than Foreign sugar?
4. How does this effect (affect?) the price of goods that use sugar as a primary input/ingredient?
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