Unwrapping the sweet science of sugar pricing

November 18, 2014

If you’re like me, the past few days of social media have featured a handful of friends and follows who are positively aghast at a threat to our very way of life. I’m not talking about Ebola-carrying ISIS warriors infiltrating America’s porous borders to deliver dastardly deaths. Instead, I speak of the impending chocolate crisis.

OK, so maybe it’s not as much a crisis as an overwrought reading of the basics of supply and demand. In debunking the fear that the world will run out of chocolate by 2020, Snopes.com pointed out that we are really experiencing a chocolate deficit, which just means the world is eating more chocolate than it is making. “Historically, such circumstances don’t lead to a complete dearth of a product or foodstuff; rather, scarcity simply tends to drive prices skyward and reduce consumption of any given newly-scarce commodity,” Snopes wrote

And if you weren’t soured enough by the prospect of prohibitive chocolate prices, a look at domestic sugar will seem like a trip to the dentist. As this Reuters graphic shows, the disparity in prices between what the U.S. and the rest of the world pay has grown this year, with American companies currently forking over about 50 percent more for raw sugar futures.

NAFTA is to blame, Quartz’s Svati Kirsten Narula explains. In the 1990s, the U.S. never imagined that Mexico would become a player in the sugar game, so Mexico was excluded from the tariffs and quotas that other sugar-producing nations faced over the years. As this Reuters graphic shows, since the final trade barriers came down in 2008, production of sugar from non-U.S. processors and refiners has nearly quintupled.

U.S. food manufacturers were facing an additional $2.4 billion in sugar costs before the two countries reached an agreement in October. It should be interesting to see how prices react to a newly-leveled playing field; for now, the commodities that supply your sweet tooth seem stable. Though truth be told, you’d be better off having an apple, or maybe some baby carrots. And a little exercise wouldn’t hurt.

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2 comments

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I am confused about how lower sugar prices from foreign competitors leads to higher prices from domestic producers. Doesn’t lower prices from foreign competition compel domestic firms to lower their prices to match the foreign prices so that they don’t get priced out of the market?

Posted by Sewblon | Report as abusive

So, NAFTA, far from being the ‘free trade and cheap goods’ agreement, has driven up sugar prices instead of lowering them, in direct contradiction of the law of supply and demand?

Something is seriously messed up here.

Posted by Burns0011 | Report as abusive