U.S. runs low on sugar, get ready for high prices

The United States is facing a major sugar shortage, according to the Wall Street Journal (subscription may be required).

On Aug. 5, General Mills, Hershey Co, Mars Inc., and Kraft Foods alerted Thomas J. Vilsak, the secretary of the U.S. Department of Agriculture, of their combined forecast of low sugar supplies. These food companies warned that if the Agriculture Department does not allow them to import more tariff-free sugar, "our nation will virtually run out of sugar" and they will be forced to raise consumer prices and lay off workers.

This comes as a major eye opener, but there's more to this finding.

The WSJ states that the present trade quota places a limit to the number of tariff-free sugar that can be imported per year, with the exception of Mexico. This leaves major suppliers like Brazil out of the free trade mix. The fear looms that Brazil may not even have significant sugar supply for the U.S. because they are busy using large amounts of cane crop for ethanol use.

Another problem is the U.S. government; not a surprise. The U.S. artificially inflates domestic prices of sugar in order to support the incomes of farmers in the Midwest who are friendly with politicians who help them. Anything for a vote, right?

Economists state that sugar is part of the equation. Sugar is an active ingredient in almost all foods, and the impact of a price increase will be big. Food companies pay twice the world level for sugar because of government meddling.

Unless politicians in Washington decide to ease import quotas, the "U.S. will end the next fiscal year with less than 13 days worth of sugar on hand" according to the four food companies who band together to ring the alarm atop Capitol hill.

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Food Prices Around the World

Food companies warned that if the Agriculture Department does not allow them to import more tariff-free sugar, "our nation will virtually run out of sugar" and they will be forced to raise consumer prices and lay off workers. For more on food prices, browse through this gallery.