Sticky Slump

In the violently inflationary year of 1974, sugar seemed to many consumers an even bigger villain than oil. A combination of rising demand and crop losses due to bad weather caused the price per pound of raw sugar delivered in New York to multiply almost six times between January and November, to a high of 64^0. Angry consumers organized boycotts, but growers believed that they would not succeed. They thought sugar was one of those little luxuries that people would pay almost anything to buy.

How wrong they were. Less than three years later, raw sugar prices have plummeted to about 11 1/2-c- in New York --up a bit from late 1976 but lower than they were before the 1974 spiral started. Amstar, the leading U.S. refiner, suffered the largest 1976 sales decline of any company on the FORTUNE 500 list; its revenues fell almost 34%, to $1.1 billion. At that, refiners are lucky; they have continued to make a profit ($43 million for Amstar last year) because their cost of buying raw sugar has fallen as fast as the price at which they sell the refined product. Growers in the U.S. and abroad are losing money. Moans Cane Grower J.R. Roane: "Louisiana will be out of business in another two years at this price level." The price collapse has badly hurt the Cuban economy; that is a major reason why Fidel Castro is eager to re-establish trade with the U.S., once Cuba's prime customer.

What happened? The reasons for the slump may spell out a cautionary tale for coffee producers, who now seem to be passing the peak of a price climb as dizzying as the one in sugar in 1974. In brief, consumers did rebel: American per capita consumption last year was less than 95 lbs., down 8 1/2 lbs. from 1973. At the same time, growers, enticed by the high prices, overplanted, and are now turning out more sugar than anyone wants to buy. World production in the crop year ending Aug. 31 is forecast to be 87.7 million tons, or 4.4 million tons more than the expected demand.

Fructose Threat. Sugar producers see no quick way out of their troubles. President Carter has promised a subsidy of as much as 20 per lb. to U.S. growers, but that will still leave their return below production costs. A conference of producing and consuming nations in Geneva is exploring ways to establish a floor and ceiling price for sugar, but U.S. experts give it only a fifty-fifty chance of success. The obvious way to push prices back up is to cut production, but that is difficult for nations such as Cuba and the Dominican Republic, which depend on sugar for most of their foreign-currency earnings. Meanwhile, the U.S. sugar industry faces another threat: the growing use by commercial food processors of high-fructose corn syrup, a sweetener that is cheaper than sugar even at present prices.

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