How Sweet It Isn't In the Sugar Trade

By Kathleen Kingsbury

Sugar shortages are leaving a bitter aftertaste. Bad weather and rising energy costs have pushed raw sugar to its highest world price in a decade, about 15-c- a pound. In the U.S., a protectionist trade policy has made the situation even worse. "The 1 million-ton gap between sugar supply and demand will only grow more dire," says Sergey Gudoshnikov, a senior economist at the International Sugar Organization.

None of sugar's major producers have gone unscathed. Brazil, the world's largest exporter, is diverting more of its drought-shortened crop to the production of ethanol, a cheaper alternative to imported oil. In Thailand, the world's No. 2 exporter, supermarkets have begun rationing supplies. Drought in 2004, the worst in 40 years, reduced output by more than 2 million tons.

Europe's overhaul of its sugar-tariff regime in November and the resulting 4.5 million-ton decline in its exports have exacerbated shortages. Now sugar users in the U.S. are clamoring for the government to drop its quotas after last year's hurricanes drove the already artificially high domestic price up 25-c- a pound in a year. By law, the U.S. Department of Agriculture can't allow more than 1 million tons of sugar imports annually without a change in policy. Says USDA senior economist Larry Salathe: "It certainly looks like we're going to need it."