Sugar Shortage, 1975

History and Causes

The United States imposed tariffs on imported sugar from the 1930s until the middle 1970s. These tariffs date back to the Jones-Costigan Sugar Act of 1934 and were implemented to protect domestically produced sugar. A series of similar acts followed until the Sugar Act of 1948, which solidified a method of establishing quotas and maintained sugar tariffs. At the urging of many top economists, the U.S. Congress allowed this act to expire in 1974, despite protest from sugar lobbyists. Without the tariffs in place, foreign producers would, in theory, be able to flood the United States with cheap sugar and drive down both wholesale and retail sugar prices. The potential for lost revenue caused some U.S. sugar producers to switch to other crops. In the north, many sugar-processing plants shut down and the sugar beet industry practically disappeared overnight. Many farms switched to corn to take advantage of federal subsidies. This move later led to an exponential growth of HFCS production. During the late summer into the fall of 1974, it appeared the economists had miscalculated, as the price reduction they had anticipated from free trade did not occur. Rather, the price of sugar skyrocketed. In the New York Coffee and Sugar Exchange, the price of sugar reached $0.66 per pound (lb) in November 1974, which was up from $0.074 per lb in October of the previous year.

To understand this staggering price hike, it is important to also consider what took place at the same time in the Soviet Union. The Soviet Union was one of the world's largest sugar beet producers, but it experienced a poor beet harvest in 1974. During this time, the Soviets bought up both sugar futures contracts and actual sugar from the London Exchange while keeping quiet about their domestic shortage. Had they disclosed this information, the price of both futures contracts and actual sugar would have been higher. With commodities experts in the dark, the Soviets were able to procure sugar futures and actual sugar at well over 50 percent of their estimated value. Suspicions arose among the experts when the U.S. Department of Agriculture sent a team to the Soviet Union to inspect wheat-growing areas. The Kremlin did not allow the inspection team to leave Moscow, so they returned to the United States having not inspected any fields. Shortly thereafter, a report released in West Germany told of flood-damaged Soviet crops. Commodity experts immediately reacted to this news in November 1974, and sugar prices rose sharply.

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