Papers Relating to the Foreign Relations of the United States, 1918
File No. 837.61351/43
The United States Food Administration to the Chief of the Latin American Division of the Department of State ( Stabler)
Dear Sir: We are enclosing herewith copy of an article which will be released to the press on September 30, stating the entire plan of the Food Administration in regard to sugar.
As this article embodies the views of the administration with regard to the handling of the Cuban crop, we feel it will be of interest to you, in view of the fact that you have been appealed to by the Cuban Minister.
Yours very truly,
Article released to the press on September 30, 1917, by the Public Information Division of the United States Food Administration
The United States Food Administration issues the following:
Sugar represents an entirely different problem for the Food Administration from almost any other commodity it has to handle, in view of the fact that about 50 per cent of the sugar we consume is imported from foreign countries.
It might be interesting to know that the entire domestic production from Louisiana, Hawaii, Porto Rico, and domestic beet follows the general trend of prices as established in the New York market. The New York price is based generally on the price of Cuban centrifugal, to which is added the duty of one cent and the refiner’s differential. The Cuban sugar, therefore, becomes the dominating factor, and the domestic products follow and meet this competition. The domestic producers do not raise sufficient supplies for the United States, causing the Cuban sugar to become the predominating feature and actually control the price in the United States.
It is the intention of the Food Administration to enter into negotiations with the Cuban Government and the Cuban planters to see if a voluntary agreement cannot be reached fixing a price for Cuban sugars in New York that will be satisfactory to the Cuban producers and at the same time insure a fair price for the consuming public in the United States. The Administration has every reason to believe that such a voluntary agreement can be effected.
In order to handle the situation and arrange for the distribution of the available sugar in the world, an international sugar committee of five members has been formed. Two of the members of this committee were appointed by the Allied Governments, and the men selected for this important work are Sir Joseph White-Todd and John R. Drake, both of whom are familiar with the sugar situation. The two American members of the committee appointed by the Food Administration are Earl D. Babst, president of the American Sugar Refining Co., and William A. Jamison of Arbuckle Bros., neither of whom is interested in any way in the production of Cuban sugar. Mr. George M. Ralph, [Page 341] head of the sugar division of the Food Administration, will be the fifth member of the committee.
It will be the duty of this committee to arrange for the purchase and distribution of all sugar, whether for the United States or the Allied countries.
There will also be a committee of American refiners consisting of: Mr. C. A. Spreckels, New York; Mr. Jas. H. Post. New York; Mr. C. M. Warner, New York; Mr. Geo. H. Earle, jr., Philadelphia; Mr. Dwight P. Thomas, Boston, which has been formed to cooperate with the international committee with the idea of assisting in the distribution of that part of the imported sugar that comes to the United States refineries.
The three American members of the international committee will serve as a subcommittee to handle and decide purely domestic questions with which the Allied members are not concerned.
Conferences held in Washington and New York between representatives of the entire sugar refining industry of this country and the Food Administration have resulted in a voluntary agreement for the duration of the war. Refiners will undertake not only to obtain their supplies of raw sugar under the direction of the International Sugar Committee, but they also have agreed to work on a stipulated margin between the cost of raw sugar and the selling price of refined, thus limiting profits and going a long way towards stabilizing prices and eliminating speculation.
This cooperative buying between the refiners, and those purchasing raw supplies for England, France, Italy, and Canada, with the resultant elimination of competitive buying, is expected to save consumers many millions of dollars, and to prevent the rapid fluctuations in prices that we have seen since the outbreak of the European War in 1914. The natural channels of trade were then suddenly disrupted, and a large part of the world’s available supply of sugar was cut off, due to the fact that the Central powers were no longer exporters. This was followed by a reduced production of sugar in France, Belgium, and Russia, leaving the world with a decreased sugar supply, but without any corresponding decrease in consumption. Sugar producers were then in a position to exact high prices, but now, through governing regulation, it is Intended that consumers’ interests shall be protected, in an effort to combat the old laws, based only on supply and demand.
As a step in this process, refiners have agreed to refine sugar on a net margin between the cost of their raw material and the selling price of their refined product of approximately 1.30 cents per pound after trade discounts have been deducted. The basis for this margin had its origin in the five-year pre-war period. The figure was arrived at by taking the average margin for five years previous to and including 1914, and adding the increased cost of operation which refiners must now face. For example, in refining sugar there is a loss in weight of about 7 pounds on every 100, and as raw sugar is expected to cost in round figures about 2 cents per pound more than in the five-year prewar period, this alone amounts to an increased cost of 14 cents per 100 pounds. Bags, jute, and cotton have increased in price equivalent to about 15 cents per 100, coal 5 cents, labor 8 cents, bone black 2 cents. These increases, added to the old pre-war basis, bring the figure up to 1.281 cents, so that in selling on a margin of 1.30 cents net, only .019 cents per pound has been left to cover the increased cost of lighterage and cartage, added interest on the larger amount of money invested in the business, Increased insurance, due to explosion risks and the higher valuation of sugar, as well as the higher cost of all materials used in the refineries. Of course, this small fraction will not cover these increased costs, so it will be seen that notwithstanding the fact that the differential is higher than formerly, the actual net margin of profit left to refiners is about the same as the pre-war basis. Their advantage must come mainly through ability to run their plants at full capacity for nearly the entre year, due to the large increase in export business which is now obtainable.
The Food Administration is naturally much gratified in securing this cooperation, as through it an important step had been taken to eliminate speculation and place values on a stable basis, the effect of which will be more apparent during the latter part of this year and in 1918 when new sugar crops come on the market.
Within a short time conferences between representatives of the Cuban Government, Cuban planters, and the Food Administration will be held, and the price to be paid for Cuban sugar for the next crop, which begins in December, will be considered.
[Page 342]The cost of producing sugar in Cuba has advanced greatly within the past three years due to increasing cost of labor, increasing cost of all kinds of supplies, increased freight rates, cost of bags, and increased taxes. These conditions will naturally be taken into cons deration by the administration in agreeing on a price with the Cuban planters, as it is essential that fair profits be allowed to all producers in order that production be not discouraged. Increasing the production of sugar to-day is just as important, if not more so, than reducing the price to the consumer, as our allies fighting in the trenches of Europe must be kept supplied with an adequate amount of this most important food product.
The refiner sells his product to the wholesale grocery jobber through a broker, and in turn the jobber sells to the retail trade. The margin of profit for the jobber and the broker, like that of the refiner, will be limited by the Food Administration to an amount that will represent a reasonable charge for the services performed. By these regulations and agreements the Food Administration hopes to eliminate speculation and to deliver sugar into the hands of the retail trade at a fair cost based upon the present cost of production, manufacturing, and distribution. There the Food Administration’s control stops and it will be necessary for the consuming public to see that they obtain their sugar at a proper price from the retail trade. The administration will assist in every way through publicity in keeping the country posted as to what the retailer should charge in the various sections of the United States. It will be up to the consumer to do the balance.
Inasmuch as the price of Cuban sugar on the New York market really controls the entire domestic production, it was not the intention of the administration to attempt in any way to regulate domestic producers.
A situation arose in June and July which made such action imperative. Bills were introduced in Congress providing for the elimination of the drawback on export sugar, and the application of a consumption tax. Foreign buyers, who up to that time had been making their purchases through American refineries, decided that as the bills were introduced as war measures, and would therefore be enacted into law promptly, it would be to their advantage to buy Cuban sugars direct at any price from the then Cuban market, not exceeding an advance of 1½ cents which was the extent to which sugar would have been affected if the bills had passed.
This started a violent speculation in Cuban sugars, with the result that the price advanced from 5.77 in the last week in June to 7.77 the first week in August. While there was very little sugar left in Cuba, it meant that if such a condition was permitted to continue, the cost to the American public would be something in excess of $30,000,000 between then and the beginning of the new Cuban crop in December.
Refined sugar naturally followed raw, and quotations advanced to as high as $9.15 per 100 pounds. To protect the public against these unnatural, unnecessary, and speculative prices, the Food Administration immediately changed its policy and made a direct appeal to the domestic beet-sugar producers to come to the aid of the country with their product. In August representatives of 85 per cent of the domestic beet-sugar industry met with the Food Administration in Washington and pledged the interests which they represented to maintain a price for their product of not to exceed 7.25 cane basis seaboard refining points, from the beginning of the crop, starting in October, until same had been distributed. Announcement of this fact had the immediate effect of stopping the speculation in Cuban sugars and of reducing the price generally throughout the country to more normal levels. The main thing that it accomplished, however, was that it stopped further speculation and prevented the price to the American consumer reaching much higher levels. If the speculation in Cuban sugar had not been checked, it is not unreasonable to believe that sugar would have been selling wholesale to-day at prices ranging anywhere from 10 cents to 12 cents a pound. This alone demonstrates conclusively the value of a domestic-grown product to the United States. Too much emphasis can not be placed on this fact, and the attention of the American public should be directed to this most important industry.
Aside from Louisiana cane representing about one-third of the beet production, and combined with the’ beet representing a total production of a little over 1,000,000 tons, there is no sugar that would be available for consumption in the United States if our coasts were blockaded by foreign powers, as Germany’s now are. This 1,000,000 tons of domestic production represents less than 25 per cent of the consumption of the country. It is evident, therefore, [Page 343] that every encouragement should be given to this, one of our most important domestic industries.
Immediately after the conferences with the beet producers in August a conference was arranged at which representatives of 100 per cent of the domestic industry were invited to attend, in order that action on part of the industry might be made unanimous. Conferences between the Food Administration and all the beet producers of the United States have been held in Washington during the past few days, and it is gratifying to the Government and the Food Administration to say that 100 per cent of the beet producers of this country, representing many different states in the Union, have voluntarily entered into an agreement with the Food Administration whereby and under which the sale and distribution of the entire beet sugar produced in the United States is placed in the hands of the Food Administration, to be sold at a price not exceeding 7.25 cane basis seaboard refining points.
The Food Administration has appointed the following committee to handle the details of the distribution of the beet sugar to be known as the Food Administration Sugar-Distributing Committee: H. A. Douglass, Detroit, Mich.; E. C Howe, Denver, Colo.; W. H. Hannam, San Francisco, Calif.; S. H. Love, Salt Lake City, Utah; W. S. Petriken, Denver, Colo.; S. W. Sinsheimer, Huntington Beach, Calif.; W. P. Turner, Detroit, Mich.
The Western Sugar Refining Co. and the California-Hawaiian Sugar Refining Co., both located at San Francisco, Calif., have notified the Food Administrator that while it will result in tremendous losses to their interests, they will join with the beet producers of the country and make the price for cane sugar in the western half of the United States not to exceed 7.25 cane basis seaboard refining points. This links up two of the domestic sugar industries (domestic beet and Hawaiian cane) in meeting the views of the Food Administration, and credit is due the western refiners in complying with the views of the administration. The sugar that these refineries have been receiving, and which they now have on hand, has been purchased on the basis of the price of Cuban sugars in the New York market, and in naming the 7.25 price they are virtually selling their refined product on the basis of what the raws cost them.
As the Colorado-Utah and Michigan beet crops will not be in full swing until the middle of October, and as the time of transportation from the producing centers to the Atlantic seaboard is not less than twenty days, the situation on the eastern seaboard presents a different problem from the West. It is therefore probable that in order to save great loss the eastern refiners will be compelled to maintain present prices for cane sugar until there is sufficient beet available to control the eastern market.
A statement is now being prepared by the administration for the benefit of the sugar trade, giving full information in regard to how the plans of the administration are to be worked out.
As the domestic beet and Hawaiian cane productions are not sufficient to supply the entire United States with sugar, there is bound to be some confusion in certain eastern sections between October 1 and the arrival of the new Cuban and Louisiana crops. Any differences between the price of cane and beet sugars in the eastern markets will be eliminated on receipt of these crops.