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Record High Sugar Prices Impact Small Business

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By Neetal Parekh on August 17, 2009 2:05 PM

Sweet tooth or not, the sugar prices have food-makers big and small concerned.  Sugar prices are at a 28-year high, and up 72% from what they were six months ago.  Unfavorable weather--droughts in India and rains in Brazil--affected the crops of the top two sugar-producing countries. 

The country's major food producers are concerned with recent increases in the cost of raw and refined sugar and are urging the Obama administration to loosen import laws restricting import of foreign sugar to meet domestic needs.  Sugar happens to be the only major U.S. crop to be subject to import restrictions, designed to benefit domestic producers.  According to legislation passed last year, the U.S. Department of Agriculture (USDA) can only change sugar import quotas in the last 6 months of the federal fiscal year, ending September 30th 2009. 

How will the spike in sugar costs affect Main Street?

At a time when small businesses are already treading through molasses to stay afloat in the economy, a spike in the cost of raw goods for food-related industries such as bakeries, restaurants, and cafes could affect production costs.  Whether small businesses absorb the costs or pass them on to consumers will remain to be seen.  Some analysts suggest that the lower cost of grains will balance out the higher costs of sugar, thus leaving the overall production costs of goods more or less the same.

The USDA does not seem to be powdered by the sugar reports.  It sees the sugar situation working itself out with increased domestic beet sugar and cane sugar production making up for the decreased foreign supplies of sugar. 

However, big-food USA is not waiting for the sugar high to level off, the Wall Street Journal reports that companies including Kraft Foods, General Mills, Hershey, and Mars wrote a letter to Agriculture Secretary Thomas Vilsack warning that they may be forced to raise consumer prices and lay off workers if the U.S. government does not allow tariff-free sugar imports.

September 30th is just over a month away, Washington will decide whether it will it bring confectioners' relief or sweet nothings.

 

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