Big Brands Warn of Sugar Crisis

(MoneyWatch)  Kraft Foods, General Mills, Hershey and Mars are worried about our sugar supply. So worried, in fact, they helped write a letter to Secretary of Agriculture Tom Vilsack warning that the U.S. could "virtually run out of sugar" if our tariff system is not adjusted.

For all of our boasting about free trade, this country is extremely protectionist when it comes to sugar -- only a limited amount of sugar is allowed into the country before a high tariff kicks in. This policy has kept the price of sugar artificially high.

Right now sugar prices are at record levels unseen since the early 1980s. Bad weather in India has slowed output, and demand is up because so much sugar is going into ethanol production, particularly in Brazil.

The coalition of companies behind the letter said they want to be able to import more sugar without paying the high tariffs. According to the Wall Street Journal, "the companies threatened to jack up consumer prices and lay off workers if the Agriculture Department doesn't allow them to."

Sugar growers, naturally, are opposed to lower tariffs, which they say would hurt their profits. Jack Roney, an economist for the American Sugar Alliance, said that if sugar prices drop, the food companies will reap the benefits without passing any of the savings onto the consumer.

Furthermore, he said, there is no shortage of sugar in the U.S. The companies' letter was written before the USDA reported improvement in the country's stocks-to-use ratio.

Companies reliant on high-fructose corn syrup, such as PepsiCo and the Coca-Cola Company, are staying out of the debate. But as consumer demand leads more companies to turn to sugar as an HFCS alternative, I wonder if that will change, with a growing number of companies pitting themselves against the powerful sugar lobby.