SINCE its first appearance sugar has exercised an important effect on the development of world commerce. It has influenced the course of discovery; it has created great political issues. Conversely, the commodity itself has reacted often to the pressure of political events; its industrial history has been altered by the policies of sovereigns, ministries and parliaments. It has influenced politics and been a prey to politics. One writer[i] goes so far as to declare that "Probably no other industry has maintained so persistently a reputation for unjust discrimination and maladministration."

Sugar appears to be one of the many things that came to western civilization from beyond the Arabian plains in Asia. Sugar cane is known to have been cultivated in India before the start of the Christian era. The soldiers of Alexander the Great brought back from the banks of the Indus the "honey-bearing reed." The real introduction of sugar into Europe came, however, at a considerably later date. From India the use of sugar spread east and west. Sugar cane was known in China before Christ; the art of refining seems to have spread there from India by the early part of the seventh century A.D. By the same time the production of sugar was solidly established in Persia. There the Arabs found it at the time of their conquest. Turning westward with their wars to extend the teachings of Mohammed the Arabs carried sugar cane with them. They introduced its cultivation into Egypt, and, by way of north Africa, into Spain. The industry became well established around the Levant; and there the Crusaders became familiar with the commodity. Returning home, they introduced its use to Europe generally. A flourishing sugar trade developed between Europe and the Levant and Asia Minor, the great northern Italian cities, principally Venice, acting as distributing centers. Sugar became one of the more important commodities dealt in over these great medieval trade routes.

By the close of the fifteenth century, however, the evolution of the industry had taken a new turn. In 1453 the Turks took Constantinople; by 1517 they had taken Cairo; and their control of the Levant and overland traffic to the East was complete. Europe, tired of the exactions and dangers of the trade with and through Asia Minor, was seeking new routes to the East; the age of discovery was on. The Portuguese and Spaniards, who had found a new continent instead of a new way to India and Cathay, were about to take sugar cane to the West Indies. Venice was to lose and London to gain title to the world's sugar market. By this time sugar no longer was a commodity of the apothecary, but it was still a luxury. In 1482 it sold for as much as $2.75 a pound in the London market.

The beginnings of the independence from eastern supplies were laid, however, even before the Turkish conquests. The Portuguese started the cultivation of sugar cane in Madeira in 1420. In 1432 they carried it to the Azores, later on to the Cape Verde Islands and St. Thomas. By 1494 they had started what was to be a rapidly growing industry in San Domingo. During the early part of the sixteenth century the Portuguese and Spaniards carried the cultivation of sugar throughout the West Indies and into South America; they came to dominate the sugar trade. Antwerp first and then London became great refining centers from which sugar was distributed to the consuming countries of northern Europe. The discovery of cocoa in the West Indies and its rapid adoption as a beverage greatly stimulated the demand for sugar, just as the introduction of coffee, which came later in 1650, and the wide popularity it shared with tea, gave the industry another great stimulus. Later on the French, Dutch and British, extending their colonial activities and displacing the Spaniards and Portuguese, became the chief factors in the American sugar trade. More was heard of governmental interference with trade, through duties and navigation acts. Sugar became a large factor in the slave trade. The sugar plantations needed a large supply of cheap labor that could stand tropical conditions; the West Indian colonies supplied the sugar and other materials that furnished the basis for a triangular trade between Africa, America and Europe. The growing use of sugar during this period is indicated by the fact that consumption in Great Britain increased from 10,000 tons in 1700 to 150,000 tons in 1800.

As the nineteenth century approached there began to take place another great change in the development of the world's sugar industry, comparable to that which started with the age of discovery. The quarrels between the maritime nations of Europe had made the West Indian sugar trade increasingly dangerous. With British sea power established at Trafalgar, Napoleon instituted his Continental System. He prohibited all trade with England; in retaliation, Britain blockaded the ports of Europe. Napoleon had hoped to replace the West Indian sugar by eastern sugar brought over the old overland trade routes. He also had in mind the development of substitutes. Margraff had shown in 1747 that sugar could be extracted from beets. A few experimental beet sugar factories had been built in France and Prussia. Chemists had been exploring the possibilities. Napoleon offered the first government bounty on beet sugar in 1806; in 1811 he issued a decree to put 79,000 acres of French land into beet cultivation and started the industry off on largescale operation. Napoleon's fall and the break in the blockade brought a collapse in sugar prices and put the beet industry to a severe test. German and French beet production fell off seriously; but the industry received aid from another quarter -- the abolition of slavery in the European colonies, a development that came between the years 1825 and 1850. The change in the labor basis for the production of West Indian sugar was sufficiently disturbing materially to reduce the competitive effort from that region and greatly to strengthen the position of the young beet sugar industry. In any event, the production of beet sugar increased so that its proportion of the world's sugar crop grew from 14 percent in 1852-53 to 65 percent at the start of the twentieth century. In the earlier year the beet grower produced only 202,000 tons of sugar as against 1,260,000 of cane sugar; in 1899-1900 he produced 5,410,000 tons as against 2,880,000 tons of cane. At the start of the World War the figures were 8,908,000 and 9,879,000. The twentieth century, in short, witnessed the opening up on a huge scale of an entirely new supply of sugar.

To say that this development of the last century brought to its full fruition man's ability to interfere with the normal economic evolution of the sugar industry would not, perhaps, be an exaggeration. One might even go further and say that the history of the sugar industry during the twentieth century illustrates man at his best, or worst, in attempting to substitute his own conceits for free operation of the natural process of trade. Certainly the story abounds with instances of countries attempting to secure advantages by offensive and defensive legislation and of countries attempting programs of industrial development without any very clear idea of where they were leading.

The European beet industry from the start was fed on bounties. Napoleon started the ball rolling in 1806. By the time the system was in full swing all the chief European producing countries were subjecting the industry to a strong stimulus. In each case high import duties were installed to keep out foreign sugar, and in addition a bounty was offered for domestic production. The bounty might be direct, or it might be indirect, as was the case when the internal excise tax was kept below the import duty. The system greatly stimulated export business and fostered pooling within individual countries and dumping without. England benefited by these supplies of bounty-fed sugars which commonly were offered below the cost of production. The result was the paradoxical picture of England, the great free trade country, finding great virtues in the protective policies of its neighbors. The cost was borne, of course, by the consumers in the producing countries, where sugar prices were high on account of the high import duties and excise taxes. Meanwhile the artificial margin of profit that the system offered to producers led to quite natural and characteristic abuses.

While England itself profited by the situation, however, things were quite otherwise with its sugar-growing colonies, which suffered severely from bounty-sustained competition. The bounty-paying governments also began to feel the weight of the burdens they had assumed. The upshot of the matter was that the British Government in 1887 sent out invitations to an international conference. A meeting was held at London and an agreement was drawn up calling for the abandonment of bounties on production or exports and providing for the barring of bountied sugars by importing countries. This convention of 1888 failed of ratification, partly because France was unwilling to adhere and partly because of opposition in Great Britain itself.

Things came to a head a few years later. Germany doubled export bounties in 1895 and competing countries followed suit. Joseph Chamberlain, British Colonial Secretary, asked for and obtained a royal commission investigation of the effects upon the West Indian colonies. The United States set up countervailing duties on bountied sugars. A new international conference was held at Brussels in 1898 at the invitation of the Belgian Government. After much discussion a new agreement hung fire. France was unwilling to drop all bounties and Russia had reservations of her own. In the spring of 1899, however, the Indian Government set up countervailing duties and another dumping ground for cheap sugars was closed. Late in 1901 another session of the conference was held at Brussels and a convention was signed in 1902 which was ratified in 1903. This Brussels Convention, which suppressed the bounties and stopped the "hothousing" of the beet industry in Europe, remained in force with minor modifications up to the outbreak of the World War. Since the war, and with the many new countries created by the peace seeking to strengthen their home industries, a new system of duties has sprung up. The resulting situation embodies one of the tariff problems that Europe is coming to realize will call for some kind of conference and compromise if the economic recovery of the continent is not to be impeded.

Our own experience with sugar duties is of long standing. After the Civil War, and up to 1890, the tariff amounted to about two cents a pound. The McKinley bill, which became effective 1891, substituted for the tariff a bounty of two cents a pound. The Wilson bill of 1894 did away with the bounty and substituted a tariff of 40 percent ad valorem which, at the prices prevailing, amounted to about one cent a pound. The Dingley bill of 1897 restored the duty to close to the old rate. No change was made in the Payne-Aldrich Act of 1909. The Underwood Act of 1913 cut the rate to 1¼ cents and gave a reduction of 20 percent to Cuban sugar. It also contemplated the ultimate abolition of the duty, but this intention never was carried out. When the Republicans came into power after the close of the war they passed the Emergency Tariff Act of 1921 which raised the duty to 1.60 cents. In the Revenue Act of 1922 the duty was further raised to 1.7648 cents, where it still stands, the President having refused to lower it in accordance with the authority granted him by the "flexible provision" of the last tariff act.

The effects of our own tariffs have been not greatly dissimilar from those experienced abroad. The price of sugar to the consumer has been raised, the government has obtained important revenue, and an artificial stimulus has been put on the growing of sugar within the United States and its insular possessions. As to the revenue side of the matter, it has been estimated that out of a total tax on sugar consumers in 1922 of $216,000,000 the Treasury obtained $124,000,000, while the remaining $92,000,000 were distributed in the form of an indirect bounty to domestic producers.[ii] Of the latter sum the beet industry is estimated to have obtained some $38,000,000, leaving $19,000,000 for Hawaiian producers, $13,000,000 for those in Porto Rico, $11,000,000 for domestic cane growers and $9,000,000 for the Philippine industry. Prof. Taussig has shown very clearly how production in Hawaii was pushed to unnatural proportions, with the attendant creation of serious economic and social problems.[iii] He has emphasized the difference between the acquisition by the United States of insular possessions with lop-sided economic developments and wholly undesirable social and political conditions and such acquisitions as Louisiana and Texas, which made possible "a great extension of the geographical division of labor." "It is difficult to find in the whole Hawaiian episode," he declares, "anything but one long course of error. The American consumer paid for thirty years (barring the brief respite while the McKinley tariff was in force) a tidy sum annually to the Hawaiian planters. In the later years of the period this tribute amounted to twelve or fifteen millions of dollars a year. For this there has been nothing of any real value to show,--unless it be a stepping-stone to the Philippines, another dependency hardly less unprofitable."

With regard to the beet sugar industry, which is carried on chiefly in California, Colorado, Utah and Michigan, our Government has adhered pretty consistently to a paternalistic policy. The duties and bounties have been a direct stimulus, while the Department of Agriculture has carried on a persistent propaganda for the cultivation of beets and has spared no effort to assist the growers. An industry that produces about one million tons yearly and that represents a capital investment of about $300,000,000 has been built up. Defenders of this policy emphasize the desirability of being independent of foreign sources of sugar and cite the employment and wealth created by the industry. Economically, our "hot-housing" of beet sugar has little to defend it. Americans will not perform the labor needed in the beet fields, which is exacting, and labor conditions among the foreigners used for this work have been a constant source of criticism. Taking broader ground, it seems that the economic resources employed in the industry could be more profitably employed in other lines. As for being independent of foreign sugar, it may be noted that American capital already controls the Cuban industry, our chief source of supply. Pretty clearly it seems unwise to tax our consumers heavily in order to produce a commodity with difficulty in this country that can be produced more easily and cheaply in Cuba. A more rapid increase in our wealth and prosperity may be obtained by concentrating on our export trade with Cuba and other sugar-growing countries.

Having encouraged the development of the domestic beet industry our Government has, of course, a certain responsibility toward the interests vested therein. Complete withdrawal of the duty probably would put a considerable proportion of the producers out of business. A policy that has stood for several decades need not be reversed hastily. However, regard for vested interests should not obscure the need for setting up a policy that will stop the diversion of our national resources into relatively unprofitable channels. Some part of the beet industry would survive with a materially lower duty, while a reduction would stop the growth of the industry and its attendant problems.

The question may now be considered of how it is that Cuban raw sugar is selling at far less than the cost of production, at a time when prosperity is widespread and the consumption of sugar is establishing new high records? Sales recently have been made, cost and freight paid at New York, but without the duty paid, at 1 15/16 cents a pound. This is only ⅛ of a cent above the low level touched early in 1921, when the industry was deep in the depression that followed the great post-armistice collapse in sugar. It is less than half a cent above the lowest price for all time, that touched in 1902 when Cuban raws sold, cost and freight at New York, for 1 9/16 cents. In 1923, with prosperity restored, Cuban raws commanded more than 6⅝ cents. Why do they again sell at less than 2 cents?

Not much analysis is required to discover that for the moment the world has too much sugar, nor is it difficult to identify the sources of the excess production. Cuba has supplied a record-breaking crop at a time when the European beet sugar industry has recovered from war-imposed curtailment and when yields in other growing districts are generous. As a result, the world's sugar production for the crop year 1924-1925 has jumped, according to the statistics prepared by Willett and Gray,[iv] to 23,557,280 tons. This output represents an increase of 3,436,011 tons over the previous year, and of 5,235,000 tons over that of two years previous. Carried back to 1919-1920, the low year of the war-affected period, the gain is 8,335,000 tons, or 55 percent. A moderate growth over pre-war production, which was about 18,000,000 tons, certainly would be justified. Perhaps a supply of 20,121,000 tons, such as was produced in the crop year 1923-1924, would not be too much. But a production of over 23,500,000 tons clearly is more than the world can absorb at this stage of its development without a disastrous effect on prices. And the latest Willett and Gray estimates (November 12) are for 24,242,250 tons in 1925-1926.

How large a part Cuba has played in upsetting the industry's equilibrium may be seen when the facts regarding the island's output are reviewed. Last year's crop of 4,066,000 tons was considered a bumper; it exceeded any other on record. Yet this year's crop has yielded no less than 5,125,000 tons. High wartime prices greatly stimulated the cultivation of cane in Cuba. This year's crop was just about twice that produced in the year the war started. Part of the exceptional size of the latest crop was due to unusually favorable weather; similar weather would be required to duplicate it. On the other hand, given reasonably good weather, the new crop is likely to be large. Willett and Gray estimate it at 5,150,000 tons. Cuba has indeed become our sugar bowl -- and a very capacious one.

Meanwhile the recovery in the European beet sugar industry has carried production, which amounted to 8,180,000 tons in 1913-1914 and which dropped to a low of 2,603,000 tons in 1919-1920, back to 7,077,000 tons for the present crop year. For the crop year 1925-1926 it is estimated by F. O. Licht, the German authority, at 7,605,000 tons. French production, which dropped to as little as 110,000 tons in 1918-1919 -- the French beet fields and sugar factories having been in the zone of active military operations -- is now back at normal with an output this year of 827,000 tons. The German crop of 1,575,000 tons, still much below the 2,720,000 tons obtained in 1913-1914, is, however, a great improvement over the 739,000 tons obtained in 1919-1920. Some 200,000 tons of the German deficiency is explained by the loss of territory to Poland; the other one million tons appears a real loss, and one of the few losses in Europe that still exist. Austria's great pre-war production has now been split up among Czechoslovakia, Hungary and Poland; the aggregate, however, is well up to the pre-war -- Czechoslovakia alone produced 1,409,000 tons this year, Poland 494,000 tons, Hungary 202,000 tons. Production in other European countries, such as Belgium and Holland, has been increasing, and that in Russia is coming back materially. Licht estimates Russia's crop for 1925-26, in fact, at 950,000 tons as compared with 458,000 in 1924-25. Altogether it is entirely probable that Europe soon again will be the great sugar producer that she was before the war.

Such being the situation, the outlook for the sugar-growing companies does not appear particularly promising. Unfavorable weather could materially alter the position to the benefit of prices. Lacking that, another large crop is in prospect. The makings of another big Cuban crop certainly are present; and there is no particular reason to anticipate radical curtailments in other regions. In time low prices will bring the natural remedy in the form of reduced production and increased consumption; but they hardly have been in force long enough to restore the equilibrium. After all, the sugar industry enjoyed two years of generous prosperity in 1923 and 1924. If these were to be followed by two years of lean profits, the working of the law of compensation would be illustrated. The inertia of so huge an industry must be given due weight; the curb of low prices probably must be felt for more than a few months before the world production apparatus is readjusted. The situation is summed up in a recent statement by Edwin F. Atkins, by many regarded as the dean of the American trade. "I have not been disappointed," he declared, "at the fact that prices have not improved since last January, as I felt that there was an overproduction of sugar in the entire world and it will require another year before this can be adjusted to consumption and the surplus stocks absorbed. If none of the many possible adverse conditions develop, the coming Cuban crop will be large enough to keep prices low. While such conditions cannot be permanent, they will be likely to last long enough to put out of business the high cost producers, which will in turn have the effect of reducing production. I look for better conditions in 1927 . . . . The whole trouble, particularly in Cuba, is due to the high prices of several years ago, which led to over-expansion of the sugar business, planting of too much cane and the erection of new factories. Our domestic industry is in a similar position. The sugar industry is sick and needs a strong medicine in the shape of low prices to cure the sickness. After this, prices should slowly recover with a normal condition restored by 1927, and while the high cost producers may have to go out of business, low cost producers with strong financial resources will be in a better position than ever."

The sufferings imposed by the present situation by no means are restricted to the sugar producers. The refiners have been having fully as difficult a time. They have been unable to make profits at times when the producers have been earning well. All this argues for the existence of excess refining capacity. In addition, however, the refiners have been forced to cope with the fact that their refining margin is small in relation to the fluctuations that have occurred in the price of the raw material. When the price of sugar is stationary the refiner's problem is comparatively simple; he has merely to add his charge to the price of raws. When prices fluctuate the refiner must either speculate in the raw material or attempt to hedge in the futures market on the Sugar Exchange. Those refiners who have neglected, or have been unable to avail themselves of, the protection of the futures market have on numerous occasions during the past several years found their refining profit wiped out by their losses in the raw material. Our largest refining company was unable to pay dividends on its common stock during the past four years. Periods of rapidly fluctuating prices are difficult for refiners; those of slowly falling prices also appear to be unsatisfactory.

The sugar industry furnishes interesting evidence, then, of the limitations of the protective system as applied to internationally produced raw materials. Our high sugar tariff has been no safeguard for the domestic producing and refining industries against the cycles of depression that run over the world. In fact, there is reason to suspect that the industry's present troubles have been augmented by the tariff, which has stimulated domestic production at a time when the rest of the world has been working up to a surplus. Sugar, after all, is a highly competitive commodity. Its production is spread widely over the world, its consumption is sensitive to prices, and substitutes for its use exist and are being developed. Fluctuations between prosperity and depression are severe. The labor problem involved in its production is a difficult one. It would seem the part of wisdom to let the tropics carry this burden, and obtain our reward in supplying the tropics with the things that nature has best fitted us to produce.

[i] G. T. Surface: "The Story of Sugar;" D. Appleton and Co., 1917. For discussion of the history of the sugar industry see also G. M. Rolph: "Something About Sugar;" J. J. Newbegin, San Francisco, 1917.

[ii] P. G. Wright: "Sugar in Relation to the Tariff;" McGraw-Hill Book Co., 1924, p. 98.

[iii] F. W. Taussig: "Some Aspects of the Tariff Question;" Harvard, 1918, p. 58.

[iv] Willett and Gray: Weekly Statistical Sugar Trade Journal, Oct. 29, 1925, p. 56. For estimate of European beet crop 1925-26 see ibid. Oct. 22, 1925.

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