The total output of sugar in the world was for some years in excess of the requirements for consumption. This over-production and consequent accumulation of stocks brought prices down to a point which in all probability was considerably below the average cost of production.
Germany, as the largest sugar-producing country, naturally fixes the market prices of the world. The refiner in New York will pay no more for sugars to be shipped from Havana than the equivalent of the price at which he can buy at Hamburg; difference of freight, duties, bounties, and quality, of course, considered.
The present average cost of production of German raw sugar is said to be about 9s. per 112 pounds. At this figure the existing bounty upon exports would allow sales for shipment to England, where no duty is paid, as low as 8s.= $1.71 per pound for 88 analysis beets; this, allowing for difference in values of the two grades, would be equivalent to $1.89 United States currency for 96 test Cuba centrifugals, under like conditions, viz.: f.o.b. at port of shipment, for any country such as England where the two grades enter upon equal terms.
The effect of our countervailing duty assessed upon bounty-fed sugars under the Dingley Act of 1897, has been to raise the comparative value of cane sugar in producing countries, as against beet sugar, and to place Germany and other European sugar countries in exactly the same condition, so far as the United States market is concerned, as if no bounties were paid by them; thus in considering Germany’s competition with Cuba in the United States markets, we may eliminate both bounties and countervailing duties as factors, and say that when Germany can sell to England at 8s. she must obtain 9s. from the United States to give her shippers an equal price; 9s. is equivalent to about $2.18 United States currency, for Cuba centrifugals, 96 test, f.o.b. Cuba.
The export price of German sugar at Hamburg from January 1 to June 1, 1898 (a period covering the Cuban sugar crop season), ranged from 9s. to 9s. 9d. with an average of about 9s. 4½d.
Last crop prices gave the Cuban manufacturers an average of about 4½ reals per arroba, say 2¼ cents Spanish gold, a price at which they could be laid down in New York slightly under the parity of European beets, duty paid.
The imports of beet sugar from Europe into the United States, from January 1 to June 1, 1898, were 22,000 tons against 496,000 tons for same period of previous year; while imports of cane sugars showed an increase of some 60,000 tons; this change in source of supply being brought about by the countervailing duty.
It is not possible to give any figures of the average cost of production in Cuba. In my opinion it is undoubtedly higher than the average of Germany. Of the 2¼ cents net obtained by the Cuban manufacturers, the cane (which is generally purchased upon a sliding scale based upon the current value of sugar) costs them from 1 cent to 1¼ cents per pound of sugar according to yield at the various factories. This would leave them but little over 1 cent per pound, average margin, to cover manufacturing expenses, salaries, maintenance and repairs, office expenses, interest, insurance, and freight to seaboard, and while some factories, thoroughly equipped as regards machinery, skilfully conducted as to business management, favourably located regarding inland transportation, and not dependent upon borrowed capital, have shown fair interest returns upon capital invested, very many have been operated at a loss (aside from such losses as arose from the war), and the margin of profit, both past and prospective, is not such as to invite any large investment of new capital in sugar manufacturing.
The future values of sugar in Cuba are dependent, not upon cost of production in the Island, but rather upon the cost in Germany; and upon the extent to which free sugars are to be admitted into the United States from the Sandwich Islands, Porto Rico, and the Philippines. With new capital and skill the average cost of production in Cuba can be reduced, and with either free sugars or a uniform rate of duty in the United States, assessed upon all sugars (a countervailing duty to offset foreign bounties always maintained), she can hold her own and recover her prestige as a sugar-producing country, but the margin of profit in sugar manufacturing is so small, and the world’s capacity for production so great, that Cuba cannot recover her prosperity in the face of any advantage to be given to sugars from other countries entering the United States. At current prices in Cuba cane is worth to the planter the equivalent of $2 to $2.50 per net ton, out of which price he must pay for his planting and cultivation, cutting, and delivery to factory or nearest railroad point. As the cost of cane production consists almost entirely of labour, and wages in Cuba, for some years previous to the insurrection, ranged about the same in Spanish gold as similar work commanded in the United States, the profits in this branch of the industry have not been great, and have been dependent upon skill in management, quality of lands, and proximity to the factories.
The supply of labour and rates of wages in the future are now most serious questions to the sugar producer in Cuba, and present the greatest obstacle to reducing cost. For supplies of cane the manufacturer must depend either upon his own resources or upon large planters. Factories to be operated at a profit should be kept running day and night, and cane, owing to its nature, must be ground immediately it is cut. The grinding season in Cuba is limited to about one hundred and twenty working days, and small farmers, while they can generally find a market for their cane, cannot be depended upon for a constant regular supply. Had Cuba the power to dictate her own prices, she could maintain sufficient margin to overcome local difficulties, but that power has long since passed and future profits must be dependent upon her economies. The price of cane to her planters is dependent upon the price at which her manufacturers can sell their sugar, and this price in turn is dependent upon the price at which other sugar-producing countries (principally Germany, the great factor in the world’s sugar trade) can place their goods, duty paid, in New York. If Cuba in the future should have to compete to any extent, in the United States, with free sugar from other countries, while a duty was exacted upon Cuban sugars, her case would seem to be hopeless.