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PARAGRAPHS 216-219-CANE SUGAR, ETC..
United States shall be taxed from $100,000,000 to $150,000,000 every year. Louisiana planters allege that it costs them 3 cents per pound to produce raw sugar. The cost in New York of Cuban sugars is less than 2 cents and the Hawaiian planter during the last 25 years landed his raw sugars in New York at 2.96 cents per pound. The Louisiana planter is engaged in an unequal contest with nature, the result of which is certain. He will be driven out by the beet-sugar men whom he supports to-day. The constant fear of frost requires the Louisiana planter to begin cutting in October before the cane is matured. The result is that the sugar yield is from 6 to 7 per cent, as compared with 10 to 12 per cent in Cuba, and in the Hawaiian Islands to 12 to 15 per cent. The Louisiana planter has received subsidies direct and indirect, through bounties and by a high protective tariff for 100 years, and to-day confesses his inability to stand alone. He demands that the American people should be taxed over $100,000,000 that he may produce a crop of one-quarter of that amount. The statement of his claim is its complete refutation, and an indignant people will not forever pay taxes to keep this costly exotic in full flower. It would be cheaper to buy the sugar lands and plants and sell them again at their value for other crops, or annually to buy the whole crop. If the planters in Louisiana must be nursed until death a system of bounties is surely cheapest.
The causes of high prices in Porto Rico are frankly stated by Mr. Frank A. Dillingham, who testified before the Committee on Finance of the Senate in behalf of the Porto Rican climate (pp. 208-209):
"The following reasons may be given for the high cost of cane delivered at the factory in Porto Rico:
"In the first place, a large amount of cane is purchased from independent planters, not raised by the factories themselves. The percentage varies from one-fourth to threefourths. The number of independent farmers raising cane for the central factories runs into thousands, several hundred planting for one factory, of whom a large number are financed by the factory, directly or indirectly. In the parts of the island reached by the public-service railroads these planters have a choice between two and in some cases four factories, all of which are competing for their canes. It is only in one or two small isolated districts that the planters are dependent on any one factory. The result of this is that prices paid to planters are usually high. In Santo Domingo, for instance, the farmer is paid for his cane during the 15 to 20 years of its perennial growth from 4 to 5 per cent of the weight of his canes in sugar at the London market price, equivalent to from $1.25 to $1.75 per ton. In Porto Rico the planter is paid from 54 to 6 per cent sugar at the New York price, amounting to from $4.50 to $5.50 per ton, with a bonus for canes of better quality, the factory paying the freight on canes from field to factory and the cost of weighing and other incidental expenses.
"The better sugar lands in Porto Rico, having been in cultivation for many years, are more or less worn out and are also infected with disease. In the other islands in the West Indies, when either of these things occurs, the planter lets the land revert and plants new land, of which there is an abundance; but in Porto Rico there is practically no new land, and the planter must therefore replant his old land, treating it to get rid of disease, fertilizing it with commercial fertilizers costing $40 per ton, and plowing with steam plows costing $20,000 each to buy and from $15 to $16 per acre to operate. In saying there are no new cane lands in Porto Rico I use the term cane lands in the ordinary sense. New lands have been and are being planted in cane, but they are for the most part lands that could not be used for cane in any country that did not have protection. The Porto Ricans are planting and for several years have planted hillsides, hilltops, dry lands, shallow land, and, in fact, any lands within reach of a road or a railway. The independent planter does this because of the high price he can get from the factory for his canes, and the factory does it even more on its own lands because even if the cultivation is carried on at a loss the factory can none the less make its manufacturing profit on sugar from such canes, no factory in the island having cane sufficient for its operation in full capacity, and being, therefore, obliged to go to any reasonable expense to add to its supply."
The plea that ninety millions of people in the United States should be taxed to enable the Porto Ricans to make their worn-out and unfit lands profitable for the growth of sugar cane shows the extreme effrontery of the beneficiary of the tariff
SUGAR-BEET CULTURE AND THE FARMER.
It is also argued in the Senate committee's report that great benefits result to the farmers from the sugar tariff schedule. The highest basis paid for sugar beets anywhere in the United States is on the following scale: $4.50 per ton for beets when the sugar contained is 12 per cent, and 333 cents per ton advance for each 1 per cent
PARAGRAPHS 216-219-CANE SUGAR, ETC.
increase in the sugar contained. Mr. F. O. Licht, recognized the world over as the leading statistician of Europe in these matters, gives the average price paid the farmer for sugar beets in Germany (where the tariff on raw sugar is 47 cents per 100 against our $1.685; and on refined sugar 52 cents against our rate of $1.90) per long ton as follows:
This is not the whole story. The beet growers of Europe are furnished with their beet seed free of charge. In the United States the factory imports the best seed from Europe and sells it to the farmer. In Europe the farmer gets 40 to 60 per cent of the pulp returned to him without charge. In the United States the pulp is sold by the factory to the farmer. The selfishness of the beet-sugar factory owner and his disregard of the welfare of the farmer is further easily shown. The factories buy the sugar in the beets. When they buy a ton of beets they buy the sugar content and pay on the basis of the sugar content.
"When they pay the farmer $4.50 per ton for 12 per cent beets containing 240 pounds of sugar, they pay the farmer for the sugar that is in the beets at the rate of 1.87 cents per pound; $5.50 per ton for 15 per cent beets containing 300 pounds of sugar, they pay the farmer for the sugar that is in those beets at the rate of 1.83 cents per pound; $6.50 per ton for 18 per cent beets containing 360 pounds of sugar, they pay the farmer for the sugar that is in those beets at the rate of 1.80 cents per pound.
"When they pay $6.50 for 18 per cent beets they are actually paying less for the sugar in the beets (which is what they are buying) than if they paid $4.50 for 12 per cent beets, or $5.50 for 15 per cent beets. It is clear that the reverse should be true because of the greater value to the factory of the highest test beets.
"If the factories were honest with the farmer and paid for the 18 per cent beets (which are of greater value because they are easier to work) the same basis as on the lower test, they would pay $6.73 per ton instead of $6.50 per ton.
"In this way the factories take from the farmer, whom they 'love,' a part of the benefit derived from the fact that the beets have been properly cultivated and the Lord has sent His rain and sunshine at the proper time and in sufficient quantity to produce the best results." (Lowry Bulletin No. 13.)
The truth is that the farmer raises and sells his beets on a free-trade basis and pays to the very factory which buys his beets a profit swollen by the tariff tax.
The principal beneficiary of the sugar tariff, originally a revenue measure, is now the beet-sugar industry, largely owned (as will be shown) by the American Sugar Refining Co. It is not the beet refiners who would be injured by the removal of this iniquitous tariff. Perish the thought! It is the "poor farmer," who grows the sugar beets, who would be ruined. Hence these crocodile tears. If the farmer's land could grow nothing but sugar beets, there might be a measure of merit in the argument; but that is ridiculously untrue. The farmer is making no complaint. He is not a conspicuous lobbyist in the Halls of Congress or in the committee rooms. He appears to be quite content with the favors of fortune which have come to him in the ordinary course, and that these favors do not spring from the cultivation of the sugar beet is shown by the fact that less than 475,000 acres of land have been devoted to that purpose out of all the vast areas of tilled land in this country, and that it would require the production of more than 2,000,000 of acres under beets to equal the home demand for sugar, a demand which according to an estimate of the Department of Agriculture exceeded for the year 1912 the stupendous total of 8,000,000,000 of pounds. It would seem that the time has come when the "poor farmer" should cease to be worn as a talisman by favor-seeking corporations and the "poor-farmer" argument given a decent interment by the side of that other archaic political fetish, "the foreigner pays the tax.'
THE SEABOARD REFINERS AND THE HOME PRODUCERS.
The testimony before the Hardwick committee shows that beet sugar can be produced in well-equipped factories from beets with high sugar contents grown in good soil in favorable climate at 2.70 cents per pound. The high cost from the poor beets in wastefully conducted factories brings the cost of manufacturing and selling up to 3.54 cents per pound. The lands unfitted for beets could better be devoted to other agricultural produce, and it would seem to be wise governmental policy not to encourage exotic beet growing. A class of beet growers comparable to the Louisiana cane growers will be nursed into activity to vex the Congress every year with demands that
PARAGRAPHS 216-219-CANE SUGAR, ETC.
taxes may continue or increase that exotic beets may live. But, even if it be conceded that all beet-sugar factories, good, bad, and indifferent, and all farmers producing sugar beets from lands fit and unfit for their culture must be protected, a proposition which we vehemently deny, a full duty of 60 cents per 100 pounds of raw sugar 96° test will suffice, with the Cuban differential of 20 per cent, making Cuban sugars pay 48 cents per 100 pounds. This would save to the American people 1 cent per pound, or over $80,000,000 per annum.
"It is well know in the trade that, where factories are properly located and thoroughly equipped, there should be no difficulty in producing beet sugar at 3 cents per pound (see Hardwick hearings), and the beet men themselves boast of this when seeking financial assistance.
"Taking their own figures of the cost of producing and selling in good, bad, and indifferent factories, their evidence before the Hardwick committee shows that the average cost was only 3.54 cents per pound.
"Messrs. Willett & Gray show that the average New York refiners price for the past seven years on refined sugar has been 4.98 cents per pound.
"The Department of Commerce and Labor, Bureau of Statistics, No. 240, page 517, shows that the average cost per pound, free on board in foreign countries, of the raw sugar imported, 1905-1911, inclusive, was 2.378 cents per pound.
"Add the freight to get the average cost laid down at United States ports, say, 0.14 cent per pound, making the in-bond price delivered at United States ports 2.518 cents per pound.
"Add the duty which we propose on 96° test, 60 cents on full-duty sugar, and 48 cents on Cuban importations, making average rate actually paid, say, 0.53 cent, making refiners' first cost, duty paid, 3.048 cents per pound.
"Add the margin between price paid by refiners for raw sugar and their selling price on refined the past seven years, 0.859 cent per pound, making refiners' average selling price under proposed new rate 3.907 cents per pound, New York."
Mr. George H. Fairchild, appearing before the Committee on Finance of the Senate (p. 350) in behalf of the Hawaiian planters, stated that they sold three-quarters of their raw sugars in the New York market at a price which for the last 25 years has averaged 2.96 cents per pound. He did not explain why they do not sell the whole of their sugars in San Francisco market at about 2.70 cents per pound. The refiner's margin of 0.859 cents would bring the cost of refined Hawaiian cane sugar in San Francisco to 3.5 cents per pound and in New York to 3.819 cents per pound. The cost to the refiner of duty-paid sugar in New York on the rates assumed will exceed the cost of Hawaiian
The beet-sugar factories are located in the interior and sell their sugar above the New York price, but, as this advantage is partly offset by the fact that the trade will not pay as much for beet sugar as for cane, we have not taken this advantage in price into consideration in this calculation.
"We find that the rate proposed would give beet-sugar factories who produce at 34 cents per pound a profit, as a direct result of the tariff, of 0.407 cents per pound, or $8.14 per ton. And those properly located and equipped, and who produce sugar at 3 cents, a profit of 0.907 per pound, or $18 per ton." (Lowry Bulletin No. 13.) A cane refinery in New York is very glad to make an average profit of 20 to 25 cents per 100 pounds.
As the average price of granulated under the present tariff has been 4.98 cents per pound, the saving to the American people under the proposed rate would be over 1 cent per pound, or $75,000,000 on the amount of sugar consumed in 1911.
It is no answer to this to tabulate figures to prove that the per capita consumption on the table is small. A reduction of 1 cent per pound would increase by one-fifth the purchasing power of the money appropriated for sugar in thousands of modest households where the increased cost of living compels the count of pennies.
The rate proposed will amply protect, for all legitimate purposes, the sugar industries of Porto Rico, Hawaii, the Philippines, and also our domestic beets. It will discourage the overcapitalization of beet-sugar plants and the improper location of factories where climate and soil conditions are against good results. The domestic industry would be on a much better footing if the tariff were revised so as not to encourage both of these fundamentally unsound conditions.
A fair example of this overcapitalization is found in the American Beet Sugar Co. They have $5,000,000 preferred stock selling at about par and $15,000,000 of common stock, which until recently was selling at over 70 say, a selling value of $15,000,000. They produce one and one-half million bags, say, 75,000 tons per year. A cane-sugar refinery in New York with $5,000,000 capital will produce over 350,000 tons in a year.
PARAGRAPHS 216-219-CANE SUGAR, ETC.
The gross earnings of the American Co. for the year ending March 31, 1912, were over $9,000,000. After paying 6 per cent dividend on the preferred shares the company had available for dividends on the common stock 13 per cent, and all this was after the unusual allowance for depreciation of $756,000. The common stock of this company has come to be a favorable speculation in Wall Street, and the protection of it is therefore a protection of the speculator. The Union Sugar Co. last year paid 100 per cent and the Michigan Sugar Co. 35 per cent in addition to the regular dividend of 7 per cent. These beet-sugar manufacturers have capitalized the tariff. Under a proper tariff they would pay legitimate dividends on legitimate capital.
THE PRICE OF SUGAR.
The Senate committee argues that the low and stationary cost of sugar in the United States is to be credited to the domestic beet-sugar factories. All the beneficiaries of the high protective tariff use the shopworn argument, "Keep the tariff where it is and let us reduce the price by producing all our sugar at home."
The following are the quotations for granulated sugar, quoted May 4, 1912, throughout the United States by cane refiners and beet-sugar factories, subject to a cash discount of 2 per cent:
New York, 5.05 to 5.20 cents for cane.
San Francisco, Hawaiian cane, 5.50 cents; domestic beet, 5.30 cents.
Philadelphia, 5.20 cents for cane.
Salt Lake City, Utah, Hawaiian cane, 5.95 cents; domestic beet, 5.75 cents.
Colorado Springs, Colo., Hawaiian cane, 5.80 cents; domestic beet, 5.60 cents.
Kansas City, Mo., Hawaiian cane, 5.48 cents; domestic beet, 5.43 cents.
Buffalo, N. Y., 5.20 to 5.35 cents for cane.
Minneapolis, Minn., Hawaiian cane, 5.45 cents; domestic beet, 5.40 cents.
Chicago, 5.275 to 5.425 cents for cane.
Detroit, Mich., New York cane, 5.2225 to 5.3725 cents; domestic beet, 5.2725 cents. "There is no theory about this. In actual practice, prices are higher in our Western States, where the sugar used is largely of domestic production, and pays no duty, than it is in the East, where the sugar pays the import duty.
"The cost of production has no relation to the selling price of domestic sugar, and the domestic producer bases his price on the value of imported sugar plus the duty and the cost of refining. Verily, he adds not only the duty but the freight from the seaboard to his distributing markets as well. During the summer and autumn of 1911, owing to short crops of cane sugar, the price of 'raws' rose above 5.75 cents per pound and the refined rose in eastern markets above 7 cents per pound. The cost to produce the domestic beet sugar was not at all increased, and yet its price rose steadily with the price of cane sugar, and to these prices the beet sugar factories continued to add the tariff tax and the freight to the western markets." (Lowry Bulletin No. 13.)
Did the people of the Western States who paid these high prices receive any benefit from the fact that this domestic beet sugar was produced at a cost of around 3 cents per pound? Will the beet sugar barons who took full advantage of the short cane crop lower prices if they should have complete control of the markets?
It is argued in the Senate committee's report (p. 11) that "the refining industry can be and is conducted in large units which are controlled by a few people who fix the price of the product at will, while it is impossible to conceive of several hundred beet or cane-sugar factories scattered throughout a large number of States being controlled by one body of men." A table on page 2 of the report shows that in 1911 the domestic beet-sugar production was 606,433 short tons. Mr. Atkins, vice president of the American Sugar Refining Co., testified before the Hardwick committee that the American company owned stock of the par value of $23,183,990 in 13 beet-sugar companies capitalized at $56,883,617, which produced in the campaign of 1910-11, 546,049,181 pounds. The holdings of the American Sugar Refining Co. run from 35 per cent to 80 per cent of the capital stocks quite enough to control the policies of these companies. A chief beneficiary of the high tariff tax on sugars through the swollen price of beet sugar is, therefore, shown to be the American Sugar Refining Co. It is conceivable, at least, that the uniformly high price of beet sugar is due to this centralization of large minority interests and sometimes absolute control of leading beet-sugar companies by the American Sugar Refining Co.
How little the beet refiners need protection and how little of that protection benefits the "poor farmer" is amply illustrated by the course of the market prices of beet
PARAGRAPHS 216-219-CANE SUGAR, ETC.
sugars which during the present beet season have been sold at the very doors of the eastern cane refiners. Beet sugars have recently been sold in all the eastern centers and notably in New York, Philadelphia, and Pittsburgh, notwithstanding the disadvantage of freight rates for the longer haul, at 10 cents per 100 pounds below the cane price. As an instance it may be pointed out that California beet sugars have been sold in Pittsburgh. The freight from New York to Pittsburgh is 16 cents per 100 pounds; from California beet points to Pittsburgh it is 78 cents per 100 pounds: so that the beet refiners have not only absorbed a freight differential of 62 cents per 100 pounds of sugar, but have been able to undersell the cane price 10 cents per 100 pounds, thus absorbing 72 cents per 100 pounds. This was made possible only because the eastern refineries were burdened by the present high duty, and well may it be asked, Did the "poor farmer" get this 72 cents per 100 pounds, or did he "contribute" it to the profits of the beet refiners? Somebody must have contributed it, for there were profits from which it was disgorged, and that these profits were large is further shown by the fact that as the price of cane went down with the advent of lower prices for raw cane then, and not until then, did the price of beet sugar go down, and again may it be asked, How did the poor farmer profit from this?
If the import duty on raw and refined sugar were levied solely for revenue purposes, there might be patriotic reasons for the perpetuation of such duties, although it would be more humane to raise the revenue necessary for public needs by taxing other commodities not of such general use. But the tax on sugar is no longer primarily a revenue tax. It is now primarily a protective tax, and of the most odious kind, for the reason that it is largely paid by those least able to bear the burden.
In the readjustment of the economic life of the Nation incident to the change of administration the principle of the greatest good to the greatest number will be emphasized. Natural, normal trade, unaided by public bounties and unhindered by public barriers, is the best and most enduring trade. Artificial respiration may restore or sustain life under favorable conditions, but artificial respiration can not go on indefinitely.
We are not a new or recent convert to the principle of "free sugar." We have for years consistently and persistently urged this reform. We hold that the tax on sugar, probably the commonest of all the necessities of life, is economically unsound and commercially unnecessary. The beneficiaries of "free sugar" will be all the people of the United States.
The CHAIRMAN. Have you got anyone else, Mr. Lowrey?
Mr. LOWREY. We have Mr. Post.
The CHAIRMAN. Very well, we will hear Mr. Post.
TESTIMONY OF JAMES H. POST, PRESIDENT NATIONAL SUGAR REFINING CO. OF NEW JERSEY, NEW YORK CITY.
Mr. Post was sworn by the chairman.
Mr. PosT. As representing the National Sugar Refining Co., I merely wish to file this brief, stating our views. We are opposed to free sugar, but we would suggest a slight reduction.
The CHAIRMAN. You testify that the facts contained in that brief are true?
Mr. POST. Yes, sir.
The CHAIRMAN. You are a member of the National Sugar Refining Co. of New Jersey?
Mr. POST. Yes, sir.
The CHAIRMAN. You refine foreign imported raw sugars, generally? Mr. Posт. Yes, sir.
The CHAIRMAN. That is all.