An article today in the Wall Street Journal reports on Department of Justice investigations into alleged price-fixing by U.S. chocolate companies, following similar investigations by Canadian regulators into the Canadian divisions of the same companies.
The companies insist that higher commodity prices are behind any recent price increases in their products, with Cadbury’s CEO expecting ingredients to cost between 5 and 6 percent more next year as a result of tight supplies (primarily because of drought in Australia, pushing up dairy prices) and increased demand, as the middle class — and consequently appetite for dairy, sugar and meat — grows in Asia and Latin America. The U.S. government’s misguided promotion of biofuels, which diverts corn to ethanol production and puts upward pressure on all commodities prices as farmers divert land to growing corn, definitely doesn’t help.
While prices for most commodities are at historic global highs, confectionary companies in the United States have often had to pay significantly higher prices because of government intervention in agricultural markets. Cato’s Center for Trade Policy Studies has looked into dairy and sugar policies before, and finds that the costs to consumers and taxpayers of supporting sugar and dairy farmers through isolating the U.S. market is truly outrageous.
Of course, Congress has so far chosen to ignore the problems with dairy and sugar, proposing instead to maintain these programs (even increasing the support in the case of dairy) rather than bring relief to consumers (including candy manufacturers). You know something is wrong with U.S. agricultural policy when the European Union looks reformed in comparison: the EU announced that it is suspending its tariffs on some cereals crops [$].