The scenes of empty shelves where bags of sugar should be is reminiscent of a country after a natural disaster or some other exogenous shock. Except, there has not been any natural disaster nor is the country experiencing any conflict that would necessitate rationing. To put simply, the sugar that would typically occupy Belizean supermarkets and local stores is being sold to buyers in neighboring countries where it can fetch up to 2.5 times more than the local price. This has led to a shortage in the domestic market of a product that is the country’s largest export commodity. 

Sugar production in Belize 

The Northern Sugar industry produces roughly 100,000 tons of sugar per year, most of which is exported to markets in the U.S. and the U.K.. Based on previous sales patterns, the domestic market consumes roughly 12-15,000 tons of sugar per year and this is usually produced within the first 6 months of the crop season.

Belize and neighboring Guatemala and Mexico are producers and exporters of sugar. Recently, sugar production in Mexico has fallen below estimates, leading to price increases for consumers. In the same period, BSI has noted an increase in the domestic sales for sugar. 

Contraband Sugar 

With higher sugar prices in Mexico and an increase in the local demand for sugar, the natural question becomes: if the sugar is not on store shelves, where is it? 

The prevailing theory from industry insiders is that the sugar that is purposed for local consumption is being smuggled across the border and into neighboring Mexico. The biggest factor behind this surge in contraband sugar is that the price of sugar in Belize is controlled by law. This means that it is illegal to sell brown sugar for more than $0.50 BZD per lb and white sugar, $0.75 BZD per lb. Because of this, wholesale buyers in neighboring countries where the price of their local sugar is much higher are looking to Belize’s sugar to purchase and resell.

The exportation of sugar is also controlled in Belize and legislation requires exporters to obtain permits from the Ministry of Agriculture to export sugar out of Belize meaning that the sugar is exiting Belize illegally. 

Price controls

It is easily recognized that the entities involved in the illegal sugar trade should be investigated and prosecuted. What is less recognized is how public policy has contributed to the current state of affairs. Belize has an extensive list of price controls on goods (a list that was recently extended in August 2023) dating back to the late 1980’s. These price controls have artificially kept the prices of goods like sugar constant for over 20 years. 

From an economic policy perspective, several studies have demonstrated that the disadvantages of price controls consistently outweigh the perceived advantages. While prices remain constant for the local consumer, mitigating increases that would naturally be brought on by inflation, the distortions that are created open the doors for impacts on production, growth in black market sales and like in the current situation, shortages. 

BSI has consistently advocated for marginal increases in the prices of some sugar products and the Government of Belize has rejected any proposal for increased sugar prices. 

What happens now? 

While local consumers figure out ways to obtain the sugar they need for business and daily life, actors at the policy level debate the long term solutions. Government has proven unwilling to adjust the price of sugar, leaving the market for sugar vulnerable to the effects of price controls. One solution might be to simply increase the local supply for sugar, but this might do little to alleviate the impacts of sharp demand increases of local sugar brought on by the illegal trade. Another possible alternative is to discourage the illegal exportation of sugar by packaging domestic sugar in smaller sizes and applying clear labels that point to the sugar’s origin. This would make it more difficult to buy the sugar in bulk and transport it across the border for repacking and retail.

While the approaches outlined above may have an impact in stemming the black market trade of sugar, the fact remains that price controls will continue to create market distortions and contraband sugar traders will find ways to purchase the price controlled sugar.