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Hawaiian sugars are shipped by the agents or factors of the planters in Honolulu to commission merchants and importers in San Francisco, and sold by the latter to the refinery. The terms of purchase after the treaty took effect were known as the "Manila basis." The refinery agreed in substance to take the whole of each planter's crop at a price which should be equal to that of an equivalent quantity and grade of Manila sugar delivered, duty paid, in San Francisco. The price of a certain grade of sugar at Manila known as "extra superior," polarizing 91, and in color No. 10 Dutch standard, was telegraphed daily to San Francisco. To this price was added $6 per ton for freight, 2 per cent insurance, the cost of sixty days' exchange, and a specific allowance for the remitted duty. This constituted the Manila basis for the day of quotation.
Just here is one point of dispute between the sugar men of New York and those of San Francisco and Honolulu. The New Yorkers refuse to believe that Spreckels pays the full normal price and the entire duty to the Hawaiians. If anybody is particularly interested in knowing whether he does not it must be the Hawaiian planter and his Honolulu factor, for an eighth of a cent per pound means to them a profit or loss of hundreds of thousands of dollars. Time and again they have examined this question and put it to the most crucial tests, and the verdict is universal that Spreckels has dealt with them fairly and squarely, and this is the testimony alike of friends and enemies whose bread and butter depends on knowing the truth and abiding by it. Who ought to know best about it, they or people who live 3,500 miles away?
A little over a year ago Spreckels withdrew the tender of the Manila basis and would only offer the Cuban. The result was, a new refinery competing with him. Spreckels has always contended that the Manila basis was higher than it ought to be; that he was overpaying the planters and giving them more than Manila and China sugar would have cost him. A second refinery, C. Adolf Low & Co., which was pooled with Spreckels up to 1885, also seemed to think so, for, while having the option of taking as much Hawaiian sugar as they wanted, they declined taking any on the ground that Manila and Central American sugars were cheaper. My opinion is that Spreckels was in a great measure right.* To show this would require a detailed examination,
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*For the following reasons: Spreckels allows 1/8 cent per pound for the value of every degree of polariscope. The Manila standard polarizes 91°. The average polarization of the whole Hawaiian crop is about 94°, and the allowance, therefore, is, on the average, 3/8 cent above the Manila basis. Suppose, now, the price of Hawaiian sugar delivered is 5 cents per pound for 91°; for 94° it is 53/8 cents. But a 94° sugar contains 3/91 more of pure sugar than a 91° sugar, which at 5 cents is 15/91 cent, or about 1/6 cent. In other words, Spreckels pays 3/8 cent for what is worth to him only 1/6 cent. The lower cost of refining a 94° sugar than a 91° is fully covered by the 1/20 cent allowance for every color above No. 10, Dutch standard. This difference, computed on the last Hawaiian crop, amounts to pver $350,000. If it be asked how Spreckels came to concede too much for quality the answer is that when it was first agreed upon, in 1876, the price of raw sugar was very high, and at that time the allowance was not very excessive. The New York allowance was 1/10 cent per degree of polarization. Moreover, it was at that time anticipated that the run of the Hawaiian crop would not be above 91° or 92°. Once fixed, the allowance became a custom, and custom is a powerful conservative force sometimes in matters of price.
Again, the great bulk of the Hawaiian crop comes to San Francisco in December to March, inclusive, and Spreckels must pay for it on delivery. Hence he must carry an enormous surplus stock, worth $3,000,000 to $4,000,000, during a great part of the year, and the interest on that is no trifle. If he could buy Asiatic sugars as he wanted them, or take advantage of the favorable stages of the market, he would have an advantage he does not now possess. All things considered I have no doubt that the practical working of the Manila basis was to make Spreckels pay more for Hawaiian sugar than Manila sugar would have cost him.
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which no one but a sugar expert would easily understand. At the same time it seems to me that the true price, while lower than the Manila basis, ought, during the extremely low prices of sugar last year, to have been a little better than the Cuban basis. Be this as it may, the vital fact remains in any event that the price on either basis would be considerably lower in San Francisco than in New York. It also remains true that the attempt of Spreckels to better himself in respect to the terms on which he purchases Hawaiian sugar has cost him very dear in the organization of an opposition refinery, and the end is not yet. And this brings to us the next link in the chain.
Mr. Spreckels was obliged to buy the whole Hawaiian crop and pay the full market price for it, including the entire duty, or else subject himself to competition. To understand this it is necessary to look at the nature of this monopoly. A monopoly means the want of effective and full competition. What are the possible sources of competition in the sale of refined sugars in California? There can be none from foreign refined sugars, because the duty upon them is prohibitory. There can be no effective competition from Eastern refined sugars, because their price is established on the Atlantic seaboard, where sugar is dearer and the railway transportation is prohibitory. Why is there no local competition ? Because there is not work enough for two refineries. A single refinery half as large as Havemeyer & Elder's can saturate with sugar the whole country west of Denver. If, then, there are two refineries, as has actually been the case, they must either pool and divide the market, which they did, or else begin a war of extermination, which they are now doing. The causes which have rendered a monopoly easily possible are, therefore, a prohibitory tariff on refined sugar, the isolation of California from other States where sugar is refined, its comparatively small population, and the fact that one ordinary refinery is ample for all needs. Under such circumstances a monopoly, or else a pool, which amounts to the same thing, is inevitable. Nothing on earth can stop it but time and the changes of conditions, which time will ultimately bring.
The Hawaiian treaty has had nothing to do with the establishment of this monopoly; the monopoly was fixed before the treaty, and so far from being helped by it, has been embarrassed and weakened by it, and may be yet more seriously embarrassed by its continuance, for the treaty rendered possible two new sources of competition. The nature of this competition is very instructive and will repay careful examination.
The duty upon raw sugars not only increases with their purity and lightness of color, but increases in a faster ratio than the value of the sugar itself. The result in New York is that it is cheaper and more profitable for the refineries to purchase the impurest sugars they can get, and that raw sugars of fine high quality are, in consequence of this disportionate duty, dearer than refined sugars. In short, the duty on raw sugars which are fit to eat is, to all intents and purposes, prohibitory. This is the reason why raw sugar has entirely disappeared from our grocery stores. In England, the greatest sugar-eating country in the world, where sugar is duty free, a large proportion of the sugar consumed does not go through the refinery at all, but is sold to customers just as it comes from the plantations. If the tariff on sugar were exactly proportioual to its purity vast quantities of raw sugar would be sold in the stores in the place of just so much refined sugar. So it would be in the Eastern States if raw sugars up to 20 Dutch standard were duty free. It is easy to see that in California
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