Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=92869
Story Retrieval Date: 12/5/2013 12:15:55 PM CST
The first thing a loser of a title fight does is talk about a rematch. However, the Sweetener Users Association is declining to comment on the bout it just lost, one where the rematch is five years away.
The clash was the fight over the latest version of the farm bill, fought with a great deal of cash and the president’s veto stamp.
By losing, the Washington, D.C., trade association will be faced with five more years of the sugar program, a domestic farmer support program that supports the U.S. price of sugar at double and sometimes triple the price for sugar produced elsewhere in the world. This raises costs for candy companies, which ultimately get passed on to consumers.
Yet, candy companies and lobbyists are mum on the topic.
The sugar program may be the most harshly criticized of a number of farm subsidies which are included in the mammoth legislation. The Bush administration had previously called for reform to the decades-old plan, along with other subsidies, at a time when consumers are facing record food and commodity prices.
“There is an overwhelming consensus among economists that it is good for producers, but bad for consumers,” said Russell Roberts, an economics professor at George Mason University in Fairfax, Va.
Rather than the Bush administration’s called-for reform of the sugar program, the newest version includes increases in non-recourse loan rates, a shift in market allotment policy to guarantee that 85 percent of U.S. sugar demand comes from domestic sugar and restrictions on the disposal of excess sugar supply by the United States Department of Agriculture.
The changes raise the price of a program, which according to its charter is supposed to cost nothing to taxpayers, to an estimated $333 million per year, according to the Congressional Budget Office.
The biggest complaint from the Sweetener Users Association in the latest farm bill is the guarantee of 85 percent of domestic sugar demand to U.S. producers, according to a source at the USDA. The guarantee places a cap on sugar imports with the exception of Mexico, an exemption it gained under NAFTA.
This all translates into higher prices on candy produced domestically.
Since 2002, when the previous farm bill went into effect, the price of candy, on average, has increased 17 percent, according to the Consumer Price Index generated by the Bureau of Labor Statistics.
“They’re skyrocketing,” said Todd Moore, chief operating officer for Chicago Chocolate Co., of prices. While Moore’s company doesn’t produce its own chocolate – it purchases chocolate from Chicago-based Blommer Chocolate Co. to make its products – the increase in commodity costs still affects it.
“The price of chocolate has gone up probably 30 to 40 percent, and I’m sure some of that probably has to do with the price of sugar,” Moore said. As Moore spoke, he was in process of writing a letter to his customers informing them of the company’s first price increase in three years.
The current price of domestic sugar hovers around 21 cents per pound, while the world price is near 10 cents per pound.
Some manufacturers have moved to Canada or Mexico to combat what they say are the high sugar prices they are forced to pay. In the past two years, Northfield, Ill.-based Kraft Foods Inc. moved what were its Life Savers candy operations to Canada. The brand has since been sold to the Chicago’s Wm. Wrigley Jr. Co.
Another Chicago company, Ferrera Pan Candy Co. also expanded its candy making operations in Mexico and Canada, while reducing its domestic production.
“You can’t import sugar, but you import candy bars more freely,” Roberts said.
While some manufacturers are fleeing, other companies, such as World’s Finest Chocolate Inc., say they will be staying in Chicago. Most of World’s Finest’s sales come from fund-raising sales, where the company’s chocolate bars are sold for $1 and 50 cents of each bar goes to the selling organization. However, Kate Welborn, a senior marketing manager for the company, said the $1 price point may not last long because of rising costs.
Phillip Hayes, a spokesman for the American Sugar Alliance, disagrees that sugar is cheaper elsewhere.
“When these companies go to Mexico, they are paying more for sugar,” Hayes said. “The historic price for sugar in Mexico is actually higher than in the U.S.”
Hayes contends that the press releases from companies closing U.S. plants indicate that the decision has little to do with sugar prices and more to do with labor costs.
A study by the Department of Commerce in 2005 concluded that for every job saved by the price supports, nearly three jobs were lost in confectionary manufacturing. From 1997 to 2002, the Bureau of Labor Statistics estimated that employment in the industry decreased by 10,000 jobs. In the city of Chicago, it’s estimated that employment in the confectionery industry declined 30 percent between 1991 and 2004.
Meanwhile, imports of sugar-containing products increased 83 percent from $10.2 billion in 1997 to $18.7 billion in 2004.
Hayes said that the study doesn’t totally add up.
“The other thing that’s in that story that never gets brought up is that the productivity of U.S. candy manufacturers is outpacing other food manufacturers,” he said. Therefore, blaming the sugar program solely for the losses doesn’t seem to support the final conclusions, he added.
Lobbying efforts by the Sweetener Users Association were not enough to overcome donations that have turned the sugar industry into a major force in U.S. politics. According to the Center for Responsive Politics, a non-partisan organization based in Washington, D.C., the sugar industry donated $5.8 million to both parties during the 2006 and 2008 election cycles. The entire food manufacturing industry donated just $3.8 million during the same period.
One of the biggest recipients year after year has been House Committee on Agriculture Chairman Collin Peterson, D-Minn. Since 2000, Peterson has received donations totaling $128,108, five percent of his total fundraising over that period. Peterson was a major force behind the changes to the sugar program, making it even more protectionist.
His district in western Minnesota also contains a number of sugar beet farmers.
Also receiving major donations was Georgia Sen. Saxby Chambliss. Despite coming from a state that has only processing facilities but no sugar cane or sugar beet farms, as the ranking member of the Senate Committee on Agriculture, Nutrition and Forestry, he received $61,000 since 2005.
As a counter to the calls for the reform the sugar industry highlights its plague of rising costs, similar to other food manufacturers, from diesel, to fertilizer, to the price of seed.
“You name it, it’s all gone up,” Hayes said.
The sugar price support system is not rare in the sugar-producing world. Approximately 120 countries in the world produce sugar, and all have some form of domestic protection in place, Hayes said.
“We would be happy tomorrow to get rid of all government programs, if our foreign competitors would do the same,” Hayes said.