candy companies by thesign


									Sugar Issue Brief:

Candy Companies Flee U.S. Workers,
Not U.S. Sugar Prices

                      February 2006

   AMERICA’S SUGAR PRODUCERS… Meeting America’s Needs

                Candy Companies Flee U.S. Workers,
                       Not U.S. Sugar Prices
Over the past decade, many of America’s major manufacturers have moved operations to other
countries in favor of cheap labor, lax government regulations, negligible employee benefits,
reduced energy costs, lower taxes, and basic cheaper operating costs.

Food manufacturers are no different, and unfortunately, a few U.S. candy manufacturers have
chosen to relocate.

Yet these candy companies never acknowledge that basic overhead costs were the driving reason
for their flight from U.S. cities. Instead, they rally around a single scapegoat: America’s sugar
policy, which is coincidently the only major U.S.
commodity program to operate at no cost to U.S.                   Congress Doesn’t Buy
taxpayers.                                                       Candy Companies’ Spin
In almost every case where a candy company has                          Senate Sugar Votes
relocated underutilized or obsolete operations, sugar
costs were cited as the primary reason, even though                Date      Pro Sugar   Against
wholesale sugar prices dropped 20 percent from 1996 to             Feb. 1996    61         35
                                                                   July 1996    63         35
2004—the timeframe that most relocations took place.               Aug. 1999    66         33
                                                                   July 2000    65         32
Many food manufacturers seeking to eliminate U.S.                  Dec. 2001    71         29
sugar policy have for decades lobbied Congress on the
unfounded notion that U.S. sugar prices are forcing some
companies to flee.                                                      House Sugar Votes
                                                                   Date      Pro Sugar   Against
But for decades, most members of Congress have seen                Feb. 1996    217        208
these claims for what they are—mistruths and veiled                July 1997    253        175
attempts to shift cost to taxpayers, which are already             June 1998    258        167
                                                                   Oct. 2001    239        177
burdened with huge budget deficits.
                                                                   June 2005    280        146

Votes taken by Congress over the past 10 years clearly
show increasing and overwhelming support for the existing sugar program.

The facts are undeniable. Candy companies are fleeing American wages, not American sugar
prices, which are comparable to sugar prices around the world. And any savings that these
companies may realize because of outsourcing are pocketed instead of being passed along to
shoppers in America’s grocery stores.

Issue Brief: Candy Companies Flee U.S. Workers, Not U.S. Sugar Prices               February 2006

Why Candy Companies Flee
When Brach’s Confections announced that it would leave Chicago in favor of Mexico in 2001,
the company was quick to blame sugar prices. Many national news outlets took the bait,
criticizing America’s sugar farmers and ignoring the fact that other manufacturers like Levi
Strauss & Company and Black & Decker left the country around the same time.

All of these manufacturers left for the same reasons, employee expenses and operation-related
costs. Sugar had little if anything to do with Brach’s decision.

A 2003 study conducted on-site at candy manufacturing locations by a former career USDA
sweetener analyst found that other costs far outweigh the price of sugar when determining where
to locate operations.

Wages in Chicago were 27 times higher than Mexican wages, the study found. Healthcare costs
were 4 times higher in Chicago—a divide that continues to widen. The average tax rate in
Chicago was 42 percent, compared to a mere 9 percent in Mexico. Energy costs came in 5 times
higher in Chicago, and land costs were twice as expensive.

In addition to Brach’s, advocates for eliminating the U.S. sugar policy are quick to point out that
at least one candy brand, Life Savers, left Michigan for Canada—a country often thought to have
similar business costs as the United States.

However, the same study referenced above showed savings in all categories of doing business in
Canada. Union wages in Michigan were 20 percent higher than the non-union wages the
company would pay in Canada. Healthcare costs were 6-1/2 times higher in Michigan. The tax
burden in Michigan was 35 percent higher, and U.S. energy costs were 30 percent higher.

Issue Brief: Candy Companies Flee U.S. Workers, Not U.S. Sugar Prices              February 2006

In addition, the study’s author, Peter Buzzanell, discovered that there was another deciding factor
for moving all of LifeSavers production to Canada. The company owned two production
facilities for LifeSavers, one in Michigan and one in Canada. In Michigan, the production
facility was only half utilized. By fully utilizing the Canadian facility, the company saw
tremendous per unit cost savings.

U.S. Sugar Prices Aren’t High
When opponents of sugar policy lobby Members of Congress, they usually tout low “world sugar
prices.” What they fail to disclose is that there is no true world market for sugar. In fact, 80
percent of all the sugar produced in the world is never traded on an open market; it is consumed
in the country where it’s produced at much higher internal prices protected by tariffs.

The world sugar market they refer to is little more than a price-volatile dump market where
foreign surplus sugar is sold below the cost of production with the aid of government subsidies.

Dump market sugar has been unreliable in the past, with prices fluctuating from 3 cents per
pound to more than 60 cents per pound over the past 30 years. In fact, since December of 2005,
this dump market price has spiked to a 25-year high, a testament to how unreliable the dump
market really is.

What’s more, comparing U.S. sugar to dump market prices is like comparing apples to oranges.
That’s because the dump market price does not include refining costs, shipping costs, storage
costs, docking fees, or labor.

The only legitimate way to gauge U.S. sugar prices is to compare them to the prices that candy
companies pay in other countries.

Wholesale sugar prices in the United States are nearly identical to average wholesale sugar prices
around the globe, according to LMC International, a commodity economic analysis firm from
Oxford, England.

In June 2005, LMC found that U.S. candy companies paid 23 cents per pound for sugar in 2004,
compared to a 22-cent-per-pound weighted world average and a 25 cent-per-pound North
American average. Simply put, U.S. candy companies can’t realistically claim they are fleeing
because of prices.

Issue Brief: Candy Companies Flee U.S. Workers, Not U.S. Sugar Prices              February 2006

Where’s the Passthrough?
Another common claim made by opponents of U.S. sugar policy is that “high-priced” sugar
punishes grocery shoppers. Their
reasoning is that if sugar were                        From 1990 to 2005:
                                                 Farmer Prices for Sugar Fall,
cheaper, then candy companies        Consumer Prices for Sugar & Products Steady or Higher*
would pass savings along to the
consumer.                                             Consumer Prices Rise

While such an economic theory                           Farmer                                                      32.2%
sounds good, the real-world                             Prices                                     28.4%
application tells a much different
story. History clearly shows that
when food manufacturers pay                      Raw           Wholesale
farmers less for commodities,                   Cane
                                                                 Sugar            1.8%
grocery shoppers don’t see the
                                                                                  Retail           Cereal           Candy             Ice            Cookies,          Other
savings.                                                         -1.4%
                                                                                 Refined                                             Cream            Cakes            Bakery
                                                -8.5%                             Sugar                                                                               Products

Sugar is a prime example. From
1990-2005, the price companies paid        *Change in prices from 1990 to December 2005. Raw cane: duty-fee paid, New York. Wholesale refined beet sugar: Midwest markets. Retail
                                           prices: Bureau of Labor Statistics consumer price indices. Data source: USDA.                                                          13b

sugar farmers fell. Over that same
time, sugar prices at the grocery store remained flat, while the cost of candy, cereal, cakes, and
other sugar-sensitive products skyrocketed.

America Needs a Strong Sugar Policy
The main reason America’s sugar farmers are enjoying increased support in the halls of Congress
is because this country’s sugar policy is clearly working. It costs taxpayers nothing because
sugar farmers don’t receive subsidy checks, it ensures consumers pay some of the lowest prices
in the world, and it supports 146,000 jobs in rural communities from coast to coast.

Truth be told, candy companies depend on America’s sugar policy, too.

These companies enjoy domestically grown sugar that can be delivered quickly and cheaply.
They don’t have to wait for shipments from often unreliable foreign suppliers.

They don’t even have to build and maintain expensive sugar storage facilities, because sugar
producers bear the burden of storing and delivering the product. Best of all, they are guaranteed
to receive the highest-quality, safest product in the world thanks to America’s state-of-the-art
technology and inspection programs.

During World War II, sugar was among the first agricultural commodities to be rationed.

A strong domestic sugar industry was vital to America then. And with Congress’ help, America
will enjoy a strong domestic sugar industry well into the future.

Issue Brief: Candy Companies Flee U.S. Workers, Not U.S. Sugar Prices                                                                    February 2006

“North America’s Confectionery Industries: Structure, Trade, and Costs and Trends in Sugar
Demand,” Peter Buzzanell & Associates, Inc., Reston, Virginia, March 2003.

“Retail and Wholesale Prices of Sugar around the World in 2004,” LMC International Ltd,
Oxford, England, June 2005.

“Sugar and Sweetener Situation and Outlook Report,” U.S. Department of Agriculture Economic
Research Service, Various Issues.

Referenced Congressional Votes:

        Senate Votes
        02/07/96 104th Congress, 2nd Session, Roll Call No. 16
        07/23/96 104th Congress, 2nd Session, Roll Call No. 233
        08/04/99 106th Congress, 1st Session, Roll Call No. 254
        07/20/00 106th Congress, 2nd Session, Roll Call No. 219
        12/12/01 107th Congress, 1st Session, Roll Call No. 364

        House Votes
        02/28/96 104th Congress, 2nd Session, Roll Call No. 35
        07/24/97 105th Congress, 1st Session, Roll Call No. 312
        06/24/98 105th Congress, 2nd Session, Roll Call No. 261
        10/04/01 107th Congress, 1st Session, Roll Call No. 367
        06/08/05 109th Congress, 1st Session, Roll Call No. 234

                                      American Sugar Alliance
                                 2111 Wilson Boulevard, Suite 600
                                       Arlington, VA 22201
                               Tel: 703-351-5055 Fax: 703-351-6698

Issue Brief: Candy Companies Flee U.S. Workers, Not U.S. Sugar Prices          February 2006

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