U.S. Sugar Prices In Free Fall

In an ironic twist, an iconic Mexican company is looking north of the border for manufacturing and cheap ingredients.

Grupo Bimbo, the world’s largest baking company headquartered in Mexico City, recently announced plans to build a $75 million, 240,000-square-foot plant in Pennsylvania.

Grupo Bimbo is not the only global brand to grow its U.S. presence. Mars Inc. invested $250 million in a new Kansas-based plant, the Wrigley Manufacturing Company is expanding a Tennessee facility, and Hershey is adding 340,000 square feet to its Pennsylvania plant to boost production. And America seems to be a safe bet for Grupo Bimbo. U.S. sales of sweetened products are on the rise – along with associated revenues and profits – and sugar prices are in free fall.

Sugar prices in Mexico topped 34 cents per pound in December, as compared to 32 cents in the United States. And with record sugar surpluses building in America, downward pressure on sugar prices is expected to continue.

In fact, the price of raw sugar that U.S. cane farmers receive has plummeted by nearly 50 percent in the past year and is hovering at 22 cents a pound. When transportation is factored in, U.S. raw sugar prices are now below those seen on the heavily subsidized world dump market, which has long been criticized for artificial lows that are well below world average production costs.

Today’s raw price is almost identical to sugar prices three decades ago when input and labor costs were much lower, and that combination of stagnant prices and increasing business costs has created tremendous economic pressure on family farmers.

Ryan Weston, the chairman of the American Sugar Alliance, said sugar growers are hopeful that the expansion projects currently under way in the sugar-using industries will increase demand and help cushion the blow.

But, he notes, if farmers lose the no-cost sugar policy helping them weather the current economic storm, then domestic sugar production and the 142,000 jobs it supports could be in jeopardy.

“If that happens, U.S. food manufacturers and U.S. grocery shoppers would become dependent on unreliable foreign sugar suppliers,” Weston said, “and that is a recipe for disaster.”

Congress is currently considering a rewrite of the country’s farm laws, and the future of sugar policy has been a hotly debated topic. Sugar producers are urging lawmakers to continue the current policy, which has operated without taxpayer cost since 2002 because sugar farmers don’t receive subsidy checks.

Meanwhile, industrial sugar users – namely large candy companies – have launched a multi-million dollar lobbying campaign with the goal of flooding the U.S. market with subsidized imports in an effort to drive sugar prices down further, even if it means outsourcing U.S. sugar jobs.

Weston said the candy companies need to be careful what they wish for, noting that in an attempt to see short-term profits they could be threatening the long-term security of America’s food.

He points to Europe, which overhauled its sugar laws in 2006, as a cautionary tale.

“Many European producers stopped production, 120,000 jobs were lost, and prices actually went up as imports declined,” he said. “EU food makers were begging for sugar. Europe is clearly not an economic model for America to follow.”

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