Mexico sugar deal hard to swallow for last U.S. candy cane maker

Chocoladefabriken Lindt & Spruengli AG

09/06/2017 06:00

By Chris Prentice 
    NEW YORK, June 9 (Reuters) - For the last U.S.-based 
manufacturer of the red and white striped candy cane that is a 
ubiquitous North American holiday season treat, the sugar supply 
deal struck between Mexico and Washington is anything but sweet. 
    The competitors of Ohio-based Spangler Candy Co have, over 
the years, moved their plants south to Mexico and beyond to gain 
unfettered access to the cheaper sugar supplies there. That was 
part of a shift in manufacturing out of the United States that 
President Donald Trump has vowed to reverse. 
    Spangler's Chief Executive Officer Kirk Vashaw has kept the 
candy cane industry alive in the United States at his plant in 
Ohio, where his firm churns out 200 million candy canes a year.  
    But the new sugar supply deal will make things tougher still 
for Spangler, as an agreed rise in the minimum price for Mexican 
sugar will drive up Spangler's raw material cost.  urn:newsml:reuters.com:*:nL1N1J30BJ 
     "To be honest, I'm just very disappointed that the Trump 
administration didn't do more to level the playing field, which 
is something they promised over and over again to do for the 
American worker," Vashaw said in a phone interview with Reuters. 
    "This was an opportunity to do that, and they didn't." 
    The firm is one of a wide range of food producers, drinks 
makers and cereal manufacturers across the country that will see 
sugar input costs higher by about $1 billion above government 
support prices, according to the Sweetener Users Association. 
    Many of those companies, who oppose the government's support 
for the sugar industry, will have to consider whether to pass 
that rise in costs on to consumers. The additional cost is a 
fraction of the value of the packaged food industry, estimated 
at around $373 billion in 2016, according to data provider 
Euromonitor International. 
    Food and beverage firms such as Hershey Co  HSY.N , General 
Mills Inc  GIS.N , J.M. Smucker Co  SJM.N , Mondelez 
International Inc  MDLZ.O  will be impacted because they are all 
companies for which sugar is a key raw material. 
    Hershey said in a statement that it was aware the agreement 
had the potential to increase sugar prices in the long term. 
Both Hershey and Mondelez referred Reuters to the Sweeteners 
Users Association, which in a statement described the pact as a 
"stealth price increase." 
    General Mills and Coca-Cola Co  KO.N  declined to comment. 
PepsiCo Inc  PEP.N , Dr Pepper Snapple Group Inc  DPS.N  and 
Mars Inc did not respond to request for comment. 
    "This is putting America second," said Jeanne Shaheen, a 
Democratic senator from New Hampshire, where Swiss chocolate 
maker Lindt & Sprüngli  LISP.S  has its U.S. headquarters. "It's 
a bad deal for American families and businesses that will raise 
costs for consumers and threaten jobs in sugar-using 
industries." 
    Shaheen is a long-time critic of the sugar program and has 
pushed for changes.  
    U.S. sugar companies - which process beet and cane before 
selling it to food and beverage industries - got better terms 
out of the deal and yet will not be impacted by the price rise. 
    Refiners were insulated from the impact of the higher raw 
sugar price by a greater increase in the minimum prices for 
refined sugar in this week's agreement, so will simply charge 
the companies and consumers that buy their sugar more. 
    The U.S. sugar industry had asked for better terms after 
complaining the previous deal with Mexico squeezed refinery 
margins and starved them of supplies. 
     
    COZY DEAL 
    The new deal revised the previous 2014 pact and aimed to end 
years of dispute between the two countries. Larger sugar 
refiners will benefit the most, as the new terms make it harder 
for smaller competitors to import sugar from Mexico, which is 
the top foreign sugar supplier to the United States. 
    That means the smaller sugar buyers will have to pay more 
for their supplies. 
    Access to the 11 million-tonne annual U.S. sugar market is 
coveted by sugar exporters as price of the sweetener in the 
world's largest economy is higher than elsewhere. The market is 
protected by the government, prices are guaranteed and imports 
are rationed. 
    The combined impact of those measures means that U.S. sugar 
buyers will pay about 60 percent more than global benchmark 
prices. 
     For Spangler, which makes Dum Dum lollipops as well, the 
rise in prices for Mexican sugar will translate to an around 8 
percent rise in what it pays, estimates Vashaw. 
    Spangler opened a plant in Juarez, Mexico, in the early 
2000s and now produces a little over half its candy canes there. 
    "If it was all about money, we'd do it all in Mexico," said 
Vashaw. "When your main cost driver just went up 8 percent and 
in Mexico it didn't go up at all, it just makes any foreign 
confectionary supplier more cost competitive. That's why a lot 
of companies moved out of the United States." 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
GRAPHIC: U.S.  sugar imports from Mexico    http://tmsnrt.rs/2miEBoe 
FEATURE-Anger in Mexican sugar cane fields, harbinger of NAFTA 
risks     urn:newsml:reuters.com:*:nL1N1J00GW 
Coke, Cargill enter fray as sugar dispute threatens Mexico trade 
    urn:newsml:reuters.com:*:nL1N1J00DC 
U.S., Mexico reach sugar pact despite U.S. producer resistance   
  urn:newsml:reuters.com:*:nL1N1J30BJ 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Additional reporting by Lewis Krauskopf; Editing by Simon Webb 
and Lisa Shumaker) 
 ((christine.prentice@thomsonreuters.com; +1)(646)(223 6136; 
Reuters Messaging: 
christine.prentice.thomsonreuters@reuters.net)) 
 
Keywords: USA TRADE/MEXICO COST