Posted on 02/20/2009 3:14:44 PM PST by JoeProBono
READING, Pa.A flag is flying at half-staff outside The Hershey Co. plant in Reading where production of York Peppermint Patties is ending. After 23 years in Reading, the chocolate maker is closing the plant Friday and moving production to a new factory it has built in Monterey, Mexico. It will mean the loss of 300 jobs in the southeastern Pennsylvania city. The plant also makes 5th Avenue and Zagnut candy bars and Jolly Rancher hard candies. The nation's largest candy manufacturer said two years ago the plant would close as part of a wider move by Hershey to eliminate 1,500 jobs and one-third of its existing production lines, shifting more manufacturing to contractors in the U.S.
(Excerpt) Read more at businessweek.com ...
Bitter Goodbye
Confectionery manufacturers say U.S. government subsidies boost domestic sugar prices unfairly, making moving offshore an appealing prospect for some.
Monday, July 01, 2002
By Jill Jusko James A. Hanlon recently lost his last customer for bulk candies to a competitor located in Mexico. At one time, his Santa Cruz, Calif.-based candy company, which counts among its catalog of confections both gummies and jelly beans, had a dozen customers it supplied bulk quantities to.
Meanwhile, the chairman and president of Harmony Foods has watched as a parade of fellow U.S. candy manufacturers have moved production outside of the country or simply gone out of business during the last few years.
Most recently, Kraft Foods Inc. announced earlier this year that it would close its Holland, Mich., Life Savers plant and transfer production to its facility in Mount Royal, Quebec, near Montreal, in 2003. In January 2001 Brach’s Confections Inc. announced that it would phase out production at its massive confections plant in Chicago, ceasing operations there by the end of 2003. More than 1,000 Brach’s workers are expected to lose their jobs. Reports have Brach’s both outsourcing production to Argentina’s Grupo Arcor and building a new confections plant in Mexico. Another Chicago area candy maker, Ferrara Pan Candy Co., opened its second Canadian plant late last year.
The reason for both Hanlon’s loss of business and the drain of candy manufacturing away from the United States?
Some manufacturers, trade organizations and a wealth of recent news reports say it is the high price of domestic sugar-which can range anywhere from two to three or more times world sugar prices-that is sending manufacturers scurrying beyond the U.S.’ borders. Adding to the pain is the fact that it is U.S. government subsidies to domestic sugar producers and tariffs against sugar imports that have artificially inflated the prices.
Not so, claims an equally vocal group that is quick to deny that U.S. sugar prices are the cause for a U.S. candy-manufacturer exodus. They say lower labor costs and a multitude of other lower-cost opportunities are sending confections manufacturers elsewhere. Among those most vocal in pro-sugar-policy claims is the American Sugar Alliance, an Arlington, Va.-based organization that represents growers and processors of sugar beets, sugar cane and corn for sweeteners.
Some big names have gotten into the act. in June 2001, Chicago’s Mayor Richard M. Daley showed up at a major candy trade show and called on Congress to make changes to the U.S. sugar policy. His city, home to the William Wrigley Jr. Co. and Tootsie Roll Industries, among others, has watched numerous candy companies shut down or reduce their size and move out. Brach’s is simply the latest confections maker to exit the candy capitol of the world. “Sugar is 70% of the problem,” says Hanlon, who in 1996 served as chairman of the National Confectioners Association. His 30 years in the confections business include stints as president and CEO at Leaf North America and president and CEO of Peter Paul Cadbury USA from 1982 to 1985. At Harmony Foods he leads a company with $150 million in annual sales and a workforce of 200.
“The only people profiting [from the U.S. sugar policy] are the sugar growers,” Hanlon says. “Small [manufacturers] are getting hammered.”
Among organizations that have long battled for changes to the U.S. sugar program are the Grocery Manufacturers of America, the National Confectioners Association and the Coalition for Sugar Reform, a group of 18 organizations whose objective is market-oriented reform for the U.S. sugar program.
“What we favor is the elimination of the [sugar] program, but we are willing to have a long-term phase-in,” explains Larry Graham, president of the National Confectioners Association and chairman of the Coalition for Sugar Reform. “The program doesn’t make any economic sense.”
The U.S. sugar program guarantees domestic sugar growers and processors a minimum price for sugar by offering loans at rates determined by law and offering processors the ability to forfeit sugar to the federal government if prices fall below a certain level. To avoid forfeitures, prices are kept artificially high by restricting the amount of sugar that can be imported without stiff tariffs attached.
Graham says it is estimated that 20% to 25% of all sugar candy sold in the U.S. is now made outside the United States and imported into the country, while the percentage of non-chocolate candy made outside the U.S. increased 70% between 1995 and 2000.
Opponents of the sugar program contest the policy on several fronts. It is protectionist, they say, and provides incentives for overproduction while failing to allow market conditions to influence price.
Says the Grocery Manufacturers of America’s David Stafford, director of federal affairs for the Washington, D.C.-based association of food, beverage and consumer product companies: “Our members represent major sugar users. We contend that the sugar program artificially inflates [prices], inflating our input costs.
“Companies look to effectively and efficiently produce,” he continues, yet “contend with a program that inflates the price of a major commodity.”
Sugar-program opponents wield some seemingly heavy artillery to back their contention that the program harms more than it helps. They most frequently cite a June 2000 report by the U.S. General Accounting Office. Among the report’s findings:
The estimated cost of the U.S. sugar program to domestic sweetener users was about $1.5 billion in 1996 and about $1.9 billion in 1998.
Domestic sugar beet and sugarcane producers were the primary beneficiaries, receiving benefits of about $800 million in 1996 and $1 billion in 1998.
Net losses to the U.S. economy were approximately $700 million in 1996 and about $900 million in 1998.
But supporters of the domestic sugar program are equally vociferous-and clearly more successful-in defending their position. Farmers need U.S. assistance to fight subsidized crops from other parts of the world, says Joseph Terrell, a spokesperson for the American Sugar Alliance.
Besides, the organization claims, it is simply not true that manufacturers are moving to Canada and Mexico to get around high sugar prices in the United States.
“It’s not the sugar,” said Jack Roney, staff economist for the American Sugar Alliance, speaking at the U.S. Department of Agriculture’s annual outlook forum earlier this year. “Factors such as wages, taxes, energy costs, and the cost of labor and environmental protections dwarf the cost of sugar.” Not to mention the exchange rate.
The alliance points to a cost-analysis study completed by Peter Buzzanell & Associates Inc., Reston, Va., for the organization that indicates myriad factors other than sugar costs impact manufacturers’ decisions to move outside the U.S. In fact, the study indicates that sugar prices in Mexico actually exceeded those in the U.S. during the period of time under scrutiny.
In “U.S. Confectionery Companies: The Move to Canada and Jamaica-Encouraged By What Cost Variables?” Buzzanell points out that a number of factors make operating costs in Canada, particularly Quebec, more attractive than those in the U.S., which could have influenced Kraft’s decision to relocate Life Savers production there. For example, his report states:
Quebec has extremely low electricity use rates owing to the availability of hydro-power.
Health-care payments by companies in Canada, reflecting the national health-care system, are estimated at only about one-quarter as high as in Michigan.
Factory worker wages in Quebec are $7.10 per hour compared with $15.30 per hour for workers in Holland, Mich.
In addition, Buzzanell’s estimate of the average price for refined sugar in fiscal year 2001 shows Quebec’s sugar prices just slightly below those in the Midwest, 20.7 cents a pound vs. 22.1 cents a pound in Chicago, while Mexico’s were well above either, at 25.3 cents per pound. On the other hand, Quebec was substantially lower than the U.S. in March 2002 (18 cents vs. 27.5 cents). All costs are in U.S. dollars.
Interestingly, for all the attention domestic sugar prices garnered following Kraft’s announced decision to move production to its Canada plant, the company now says sugar prices were not a driving force behind the move.
“Sugar [prices] were a reason, but not the primary reason,” says Cathy Pernu, Kraft spokesperson. She says Kraft’s Holland plant was underutilized after the Federal Trade Commission mandated the company divest a breath mint that had also been made at the plant. The Mount Royal plant in Quebec offered both lower production costs and could accommodate the increased production, Pernu says. “We really couldn’t do the reverse [move Mount Royal production to Holland],” she says.
As to U.S. sugar prices? “Companies [in the U.S.] like Kraft pay at least twice what they pay on the world market,” Pernu notes, adding that Kraft prefers the trade associations address the U.S. sugar program specifically.
Manufacturers appear to have little reason to expect changes in their favor in the domestic sugar policy any time soon. President George W. Bush in May signed into law the Farm Security and Rural Investment Act of 2002 (H.R. 2646), which continues the price support system for sugar. The bill extends 10 years but must be renewed after six.
The Coalition for Sugar Reform’s Graham predicts that the sugar program “probably will implode on itself one day.”
Hanlon sees little hope for relief from high-priced sugar, which he calls “the most grievous” of the U.S. support programs. It’s the solely domestic manufacturer that gets hurt the most, he says, which usually translates into the smaller producer.
While he acknowledges that the larger manufacturers face the same price constraints, “the big guys have plenty of offshore capability.”
“We are going to see an acceleration of damage to medium and small producers. The problem is getting worse,” he says. “It’s going to change the landscape of the sugar user industry.”
http://www.industryweek.com/PrintArticle.aspx?ArticleID=1110
Washington, D.C. - A bipartisan group of U.S. Representatives today said they will launch a new Congressional caucus to reform sugar subsidies.
Led by Reps. Mark Kirk, Danny Davis, Phil Crane and Clay Shaw, the Congressional Sugar Reform Caucus will promote alternative sugar policies that protect the interests of workers, consumers, taxpayers and the environment.
“Current sugar policy is a mess,” said Kirk (R-IL). “By keeping U.S. sugar prices two or three times as high as prices in the competitive world market, our policies not only distort markets and inflate consumer costs — they also create a perverse incentive to move food-related jobs offshore to take advantage of lower costs for sugar there.”
http://www.house.gov/list/press/il10_kirk/Oct7SugarCaucus.html
Oh man, my favorite candy bar got outsourced!
One of my favorites! I’m going to miss them.
You know, at this time, this is not only a sell out, but a stupid move. Monterey is blowing apart. Whatcha gonna do then, Hershey?
Mexico deploying guards to protect commuter routes for Americans
Dallas morning news ^ | Feb. 7, 2009 | ANGELA KOCHERGA
CIUDAD JUÁREZ, Mexico – As violent crime surges, this border city and international manufacturing center is deploying security forces to create safe commuter routes for U.S. executives and others who work in industrial parks. Ciudad Juárez is home to 380 maquiladoras, factories where Mexican workers assemble products for foreign companies. Most are U.S.-owned or subsidiaries. The factories employ more than 230,000 people. So officials created special commuter routes leading to and from industrial parks to protect workers and managers. “The maquila industry is about 60 percent of the economy. And we know how important it is,” Mayor Jesús Reyes Ferris...
http://www.freerepublic.com/focus/f-news/2182623/posts
WALTER WILLIAMS ON SWEETS
Posted February 25, 2004
Chicago has historically been one of the biggest locales for the production of candy in the country. Brach’s had their factory here, as did Ferrara Pan, Fannie May, and of course the local Frango mints sold at Marshall Field’s (yum!) were made here too. One of the more delightful and tempting things about Chicago is walking downtown in the late afternoon and having the scent of chocolate waft over you.
This is changing. Frangos are now made elsewhere, Brach’s and Ferrara Pan have closed their factories and moved production to Mexico, and within the past month the new owner of the Fannie May factory has closed its doors. The scent of chocolate will still waft, though, because we have a couple of smaller chocolatiers that are still here. For now.
Walter Williams does a beautiful job in this Town Hall column of connecting this shift to the sugar lobby and the subsidies paid to domestic sugar producers.
Chicago has been home to many of America’s candy manufacturers, but today they’ve fallen on hard times. In 1970, employment by Chicago’s candy manufacturers totaled 15,000, and now it’s 8,000 and falling. Brach used to employ about 2,300 people; now most of its jobs are in Mexico. Ferrara Pan Candy has also moved much of its production to Mexico. Yes, wages are lower in Mexico, but wages aren’t the only factor in candy manufacturers’ flight from America. After all, Life Savers, which for 90 years manufactured in America, has moved to Canada, where wages are comparable to ours.
One of the ignored stories in the clamor and demagoguery over job losses, not only in the candy industry but in others as well, is the devastating impact of congressionally created “miracles” on our industries. American sugar producers fight tooth and nail to keep foreign sugar imports out of our country. They’ve spent $722,000 in campaign contributions to both Democratic and Republican congressmen to enact sugar import tariffs and quotas.
Williams goes on to describe the cost in terms of US jobs from these protectionist sugar policies:
According to the Sugar Users’ Association, an organization that represents companies who use sugar as an input, such as candy manufacturers, the protectionist miracle that Congress has created for the sugar industry has cost anywhere from 7,500 to 10,000 jobs in sugar-using industries due to higher sugar costs. Higher sugar costs make U.S. candy manufacturers less competitive in both domestic and world markets. Life Savers became more competitive simply by moving to Canada — it saved itself a whopping $10 million dollars a year in sugar costs.
By moving to Canada! Appalling.
Another facet of the sugar protection racket that Williams does not address is the environmental impact of subsidized sugar protection. A few years ago a group in my Environmental Economics class did a research project, and found that the sugar industry is one of the prime contributors to the degradation of the Everglades in Florida. They are also blocking efforts to reclaim some of the wetlands and the ability of the wetlands to serve as a nutrient filter for the local ecosystem. And it’s not even land that they own, and they are degrading it. If we had a proper system of property rights in environmental quality, then a common law tort suit would do the trick. Grrrr.
Arnold Kling does a nice job of connecting this article with the jobs issue and asking for some intellectual consistency from the “jobs outsourcing should be stopped” camp. Simply asking
What might be the secondary consequences of legislation that discourages American companies from using overseas software programmers?
points out the hypocrisy of supporting sugar subsidies while wanting to keep existing American jobs. The secondary consequences, if the sugar and candy industries are any indication, would be to drive the production of software itself offshore, not just the work of some of the inputs. Software companies would leave the US so that they could have access to labor at a wage that better matches the value of the marginal product of their labor. Or, as Walter Williams points out, there may be other factors in determining whether a company stays in the US beyond labor costs. In the case of software I’d imagine it being costs of patenting/IP protection. But software is more labor-intensive, in the sense that labor costs are a higher share of the budget, than candy.
Hmmmm ….
http://knowledgeproblem.com/2004/02/25/walter_williams_1/
Thats what I was thinking. He built all that to benefit people in his state.
Ain’t that just the sad truth.....:-\
the 5th Avenue bar will henceforth be called the Tableta Cinco Avenida bar
Bring on the Fair Tax and these companies would NOT move out of the US. Our tax rates are driving them away...just this one small step would stop US corporations leaving and bring thousands of foreign companies to us!
LOL!!
I don’t buy food that is produced in other certain countries..and I have now looked at dishes etc to see if they are made in china..then I don’t buy them. I just don’t trust certain countries, china, mexico, lots of asian countries. I became much more careful after the doggie food scare...you can’t always be sure ( ie, the peanut fiasco) but my chances dwindle with China, etc.
I even make sure candles I use are made in the US. If its european, I am not so worried.
I wonder if I am the only one that is looking at labels now for this reason.
YUM!!!
My family has a rule:
Nothing from China goes in your mouth.
Hershey's is like eating brown colored wax.
Good rule. I have expanded to not using dishes, cookware from china as I don’t trust what might come off in the food!
I just noticed a couple weeks ago, the meat in my local Kroger had stickers saying “product of US or Mexico or Canada”. Well, I put all those packages back and bought ones that only said “US” on them.
Not going to eat any meat from Mexico. At least not by choice.
I get the dark chocolate baking chips and stick’em in the freezer.
*Then*, when they’re good and frozen, I pop a mouthful and just stand there, reveling in the blissfully *slooooow* melting of the chips.
[chewing is cheating!]....LOL!
It’s sure a great way to kill five minutes of your time....:)
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