High-Profit Food Companies Target Growers

Published in the August 2013 Issue Published online: Aug 18, 2013 Jack Roney

Since the great recession investors have been inundated with tips for turning losses into profit, ranging from gold to social media IPOs.

But through it all, a pretty obvious profit center garnered very few headlines, and now this "secret" soon could have public policy implications.

I'm talking about candy and makers of other sugar-containing products (SCP).

As the head of the National Confectioners Association (NCA) said at the onset of economic recovery: "A lot of people think it's oil and energy that drives this economy, but it's candy. It's chocolate that's doing well in this economy."

Such a statement sounds laughable, but it turns out he was spot on. University of Maryland Professor Alex Triantis examined 10 large U.S. publicly traded companies that produce highly sweetened products and unearthed phenomenal financial performance.

Triantis, former head of the university's finance department, found that shares of SCP members have shot up more than 300 percent since 2000. That's compared to an almost flat S&P index. The bulk of that 300 percent has come since 2009 when other stocks were sluggish.

Since 2004, SCP revenues have spiked 45 percent, which is 50 percent higher than the growth of the rest of the economy. Return on equity has outpaced the U.S. economy by 115 percent. And net profit margins over that period have been 17 percent higher than the average for other publicly traded companies.

These numbers show that had you bet on candy years ago, you'd be a lot richer today. But chances are good you didn't create a sugarcontaining- product index for your nest egg because, like so many of us, you were unaware of this story of prosperity.

Now these same sugar-using industries are hoping that such ignorance will help them score political points at the expense of America's sugar growers.

Led by the same NCA that once bragged of oil-like profitability, big candy companies are telling lawmakers that U.S. sugar policy has caused them financial hardship over the past few years.

To pull themselves out of the supposed economic doldrums, these big businesses are asking Capitol Hill to mandate oversupplies on the U.S. sugar market to keep ingredient costs at artificially low levels. And history shows SCP companies will pocket savings from artificially low sugar prices instead of lowering food costs.

This isn't the first time these companies have sought to manipulate legislators to enhance profitability. In 2006, these same companies proposed sending sugar growers $1.3 billion a year in subsidy checks to have the government buy down sugar prices to artificial lows.

Current U.S. sugar policy has no subsidy checks involved, but it does keep heavily subsidized sugar from Brazil and elsewhere from flooding the U.S. market and displacing domestic production. That provision is under fire from candy executives, despite the fact that U.S. sugar prices are currently below world prices when factoring in transportation costs.

The Triantis study notes that if sugar policy was to be altered in any significant way-as the confectioners advocate-a large number of jobs supported by the sugar-producing industry would be lost to foreign subsidization. And, he says, there is no evidence that consumers would benefit in the form of lower SCP prices, so there'd be no economic upside.

This is not simply a theory; this has been borne out in the European Union, which altered its sugar policy in 2006 in favor of greater import dependence. Since then 120,000 EU sugar jobs have been lost and sweetened product prices have risen 20 percent.

As Congress debates the farm bill, lawmakers should consider the whole economic story, including the one so many investors missed years ago. Clearly SCP companies have thrived under the current sugar policy, and without it we put another vital U.S. industry and our food supply at risk.

Editor's note: Jack Roney is the director of economics and policy analysis for the American Sugar Alliance, the national coalition of growers, processors and refiners of sugarbeets and sugarcane. This column first appeared in the Huffington Post on May 14.