Study Finds Candy Industry Thrives Under Current Sugar Policy

Confectioners and other producers of sugar-containing products (SCP) are adding more jobs, growing revenues faster and achieving higher profitability than other food processing segments, according to a new report released today that examines the economic effects of U.S. sugar policy.

“The SCP industry has been faring very well under current U.S. policy,” found the report’s author, University of Maryland Professor Alexander J. Triantis, Ph.D. The findings stand in contrast to claims by candy industry lobbyists that sugar policy has caused economic hardship.

“SCP companies have experienced strong revenue growth over time. These companies have high profitability and high returns on equity, even when sugar prices increase,” continued Triantis, the former chair of the university’s finance department. “Coupled together with low risk and therefore a low cost of capital, SCP companies have generated impressive total shareholder return since 2000, and their stocks are priced to reflect strong expectations for the future.”

As part of his work, Triantis examined the financial performance of 10 large U.S. publicly held companies that produce highly sweetened products and found:

  • Share prices have shot up more than 300 percent since 2000, compared to an almost flat S&P index during that period.
  • Revenues grew by 45 percent between 2004 and 2012, 50 percent higher than the growth rate for the rest of the U.S. economy.
  • Net profit margins from 2004 to 2012 were 17 percent higher than the average for all U.S. public companies and 60 percent higher than all the food processing industry.
  • Return on equity was 47 percent higher than the overall food-processing industry and 115 percent higher than the U.S. economy from 2004 to 2012.

Triantis also noted the number of jobs in the SCP sector has grown since 2006, while employment by food manufacturers that do not use sugar has fallen by 3 percent.

Sugar policy and sugar price fluctuation have minimal impact on the SCP industry’s financial health, Triantis said, noting that labor and other overhead costs reflect much larger line items on corporate income statements.

“The cost of sugar constitutes, on average, only 4 percent of the cost of producing a confectionery product,” he explained. In addition, “retail SCP prices have risen much faster than the U.S. wholesale sugar price … and don’t typically fall when the sugar price decreases.”

The financial future of the sugar producing industry, however, is directly linked to decisions being made by lawmakers during the Farm Bill debate.

“If U.S. sugar policy were to be altered in any significant way, a large number of jobs supported by the sugar industry would be lost, and there is no evidence that consumers would benefit in the form of lower SCP prices,” Triantis wrote.

Sugar related jobs have declined 40 percent over the past two decades, he explained, and the remaining jobs would be put in jeopardy if subsidized foreign sugar supplies flood the U.S. market, as large candy companies advocate.

Triantis pointed to Europe for proof. After the European Union rewrote its sugar laws in favor of greater import dependence, 120,000 sugar jobs disappeared.

“Given the historical link between profitability of operations and employment in the sugar industry in the U.S, and the recent experience in Europe, it is thus reasonable to expect that any disruption to U.S. sugar policy that will result in a decrease in the price of sugar will result in the loss of a large fraction of the roughly 142,000 jobs supported by the sugar industry,” he concluded.

The American Sugar Alliance, which represents U.S. sugar producers, commissioned Triantis’ work and will share the report with lawmakers and administration officials