The ongoing drought in New Mexico and Louisiana, the main sugarcane-producing states in the U.S., has pushed U.S. sugar*** to its highest level at this time of year and forced users to switch to higher-cost imported sugar. Confectionery manufacturers, one of the major downstream industries (1 5 percent of total sugar use), pay for the competition, choose to protect their margins by increasing their consumer-facing prices, and hope that consumers will not be deterred by price increases.
The U.S. is the world's third-largest importer of sugar, after China and Indonesia, and candy is big business in the U.S.: U.S. candy retail sales are expected to reach $48.8 billion this year, according to Euromonitor International. The American Confectionery Association estimates that the U.S. confectionery industry employs more than 200,000 people at about 1,600 manufacturing sites in all 50 states, with the number of indirect roles (such as merchants) more than doubling.
Food costs have been an issue since pandemic-era chain hurdles and labor shortages caught businesses off guard in 2020. Even now, food** for many everyday items is at an all-time high, and candy has been hit particularly hard. According to data from consumer research firm NIQ, in the 12 months to Nov. 25, confectionery shoppers were 134%, outpacing the overall increase in groceries.
Although inflation is a worldwide problem, the impact on the U.S. sugar market is unique due to U.S. protectionist regulations. U.S. regulations limit both domestic sales and the amount of foreign** that can be imported at low tariffs;All other sugar imports that exceed the so-called tariff rate quota are subject to higher taxes.
Rob Johansson, head of economic and policy analysis at the American Sugar Alliance, said in an email: "There must be a balance between seeking opportunities outside the U.S. and protecting U.S. producers from unfair practices by other countries to prop up their own industries." ”
But critics say the rules are not flexible enough to keep pace with domestic production shortages. An October report by the U.S.** Accountability Office found that the program's costs to sugar users, such as consumers and food manufacturers, outweighed the benefits for producers, resulting in a net economic loss of up to $1.6 billion per year.
In a normal year, imports from Mexico, which enjoys preferential treatment, and products that are allowed to be imported from other countries under quota restrictions, are usually sufficient to meet U.S. demand. But Mexico's imports haven't been sustained: U.S. imports of sugar from Mexico last November were the fewest since at least fiscal 2011, according to USDA data.
In fact, the shortages this season have become so severe that buyers are increasingly turning to so-called high-tariff imports, i.e., those that are subject to higher tariffs for exceeding quota limits. USDA**, these most expensive imports are approaching all-time highs since Hurricanes Katrina and Rita devastated much of Louisiana's sugarcane crop and shut down refineries.
Grant Colvin, executive director of the Alliance for Fair Sugar Policy, said the U.S. is currently in a "moment of high sugar anxiety." The Fair Sugar Policy Coalition is a coalition of sugar users advocating for regulatory reform. "The program is designed to raise the sugar profile.
Right now, the American confectionery manufacturer is taking matters into their own hands. In addition to raising the price, some companies are also trying to lock in costs in advance. Brian, Ohio-based Spangler Candy booked 2024 sugar contracts, months earlier than usual. CEO Vashaw said the company is likely to do the same again in 2025 as concerns about shortages keep ** high.
If the sugar problem lasts longer, more companies are likely to look to overseas production. This has happened before.
Renata Mediros, head of food and agriculture customer coverage at ING, said that despite the challenges, the cost of sugar was offset by the continued growth of revenues from large confectionery companies due to strong consumer demand. But for smaller companies with weak bargaining power, the impact of expensive raw materials can take its toll. U.S. raw sugar*** has retreated from the record high set in November last year, but is still close to double the level it was 10 years ago. Refined sugar in kind, especially when purchased through the spot market, tends to be much higher than if it were purchased on the spot market.