Bloomberg — Last fall, Hershey Co. bought back a factory outside Ottawa that had closed more than a decade earlier. Blommer Chocolate Co., an American rival, is expanding in Ontario as it closes an 85-year-old Chicago plant. Mondelez International Inc., maker of Oreo, says it has invested US$250 million in manufacturing facilities in Ontario just in the last few years.
Although Canada is too cold to grow enough sugar for its candy industry, has managed to attract hundreds of millions of dollars of investment in recent years to expand its capacity. Part of this can be attributed to population growth, But many in the industry say it is the longstanding protectionist measures in place south of the border that are sweetening Canada’s appeal.
“Long-term high US sugar prices are the driver of chocolate and candy production in Canada”says Sébastien Pouliot, an agricultural economist and consultant based in Quebec.
The American sugar industry is heavily protected, and buyers such as confectioners and processed food manufacturers They can only import certain quantities of raw and refined sugar before incurring heavy tariffs. This regulation, which dates back decades, aims to protect the profits of American farmers and prevent other countries from flooding the country with sugar. But critics say it also keeps American sugar prices artificially high, putting a burden on American candy companies and refiners trying to operate at home.
In 2013, the difference between US and world sugar prices was just a couple of pence per pound. But production challenges at home and in neighboring Mexico have pushed U.S. sugar futures to nearly double the global benchmark price. That makes it increasingly attractive for companies to make candy and cookies in Canada instead, and then ship some of its production to American consumers. Many of those finished products can enter the U.S. and avoid the quotas that dictate the more “closely managed” trade in refined and unrefined sugar, according to Alex Smith, project manager at consulting firm Agralytica.
The growth of the Canadian industry “It is a direct result of the price being well above any reasonable price in the US,” said Rick Pasco, president of the Sweetener Users Association, which has pushed for reform of the U.S. sugar program. “We are paying double for sugar. That’s a big boost for overseas operations – Canada is the closest.”
The volume of sugar contained in finished products flowing from Canada to the US in the last marketing year was the highest in almost two decades, Agralytica data shows. Last year, $1.98 billion worth of chocolate and $615 million worth of other sugary confectionery products were shipped from Canada to the U.S. for consumption. both all-time highs.
Every time the U.S. Farm Bill comes up for reauthorization (it’s scheduled to happen this year), critics of the country’s sugar policies push for changes to import quotas. They got new ammunition in October, when the U.S. Government Accountability Office’s review of the program concluded that it costs American consumers more than it benefits producers. which translates into an estimated net economic loss of up to US$1.6 billion per year. The agency also noted in its report that policies can incentivize companies to move abroad, including to Canada.
A cheaper sugar price is “the main difference” between having operations in Canada or the US.said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. “I don’t think there’s any secret sauce there.”
To be sure, sugar is not the only input cost for manufacturing. John Boyd, founder of a consultancy that helps companies select sites, also points to labor, energy costs and Canada’s exchange rate as factors to consider. And not all the sugar and candy produced in Canada ends up in the United States. Canada’s population has not stopped growing, and the country is on track to consume the largest amount of sugar in the 2024-2025 season on record since 1960. Even so, its sugar consumption is less than 14% of what its larger southern neighbor consumes, data from the US Department of Agriculture shows.
The influx of spending in the Canadian confectionery sector does not mean that suppliers are going to throw in the towel in the US just yet. In addition to its $60 million Canadian expansion, Blommer will also spend a total of $40 million upgrading its manufacturing facilities in Pennsylvania and California, while Hershey has been building its first new chocolate manufacturing plant in the U.S. . in more than 30 years. Last May, Mondelez inaugurated a research and development center in New Jersey that cost almost $50 million. Spokespeople for Blommer, Mondelez and Hershey did not respond to requests for comment.
But for sugar users with older manufacturing facilities that require large investments, it makes sense to move north of the border and install new capacity, said Pouliot, the Quebec consultant. And as Canada produces more candy, that country’s sugar refineries are also increasing their capacity. Redpath Sugar, part of ASR Group, just increased the annual output of its Toronto refinery by 65,000 tonnes, while Rogers Sugar Inc.’s Lantic subsidiary is spending C$140 million to increase the capacity of its Montreal plant by 100,000 tons. Florida-based Sucro Can Sourcing LLC is spending C$135 million to build Canada’s largest sugar refinery, with the capacity to process up to 1 million metric tons annually.
“I don’t want to criticize the illiquidity of the US domestic market, but I would say it is a much more welcoming environment to source sugar from the global market,” said Oliver Hire, vice president and head of trading at Sucro. Canada is “a pretty friendly home for moving those production facilities.”
Read more at Bloomberg.com
