Sugar Price Survey

August 2009

AMERICA’S SUGAR PRODUCERS… Meeting America’s Needs

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Introduction
When discussing the cost of sugar in America, there are three prices to consider: 1) the retail
price paid by grocery shoppers, 2) the wholesale price paid by large food manufacturers, and 3)
the raw sugar price that sugarcane producers receive for milled sugar that needs further refining.

The past year has seen consumers paying more for a bag of refined sugar—a reflection of
grocery stores increasing their markup and profit margins. Shoppers have also been asked to
fork over more for sweetened products such as cookies, cake, and candy, but this has not been a
result of sugar pricing. Like the grocery stores, large food manufacturers have increased product
prices in hopes of boosting profits.

On the other hand, wholesale sugar prices have fallen since last summer, and raw sugar prices in
the first half of 2009 were well below 2008 levels, largely because of a dramatic increase in raw
sugar imports from Mexico.

The end result has been many sugar farmers struggling to remain profitable while large food
manufacturers are reporting sharp revenue increases despite the country’s economic recession—a
testament to sweetened products' affordability and popularity, and the cheapness of food
companies’ raw ingredients.

Ironically, industrial sweetener users want to further the divide between their profitability and
that of their sugar suppliers. The U.S. Department of Agriculture (USDA) has come under heavy
pressure from food manufacturer lobbyists this past year to increase import levels, a move that
would send sugar prices even lower and would likely cost taxpayers millions of dollars in
forfeitures.

To help lawmakers and Administration officials sort fact from fiction when it comes to sugar
prices, the American Sugar Alliance has updated its annual price survey of sugar and sugar-
containing products.

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Retail, Wholesale, and Raw Sugar Prices

Ask most people how much sugar costs and few will have any idea. That’s because sugar is an
inexpensive staple that can be bought in bulk at a fraction of the cost of competing sweeteners.
Some people would even observe that it’s so cheap that restaurants give away sugar for free.

And it’s a better bargain in America than just about anywhere. A June study by LMC
International, a renowned commodities research firm from Oxford, England, found that
Americans spend less of their incomes on sugar—just 0.08%—than any other country in the
world, even though sugar is found in just about everything we eat.

If you can find a person familiar with sugar prices, chances are they only know about the retail
price they pay for a bag of sugar in the grocery store. But most legislative and business battle
lines are drawn over wholesale and raw prices—the price paid by food manufacturers and the
price received by sugarcane producers respectively.

Since the American Sugar Alliance’s last sugar price survey in August 2008, the market has
witnessed unprecedented movement. Retail prices have steadily climbed, while wholesale and
raw prices have actually decreased.

Retail Prices:

From 1990 to 2005, retail sugar prices were remarkably stagnant, averaging approximately 42
cents per pound. But 2006 began a price run-up in prices that has steadily increased, with a
sharp spike occurring since July 2008—retail prices last July were 52.5 cents per pound and
jumped to a high of 57 cents this March.

Amazingly these costs have climbed despite ample sugar supplies. That can be seen in the chart
below, which shows the increasing spread between the retail prices grocery stores charge and the
wholesale prices that the grocery stores pay to purchase the sugar.

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In other words, the only thing that’s changed this year has been the profit margin for grocery
stores. To understand why this price gap widened, you need to look past sugar to the other items
in your shopping cart. Since 2006, food prices have climbed across the board, with food
manufacturers and grocery stores steadily increasing prices in hopes of offsetting a higher cost of
doing business—from more expensive ingredient costs (except sugar) to higher fuel and
transportation expenses.

In fact, food and beverage costs increased 7.2% from 2006 to 2008, according to the Bureau of
Labor Statistics.

Unfortunately for sugar producers—who had to deal with the same higher input costs that
plagued manufacturers—their prices didn’t see sharp inclines like other commodities to help
recoup losses.

Since last year, prices for corn, soybeans and wheat have come back to earth, being sliced in half
in many cases. Corn was recently trading at $3.00 a bushel compared to a high of $7.60 last
June, while wheat prices have dropped from about $12 a bushel to about $6 a bushel over the
past year.

Fuel is also dramatically cheaper this year, yet food prices have remained high. Why? It’s a
phenomenon that economists call “sticky prices.”

The Grocery Manufacturers Association, a trade association of large food companies, profiled a
report on their website in December 2007 that explained the theory this way, “The long period of
low food price inflation rates prior to 2007 has passed."

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Put another way, what goes up doesn't come down.

This market forecast means grocery shoppers will likely see higher retail sugar prices for the
foreseeable future so grocers can boost profits even though wholesale and raw prices are on a
different trajectory.

Wholesale Prices:

In recent weeks, food manufacturers have intensified a yearlong lobbying campaign targeting the
USDA. Their mission: to increase sugar imports in order to lower wholesale sugar prices.

One would assume, therefore, that wholesale sugar prices have been going up at a rate similar to
retail sugar prices. Wrong. The wholesale sugar prices paid by food companies have been
relatively stable and have actually decreased slightly from this time last year.

When the 2008 Sugar Price Survey was penned last August—around the time food company
calls for higher imports began—wholesale prices were 38.4 cents per pound. Prices for the first
half of 2009 averaged 34.9 cents, a 9% reduction.

Admittedly, current prices are slightly higher than the 32.5-cent average for 2008, but sugar
prices around the world have increased in 2009 and the current cost to U.S. food manufacturers
is still cheaper than it was when Jimmy Carter sat in the Oval Office.

Sugar cost 38.3 cents per pound in 1980, and when inflation is factored, sugar is 59% cheaper
today than it was almost three decades ago.

Food manufacturers in other developed countries aren’t so lucky. According to a study of 2008
sugar prices conducted by LMC International, candy companies in the rest of the developed
world are paying 9% more for sugar.

Sugar Prices Around the Developed World in 2008

U.S. Prices Low by Comparison

Wholesale Prices Retail Prices

Country (US$/LB) (US$/LB)

EU 0.39 0.63
Developed Country Avg. 0.38 0.59
USA 0.35 0.53
Source: LMC International Ltd, Oxford, England, June 2009: “Retail and Wholesale Sugar Prices Around the World in 2008”

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Raw Prices:

The biggest anomaly over the past year has been the raw sugar price—the price received by
sugarcane producers for milled sugar that still must be refined before it is ready for consumption.

This price is essential to cane farmers and is a key indicator of sugar supplies because the vast
majority of imports are shipped in a raw form and then refined at an American refinery to
overcome quality and delivery problems that are rampant in other countries.

Raw prices averaged 23.2 cents per pound when the 2008 Sugar Price Survey was written. In the
months that followed, raw prices dropped like a rock, plunging as low as 19.8 cents in February
and March of 2009.

This downward spiral is a direct result of two factors: 1) a 300,000-ton import increase
announced by the USDA last August, and 2) an unprecedented amount of Mexican sugar
flooding the American market in late 2008 and early 2009.

Unfortunately for sugar farmers—especially those in Louisiana and Texas who do not refine
their own sugar and are solely dependent on the raw market—raw prices hovered at or below
what’s known as the forfeiture level for most of the year. This is the level at which it makes
more economic sense to forfeit your crop to the government than to repay the government loans
with interest.

Such forfeitures almost never happen because the federal Farm Bill mandates that the USDA
should operate sugar policy in a way that prevents forfeitures and the associated taxpayer costs.
However, forfeiture has been a real danger in 2009 because of low raw prices and it will remain
a danger for the next two months as $62 million in operating loans from Louisiana come due.

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Raw prices have started an upward ascent in recent months but remain fragile. In fact, a rumor
on July 23 of an imminent import increase announcement by the USDA sent raw prices tumbling
by 23 points.

Sugar producers dependent on the raw price are rightfully worried that a USDA import
announcement would send prices lower and back near forfeiture levels. Similar announcements
in July 2006 and August 2008 sent prices lower by 16% and 17% respectively.

“With these loans maturing, clearly now is not the time to cave to demands for additional
imports,” Wallace Ellender, a Louisiana sugar producer, recently said. And he wants the USDA
to know that higher input costs mean producers can still find themselves below their breakeven
levels even when prices are above the traditional forfeiture range.

Ellender’s observations corroborated a study conducted by Louisiana State University (LSU)

released in early June. The data revealed cane farmers in the state continue to lose on average
$70 per acre after paying land rents and production costs. Farmers would need to receive 24
cents per pound of raw sugar in order to make ends meet, LSU estimated. June raw sugar prices
averaged just 22.5 cents per pound.

The scenario is even worse for producers who are suffering the ill effects of recent hurricanes.
The lower yields brought about by the storms can push the breakeven point as high as 28 cents
for some Louisiana growers, LSU found.

The chart above illustrates just how low raw prices have been for sugar farmers dealing with
even normal rates of inflation.

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Of course, it’s not just Louisiana farmers who are coping with higher input costs. Rising fuel,
labor, and chemical costs have deflated profits across the sugar business—from beet growers and
processors to sugarcane refiners. All told, 35 sugar mills and refineries have shut down since
1996 because of financial strain.

The following chart shows some of the rising input costs that created this atmosphere of
tightening profit margins. Note the loan rate received by sugar growers has remained unchanged
since 1985 and will only increase by one-quarter of one cent per pound next year.

Judging from recent profit reports, things have been a bit rosier in the sweetener-using sector.
High candy profits in the face of low raw sugar prices even led one prominent Louisiana banker
to pen an article in May on the subject.

“Seeing neighbors go under is never easy, but it’s even more difficult when you’re reading
headlines about good times on the other side of the equation,” wrote Dean Martin, assistant vice
president of First South Farm Credit.

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Sugar Users See Good Times

Recession or not, people will still celebrate Christmas, Halloween, Easter, and Valentine’s Day,
which is why candy companies make money in good times and in bad, says the National
Confectioners Association (NCA). In fact, NCA unveiled at its annual All Candy Expo, held in
May, that the industry actually posted a 3.7% sales gain in the past year despite the worst
economy since the Great Depression.

This comes just one year after NCA proudly proclaimed in an industry report, "Not only is
confectionery a large product category at $28.2 billion in retail sales, it is a high profit category.
Margins average more than 35% for the category.”

NCA’s 2008 depiction of a “high profit” industry appears to be holding true again in 2009.

Hershey's chief executive had this to say on a January 27 conference call with investors: "The
financial market and credit crisis has not had a material effect on our business operations or
liquidity, to date."

In fact, the Hershey Company proudly told investors that its fourth quarter net income was up a
staggering 51% from a year ago. The good news didn’t end there. Months later the company
posted a 20% increase in profit during the first quarter of 2009.

They weren’t alone in their exciting news this year. "DeMet's Candy Company is looking to hire
100 people for its new plant," a news station in Big Flats, NY reported on January 28.

New hires…plant expansion…increased income. These are not the signs of a struggling industry,
no matter what food manufacturer lobbyists try to tell lawmakers and USDA officials when
shopping for policies that would further depress sugar prices.

And this good news isn't isolated to a few candy companies. Other large sugar buyers are getting
into the act.

• A new Sconza Candy Co. plant officially opened in Oakdale, CA in November 2008,
employing 100 people immediately and looking to hire more.
• On the heels of a 2005 expansion to the tune of $200 million, Dreyer's Grand Ice Cream
added a new production line to their Laurel, MD factory in February and promised two
more by year's end.
• Tierra Nueva, a cocoa and chocolate-product factory, opened a new facility in Miami in
March, which brought with it an estimated 160 new jobs.
• J.M. Smucker Co. announced in March it will open a 557,000 square foot distribution
facility in Atlanta, GA.
• General Mills released plans a few months ago to expand its Albuquerque, NM facility
and create 60 new jobs.
• Sara Lee Corporation is celebrating a huge expansion of its facility in Rochelle, IL. The
132,000 square foot expansion project will be Sara Lee's largest mixing facility and
should be completed by December.

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• "In a span of five years, Nestle will have invested $529 million in this facility," Nestle
USA Chairman & CEO Brad Alford recently crowed about a new factory in Anderson,
IN. "When it's finished in 2011, the Anderson facility will have created more than 500
local jobs in a tough economy. This is our fourth investment in Indiana in the past two
years—twice in Anderson, once in Greenwood and once in Fort Wayne."
• Kellogg’s first quarter net earnings were $321 million, a 2% increase from last year's
$315 million.
• Kraft witnessed a 10% rise in first quarter revenues.
• General Mills reported sales increases of 8% and an earning per share increase of 2% in
Fiscal Year 2009.
• Profits were apparently so good at Mars, the company began giving its product away,
with, according to the company, “the creation of the Mars Real Chocolate Relief Act™, a
nationwide effort to bring sweet smiles to millions of Americans via free, full-sized
samples of Mars real chocolate, product discounts and coupons along with the
proclamation of Free Chocolate Fridays™”

Dean Martin, the Louisiana banker infuriated by the double standard in the sugar market right
now summed up the situation this way: “I don’t fault Hershey’s or any other food manufacturer
for turning a profit—after all that’s why people go into business. But driving suppliers into the
ground to pad profits is bad business.”

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U.S. Sugar Market Stable

Unbeknownst to most people, a furious battle is going on behind the scenes over the future of the
sugar market in 2009 and 2010. Large food manufacturers hungry for bigger profits insist the
sugar market is tight and have been lobbying for 500,000 to 1 million tons of additional imports
to flood the U.S. (an amount equal to 5-10% of the entire U.S. market).

Meanwhile, sugar producers point to surplus stocks of sugar sitting in America and raw prices to
prove there is no need for additional imports and that supplies are stable. Their arguments were
summed up in a July 10 letter to the USDA that stated:

U.S. cane refiners continue to have more than adequate supplies of raw sugar. Most are
operating at less than full capacity because the demand for refined sugar is not great.
Beet processors still have refined sugar to sell. No food manufacturers are having any
trouble locating refined sugar supplies. Raw and refined sugar prices remain relatively
stable.

Early beet harvesting will begin in just two months and, as harvests get underway
throughout beet and cane areas, the market will move into its heaviest oversupply period.
Resumption of full operations at Imperial’s Savannah cane sugar refinery will speed
refined sugar production and delivery. Stocks will build through the spring. During
October-March, 83% of U.S. sugar production occurs but only 49% of consumption.
During this period, too, the U.S. market is open to all the tariff-rate quota (TRQ) supplies
from WTO and CAFTA quota-holder countries. And, most importantly, the market is
open to unlimited supplies from Mexico.

During this past October-March, Mexico shipped over 600,000 metric tons of sugar to
the United States. That is more imports from Mexico in the first half of the year than
USDA had been forecasting, as late as January, for the entire fiscal year. USDA now
forecasts imports from Mexico to total 1.18 million tons for all of 2008/09—more sugar
than we are required to import from 40 countries under our WTO TRQ commitments.

USDA’s projection of possible tight supplies in 2009/10 assumes imports from Mexico of
a mere 150,000 tons. Higher imports from Mexico next year would further ease any
supply concerns.

With chronic oversupply during the first half of the year, any tightness next year would
not emerge until the summer. USDA would have adequate time to prevent any possible
tightness through an import-quota increase, if necessary, on or after April 1.

To reiterate our message of last May: We remain committed to continued open

communication regarding any potential shortages in the market. Meanwhile, we
commend your caution with regard to domestic sugar supplies and we urge you to remain
cautious.

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Crying Wolf:

The underlying message that sugar producers have sent the USDA is the need to remain prudent
when dealing with imports and considering tariff-rate quota increases. After all, they say, this is
not the first time profit-seeking candy companies have made false claims of sugar shortages.

After the USDA increased imports last August, food manufacturers said their actions didn’t go
far enough. The Sweetener Users Association asked for 1 million tons of additional sugar last
September, pointing to USDA projections of supplies more than a year down the road as their
rationale.

But market conditions changed along with USDA projections. A 2009 sugar market once
estimated to only have a 4.6% surplus sugar ratio quickly ballooned to 12% as stocks increased.
Only, the sugar users never ceased their lobbying push, routinely pressuring the USDA for more
imports.

Had the USDA caved to these demands last fall, the country’s sugar surplus rate would have
surged to an eye-popping 22% of consumption, a level that would have led to producer losses
and millions in taxpayer cost because of widespread loan forfeitures.

Jack Roney, an economist with the American Sugar Alliance, points out, “The sugar users were
wrong last year and they’re wrong now.” He says imports from Mexico are the wildcard
sweetener users aren’t taking into account, which is why the USDA should take a wait-and-see
approach.

Mexican Wildcard:

Each month, the USDA is asked to forecast sugar supply and demand more than a year into the
future. It’s a difficult job that became exponentially harder on January 1, 2008. That’s when a
NAFTA provision kicked in that allowed Mexico to send the United States as much duty-free
sugar as it wants.

And under NAFTA, there’s nothing to prevent Mexico from turning a handsome profit by
sending the sugar it grows to America and then importing cheaper, subsidized sugar from other
countries to meet its own domestic needs.

This NAFTA loophole has caused impossible-to-predict fluctuations in USDA sugar supply
estimates over the past year.

For example, when Department officials first warned of a tight sugar market last year, the
information they had received indicated that Mexico would only send America 500,000 metric
tons of sugar. Actual shipments for this crop year are coming in more than double that amount—
closer to 1.18 million metric tons.

It’s no wonder then that raw sugar prices have remained low despite USDA’s early predictions
of a tightened sugar market in Sept. 30, 2010—nearly 14 months from now.

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The government’s May World Agricultural Supply and Demand Estimates (WASDE) showed a
surplus ratio of 2.7% for the 2010 crop year—an estimate that if not for the Mexican wildcard
would have normally sent market traders into a frenzy, and sent sugar prices higher.

But prices didn’t jump, and the USDA has started revising its estimates upward as new
information becomes available. The July WASDE has raised surplus estimates to 3.4%, a
number that most market observers expect to continue climbing drastically as next year’s market
realities continue to come into focus.

For example, there’s such little demand for sugar in the market right now that Louisiana
producers have taken out supplemental loans in order to carry part of their crop over to the next
crop year, which begins in October. And, right now, the USDA is only projecting 150,000
metric tons of sugar from Mexico in 2010—an unlikely 87% drop from this crop year.

Given this kind of uncertainty, Roney says he does not envy the position that the USDA is in.
Especially when the lobbyists from multinational food companies release misleading press
statements designed to influence USDA decisions. For example, the Sweetener Users
Association’s July 21 press release that states large import increases will “benefit consumers,”
“reduce taxpayer costs,” and are necessary “with hurricane season looming.”

Plummeting sugar prices could actually increase taxpayer costs, Roney explains, also pointing
out that food manufacturers never pass these lower costs to consumers and that in the unfortunate
event of a hurricane, the Farm Bill includes a provision to allow the USDA to quickly increase
imports to make up any shortfall.
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Consumers Wouldn’t See Savings from Even Lower Sugar Prices

Such outlandish claims by the Sweetener Users Association are not surprising since sugar policy
opponents have been arguing for decades that grocery shoppers would see big savings on candy,
cake, cookies, and other sweet treats if food manufacturers paid less for sugar.

Considering companies pay more to package their products than they do on the sugar inside,
claims of significant consumer savings continue to defy logic. First of all, history has shown that
food manufacturers would pocket any sugar price savings instead of passing it along to
consumers.

Secondly, simple math displays that if food manufacturers did pass savings along to consumers,
those savings would be too minute to even make a difference.
“The cost of
A Pepsi spokesperson admitted as much during an interview three years ago the sweetener
with a New York Times reporter working on a story about high fructose corn in the product
syrup. When asked whether ingredient costs dictated sweetener choices, the is extremely
spokesperson responded, “The cost of the sweetener in the product is minimal to the
extremely minimal to the point of not even mattering.”
point of not
While his admission of indifference made many anti-sugar lobbyists cringe, even
this statement has held true to form as Pepsi ventured into a cadre of new mattering.”
products. Dave DeCecco
Pepsi Spokesperson
Visit your local grocery store today and you can find Pepsi made with sugar, corn syrup,
aspartame, and Splenda. And chances are good you won’t find any difference in the products’
cost.

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Take the Safeway grocery store located just blocks from the American Sugar Alliance’s office,
for example. Pepsi Throwback, the brand sweetened with sugar, costs $5.99 for a 12 pack of
cans. Ditto for regular Pepsi (corn syrup), Diet Pepsi (aspartame), Pepsi One (Splenda) and
Pepsi Max (aspartame and ginseng).

And the phenomenon is not isolated to Pepsi. Look at the list of sugar and sugar-free products in
the table below.

Sugar-Containing Vs. Sugar-Free Product Prices

Item Name Manufacturer Price

Safeway Vanilla Ice Cream Safeway Inc. $5.99

Safeway Sugar-Free Vanilla
Ice Cream Safeway Inc. $5.99

Edy’s Chocolate Ice Cream Dryer’s $6.49

Edy’s Sugar-Free Chocolate
Ice Cream Dryer’s $6.49

Jolly Ranchers Hershey’s $2.49

Jolly Ranchers Sugar-Free Hershey’s $2.49
Source: Safeway Store, Arlington, VA, July 2009

It is clear that sugar prices have little if any bearing on pricing decisions for sweetened foods.
But even if sugar prices were a major factor in a product’s cost, the chart below shows that price
fluctuations would barely register at the grocery store checkout line.

Wholesale Sugar Price Increases Have Little, If Any, Effect on Retail Sweetened
Product Prices
Item Item Sugar
Price Cost of
Price Share of
in Sugar in
In Product
2008 Item1
Item Name Manufacturer 2009 Price
Hershey w/almonds Hershey’s $0.90 $0.99 $0.01 1.44%
Almond Joy Hershey’s $0.90 $0.99 $0.02 1.67%
Jolly Ranchers Hershey’s $2.39 $2.49 $0.09 3.64%
Ben & Jerry’s Ice Cream Ben & Jerry’s $3.39 $4.49 $0.06 1.27%
Good & Plenty Hershey’s $1.59 $1.69 $0.07 4.19%
M&M’s M&M Mars $0.90 $0.99 $0.02 2.35%
Mike and Ike Just Born $1.59 $1.69 $0.12 7.14%
Aunt Jemima Corn Bread Quaker $1.66 $1.66 $0.15 9.03%

Source: Safeway Store, Arlington, VA, July 2009

1
Assumes wholesale refined sugar price of 34 cents per pound, the first half of 2009 average reported by USDA. Sugar content computed from
nutrition label.

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Put another way, a 99-cent candy bar with a penny’s worth of sugar would still cost 98 cents
even if candy companies got the sugar for free. And that assumes that industrial sugar users
would pass every penny of savings along to consumers.

This seems highly unlikely considering that almost every product in the chart above costs more
than it did the year before. It looks like food manufacturers care more about profits than about
consumer savings. Maybe that’s the motive behind their current lobbying efforts to bring in
unneeded sugar from foreign countries.

American Sugar Alliance

2111 Wilson Boulevard, Suite 600
Arlington, VA 22201
Tel: 703-351-5055 Fax: 703-351-6698
www.sugaralliance.org

Sugar Price Survey August 2009