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In 1875, Henry Tate bought the patent for making sugar in cube
form, and three years later he built a refinery in east London to
produce the cubes that so quaintly attended the afternoon tea.
Larry Dunham, Western Sugar’s Lovell, Wyo., plant manager,
stands in front of the northern Wyoming plant. Company officials say
the Lovell plant is one of the most efficient in the country.
In 1985, the managers of Tate & Lyle PLC took up producing
sugar in Billings and Lovell, Wyo., buying the plants from the Texas
Hunts, who had bankrupted their Great Western Sugar Co. while they
attended to cornering the silver market. That failed, too.
Today, the world sugar industry is confronted with mountains of
surplus, especially in the United States. The effects are
reverberating from east London to Montana and Wyoming, and it will
result in the reconfiguration of the industry, a Tate & Lyle
official says.
But officers of both Tate & Lyle and Holly Sugar Corp., which
also produces beet sugar in Montana and Wyoming, are confident that
local refineries will survive because of the quality of the beets
and the efficiencies of the refineries.
“The plant in Lovell is the best beet refinery there is,”
said Owen Palm. “We’d match its performance against any
facility. We benchmark our operations against others in the country.
Lovell is tops. Billings is in the top 10 percent.”
Palm is vice president of beet operations for Tate & Lyle’s
North American operations. The Western Sugar Co., is a wholly owned
subsidiary of the British firm. Western consists of six factories
– Billings, Lovell, two in Colorado and two in Nebraska bought
from the Hunt brothers.
“These plants are highly unlikely to go idle,” Palm said. “They
are in too good an area and are too good.
“But the ownership might change.”
Shakeup in works Tate and Lyle PLC has fallen on hard times and a
“strategic review” by summer is expected to lead to a major
shakeup, including the possible sale of the American assets. “I
cannot share everything with you,” Palm said, “but the stock
price is half of what it was a year ago. Management is obligated to
look at what they can do to increase shareholder value.”
Palm suggested these possibilities: a merger or a divestiture
that is either a sale to another company or a sale to the growers.
He conceded that it is not a good time to sell a sugar operation,
but “there is some interest” in Western. He said the rumors from
England that the consolidated food giant Cargill was looking at a
takeover was “pure speculation.”
The Billings factory was built in 1906. Annual capital
expenditures since 1985 have made it a strong investment, Palm said,
rescuing it from neglect of the previous owners.
As for efficiency, the Lovell plant had an extraction rate for
the just-completed campaign of 85.4 percent, according to plant
engineer Craig Johnson. That means that 85.4 percent of all the
sugar contained in the beets was extracted in the refining process.
Lovell produced 65 tons of sugar from the 1999 crop. Comparable
figures for the Billings plant show a 82.5 percent extraction rate,
producing 103,000 tons of white sugar.
The financial status of Imperial Sugar Co. is analogous to that
of Tate & Lyle. (See chart.) Imperial’s subsidiary, Holly
Sugar Corp., has no intention of getting out of the sugar beet
business, its president Roger Hill emphasized this past week.
“Sidney, Worland and Torrington are the heart of our
operations,” Hill said.
He also wanted to put to rest persistent rumors that Holly’s
parent, Imperial, was on the verge of filing for bankruptcy.
“Those are unfounded and have no substance,” Hill said. “We
have met all of our bank payments.”
Imperial in November suspended its quarterly dividend of 3 cents
a share to use the $1 million saved to pay off debt. The company has
also in the past two quarters sold portions of its own securities
portfolio to meet costs.
In a quarterly report May 1, James Kempner, chief executive
officer of Imperial, said the company “continues to be in full
compliance with all credit agreement covenants.”
Hill said the Sidney plant, which has seen $15 million in
upgrades in the past two years, is highly efficient and is
positioned well for the future. The same is true for the plant in
Worland, Wyo., which has about half the capacity of Sidney. The
capacity in Torrington, Wyo. is being rebuilt. Yields and acreage
have been down.
“There is no push to sell these plants,” Hill said. “The
growers have said to us that if ever there was an interest in
selling the plants, there is interest on their part in buying.
“But we would want to continue to market the sugar,” he said.
Hill said that the fundamental problem of the U.S. sugar industry
is oversupply. He said the major factor is three farmer-owned
cooperatives in the upper Midwest which have tremendously increased
acreage.
“It is difficult for a stock company to compete with co-ops,”
he said. “They can accept lower prices, but grow more.
“Investors have lots of places to go,” Hill said referring to
the stock price declines of both Imperial and Tate & Lyle.
Hill suggested that the U.S. industry needs to return to the
marketing allotments contained in the 1990 Farm Bill, but removed in
1996.
“It worked,” he said. “Each company had so much marketing
authority based on historical production. We are working toward that
solution. We need to get back in line with demand.”
But supply control can only come within the framework of the
federal farm bill, which is up for renewal in 2002.
In the meantime, the oversupply is so great that U.S. sugar
processors are threatening to forfeit 1.4 million tons of sugar
valued at $550 million to the U.S. government. The sugar program
provides a price support of 18.5 cents a pound for cane sugar and
22.9 cents for beet sugar.
Processors can take a loan for that amount for nine months to
have operating capital, then pay it back after the sugar is sold.
But the market price has fallen below the loan prices and processors
can forfeit the sugar under loan and the government has to store it.
Administrative and storage costs would push the cost to $580
million.
The industry has been pressuring the federal government to buy
300,000 to 350,000 tons for $100 million to push the market price
above the loan price and thus avoid the much more expensive
forfeiture.
Two weeks ago, the U.S. Department of Agriculture agreed to a $60
million purchase of 150,000 tons, but the effort is not expected to
be enough to raise prices above the loan level. What the USDA will
do with the sugar is unknown.
Opponents of the sugar program see this situation as an
opportunity for the government to end the sugar program and put
sugar producers into the competition of the free market. Almost
annual efforts in Congress to end the sugar program have been
stymied by farm state congressmen.
In addition to the overproduction of the co-ops, the domestic
market has been influenced by the circumvention of the import quota
law by a Michigan company that is importing molasses from Canada
that is “stuffed” with sugar that is refined in the United
States and then sold.
Also, Mexico has been selling sugar in the United States over its
quota because of the low world price of 8 cents a pound. Even by
paying an added tariff, Mexico can still make money by underselling
the U.S. domestic price of 18 cents. Also, because of terms of the
North American Free Trade Agreement, Mexico, beginning Oct. 1, can
import 250,000 tons per years compared with the current 25,000 tons
per year.
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