| As Eastern Canada's best-known candyman, David Ganong mixes
his chocolates, gumdrops and jellybeans with love and makes the world
taste good. He also happens to throw in an awful lot of sugar -- millions
of pounds of it a year, in fact. It is the single most important
ingredient for the 127-year-old Ganong Bros., Limited of St. Stephen,
N.B., representing more than half of what goes into its various
confections.
But Mr. Ganong is a little sour these days. This year, the president
and CEO of Canada's oldest candy company lost his best source for the
sweet stuff when the Lantic sugar refinery in nearby St. John, N.B. shut
down. Now the closest refineries are in Montreal and New York.
Mr. Ganong wouldn't dream of buying his sugar from south of the border.
It has nothing to do with national pride, but the fact that the Canadian
government slaps a 44% duty on sugar from the United States. (The rate is
even higher for European sugar, at 64%.)
The Canadian International Trade Tribunal (CITT) put up the trade
barriers almost five years ago to prevent the outside world from dumping
sugar into Canada at unfairly low prices. As a result, said Mr. Ganong,
"my sugar cost is relatively higher today than it was five years ago.
If the duty is extended, that is likely to mean sugar will continue to be
relatively more expensive."
So this week, Mr. Ganong and an assorted collection of confectioners,
bakers and chocolate bar makers are descending on Ottawa. Their goal: to
persuade the CITT at a public hearing to dump the duty after its initial
five-year term runs out this November. Spearheading their cause: Gord
Love, co-ordinator of the Canadian Sugar Users Coalition. The tribunal
starts today and is expected to last one to two weeks.
Lining up against this group of Willy Wonkas are Canada's Sugar
Daddies, the trio of Lantic, Redpath and Rogers, which sell all but a few
truckloads of the country's sugar.
Lantic is controlled by two of Canada's richest men, Gerald Schwartz
and Stuart Belkin. Rogers is owned by publicly-traded Rogers Sugar Income
Fund and managed by Lantic. Lantic and Rogers share the same president and
chief executive officer, Gregory Hoskins. British food giant Tate &
Lyle PLC owns Redpath. All three companies have been busy in the past five
years cutting costs, slashing workforces, consolidating manufacturing
facilities - and increasing sales and profits.
The duty has been good for them and they want it to stay. Small wonder:
their competitors from the United States and Europe -- which had captured
as much as 15% of the $750-million Canadian sugar market -- have all but
disappeared.
What is at stake depends on whom you talk to. The Willy Wonkas,
including Ganong Bros., Dare Foods and Cadbury Chocolate Inc., say the
lack of competition (Rogers enjoys a monopoly west of the Ontario-Manitoba
border, while Redpath and Lantic duke it out in the east) results in
inflated costs of $75-million, or about 10% to all sugar users. That means
an extra 20$ for an average bag of sugar from the supermarket.
"The world price fell in half during the past five years, but the
[refinery] prices went up," said Mr. Love. "So where did the
money go? It went right in their pockets."
The sugar users also charge that Lantic played provincial governments
against one another two years ago when it was deciding which of its
Montreal and Saint John plants to close.
The winning plant in Montreal came with a gift-wrapped $19-million in
handouts from the Quebec and Montreal governments. The money was used as
part of a $65 million expansion to the surviving plant.
The sugar users have an important ally in their fight: The Competition
Bureau agrees with them, saying in its submission to the tribunal that
open competition would lead to a price drop of up to 10% in the five-year
period after the duty disappeared. But, like Mr. Love, the bureau points
out that the Canadian industry is now strong enough that it could heartily
withstand a little healthy competition an open border would bring.
The sugar producers counter by laying out a near-apocalyptic situation
should the duty be relaxed. In their scenario, Europeans and Americans
would dump an unprecedented pile of cheap, excess sugar on the Canadian
market, devastating the three Canadian companies and the 1,200 or so
people who work for them.
"Until the distortions created by the European Union and the
United States are eliminated, the Canadian industry has no hope of
avoiding material injury from these imports if the anti-dumping and
countervailing duties are removed," said Sandra Marsden, president of
the Canadian Sugar Institute, which represents Rogers, Redpath and Lantic.
Sugar refining is one of the world's oldest businesses, dating back to
the dawn of the Industrial Age. It is also one of the world's most
distorted and protected industries. In most developed countries, the
highly visible hand of government makes its presence felt in the local
sugar business, in the form of import quotas, duties, subsidies and
minimum prices for producers of sugar beets and sugar cane, the two
primary sources of refined sugar crystals.
Many countries tend to prop up their farmers in one form or another,
but sugar seems to occupy a special place in the hearts of protectionist
legislators. Markets for other staple crops are gradually being opened up
to free competition, but "to date, very little substantive change has
occurred in the sugar policy of most major producing and trading countries
relative to the overall [World Trade Organization] objectives," said
Jennifer Nyberg of the UN's Food and Agriculture Organization in a recent
report.
As it turns out, Canada fares quite favourably compared to its global
brethren when it comes to intervening in the market. Only Australia can
boast less government intervention and lower sugar prices among any
country in the developed world.
The United States, on the other hand, is one of the worst offenders,
with government intervention at every level of the business. Big Sugar is
a political powerhouse in the United States, giving more money to the
Democrats and Republicans than any other commodity group.
This, in turn, has in the past several months helped to create one of
the worst crises the United States sugar industry has ever seen. As luck
would have it, that crisis couldn't come at a better time for Canada's
Sugar Daddies. It could very well have the greatest impact on the outcome
of this week's hearings in Ottawa.
The U.S. federal government tightly controls how much sugar foreign
countries can import. It also guarantees a minimum price for U.S. cane and
beet farmers that is far above the world price. Meanwhile, the government
does not place any limits on how much farmers can grow. The situation is
similar in Europe, with a few subsidies sprinkled in.
As a result, the U.S. General Accounting Office estimates Americans
have been paying far too much for their sugar -- $1.9-billion extra in
1998 alone. At the same time, farmers have responded to the rich
guarantees from their governments in the United States and Europe and
produced record amounts of sugar -- far more than anyone knows what to do
with.
Hence, the crisis in the United States this year. Despite the price
guarantee for farmers, the glut has caused the actual domestic price for
sugar to fall to a 20-year low, far enough to actually turn sugar plant
growing into a money-losing proposition for farmers. After processors
threatened to forfeit more than a million tonnes of sugar earlier this
year, the U.S. Department of Agriculture tried to drive prices back up by
purchasing 132,000 tonnes of sugar for $54-million. It didn't work. There
is still a huge glut -- as much as 400,000 tonnes over and above the
normal surplus, said Gregory Hoskins, the president and CEO of both Lantic
and Rogers.
So last month, the U.S. government took the unprecedented step of
offering to pay farmers to destroy their current beet and cane crops. The
farmers will be paid in actual sugar as the government tries to empty its
storehouses. This should help stabilize prices and cut into the
government's inventory of 174,000 tonnes of sugar. But it's only a
temporary fix, and some industry observers expect a further glut next
year.
It's a mess of gigantic proportions, and it begs the question,
"What would the United States do if its next-door neighbour suddenly
opened its doors to sugar?"
"The trade distortions that existed five years ago have not been
reduced," said Ms. Marsden. "In fact, they are more significant
than they were in 1995."
In an age of falling trade barriers, there is no doubt that renewing
the duty would keep Canadian sugar prices high and restrain competition.
But when the world's biggest economy and most aggressive proponent for
trade liberalization happens to have a sweet tooth for the sugar business,
Lantic, Rogers and Redpath should have a strong argument for keeping the
duty in place for another five years.
SUGAR DADDIES:
Lantic Sugar Owned by Onex Corp. and Vancouver's Belkin family.
President and CEO: Gregory Hoskins. Cane refinery in Montreal. Revenue in
1999: $262-million
Rogers Sugar Owned by publicly-traded Rogers Sugar Income Fund, managed
by Lantic. President and CEO: Gregory Hoskins. Cane refinery in Vancouver,
beet factory in Taber, Alta. Revenue in 1999: $167-million
Redpath Sugars Owned by Britain's Tate &Lyle PLC. Senior
vice-president and general manager Don Hill. Cane refinery in Toronto.
Revenue in 1999: Not public. Likely between $275-million and $300-million
SUGAR FACTS:
- World production: 133 million tonnes
- Canadian production and consumption: Between 1.1 million and 1.2
million tonnes annually
- Value: About $750-million
- Percentage of Canadian sugar that ended up in confections and canned
drinks, 1997: About 33
- Tonnes of sugar beets harvested in Canada, 1999: 840,000
- Number of sugar manufacturing employees in 1997: 1,415
- Average raw sugar world price in 1999: 6.54 per pound
- Imports as a percentage of Canadian sugar market, 1994: 13.2%
- In 1999: 2.6%
- Percent change in world price of sugar, 1995 to 1999: -51
- Percent change in Canadian price of sugar during that time: +16.1 |