Who Benefits from the Proposed Sugar Bailout?

Michael Teague |

In a political-economic climate in which it has become acceptable to speak casually of applying spending cuts to vital elements of the country’s wellbeing such as Medicare and national security, the USDA is apparently leaning towards a purchase of 400,000 tons of sugar, with the purpose of saving American sugar producers from defaulting on $862 million in loans they received from the government last year.

Sugar producers, such as American Crystal Sugar Co., Alico Inc. (ALCO), Imperial Sugar Company, and Amalgamated Sugar Co. find themselves in a tough spot at the moment due to the fact that record crops of both sugar cane and sugar beet have sent domestic prices down about 18 percent since the loans were originally distributed.  The USDA would intervene, according to a provision in the 2008 farm bill, in order to prop up domestic sugar prices, but would still be taking a loss of $80 million in the process.

Critics call this in no uncertain terms a bailout, especially seeing as sugar producers, unlike almost any other industry in the country, have benefited not only from government subsidies (since roughly the 1934 sugar act), but also from extremely strict controls on sugar imports that already keep prices in the U.S. artificially much higher than prices abroad.

The Coalition for Sugar Reform represents a vast array of organizations, companies, and other industry groups who are opposed to the subsidy, and was central to an effort last June to pass an amendment in the senate that would have federal aid to sugar growers, as well as the additional perks of import restrictions and marketing quotas, phased out by 2015.  The amendment was defeated by a vote of 50-46, but represented the most organized opposition to the subsidy yet to be seen.

The coalition’s argument is that the sugar industry, with about 142,000 employees, is disproportionately advantaged by government largesse, while consumers and the vast array of companies who use sugar in their products are stuck with higher prices.  Naturally, candy companies have been very vocal in this struggle: Mars Inc., Nestle (NSRGY), and the Hershey Company (HSY).

But a look at the list of members of the Coalition for Sugar Reform should give an idea of just how many businesses rely on sugar, and how broad an increase in food-related prices might be incurred by the USDA’s proposed 400,000 ton purchase: the American Beverage Association, the Grocery Manufacturer’s Association, the American Baker’s Association, the International Dairy Foods Association, the Peanut and Tree Processors Association, the Snack Food Association, the U.S. Chamber of Commerce…(a full list can be found here).  The larger companies under the coalition’s umbrella include General Mills (GIS), Tootsie Roll Industries Inc. (TR), and Conagra Foods (CAG), to mention only a few.

To add insult to injury, the USDA will not even say which companies have received loans, nor how many, though you might be able to make an educated guess based on the most politically active sugar producers.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ALCO Alico Inc. 26.86 -0.09 -0.33 9,077
CAG ConAgra Foods Inc. 47.11 0.86 1.86 5,951,750
GIS General Mills Inc. 63.88 0.22 0.35 3,328,379
HSY The Hershey Company 95.60 0.96 1.01 956,080
KIRK Kirkland\'s Inc. 12.18 -0.01 -0.08 93,710
TR Tootsie Roll Industries Inc. 36.83 0.18 0.49 137,503

Comments

Emerging Growth

Invictus MD Strategies Corp.

Invictus MD targets companies with proven brands, strong customer focus, and significant growth potential. We not only provide capital to meet these objectives but also years of management experience from…

Private Markets

Uber

Uber connects riders with safe, reliable, convenient transportation providers at a variety of price-points in cities around the world. Uber makes money from charging their drivers 20% of the fare…

Pinterest

Pinterest is a visual discovery and planning tool. Users ("Pinners") use the site and apps to get ideas for their future, such as recipes, places to travel, and products to…