The Great Sugar Shakedown

[Billy T]

You missed the point about: because of lower sugar prices and cheaper wages abroad, ... Or that "Company spokesman Kirk Saville would not say what the company plans to make in Monterrey and added that the plant would account for only 10% of the chocolate sold in the USA."

So it has a LOT more than just slightly lower Sugar prices, but Billy you are ignoring all the OTHER reasons companies move manufacturing jobs out of the US. ...

No, not really ignoring it or the fact that the main cost of Chocolate is coco, not sugar and certainly not labor as plants are well automated. I don´t speak of those things as there is little the US can do to help their candy makers cope.

Point is that Why on God´s green Earth is the US government making it even harder for the US candy industry to survive? That is something we can do something about - We could stop the various extra costs to Americans (food prices and sugar subsidies taxes) that only benefit 13,000 framers but have alread exported more than 13,000 higher paying factory jobs.

New imports of 10% of US chocolate when added to the large exisitng imports from Nestle, Cadbury, Swiss makers, etc. is a significant effect on the viability of US chocolate makers. - Do we need to wait until more than half of the chocolate sold in US is imported before voters wake up to their current abuse - job loses, higher food prices, greater tax bills, ill effect on the balance of payments, etc. to demand an end to this goverment welfare for the a few rich sugar beet producers???

 

[adoucette]

No, not really ignoring it or the fact that the main cost of Chocolate is coco, not sugar and certainly not labor as plants are well automated. I don´t speak of those things as there is little the US can do to help their candy makers cope.

Which is why blaiming the move on the cost of sugar is silly.

There are many reasons they may have moved the factory, but sugar prices were only one of many.

BUT to the US, the loss of the jobs associated with growing, harvesting and refining of 7 million tons of sugar, as well as the negative balance of payments based on importing that much sugar, would be huge.

 

[Billy T]

Which is why blaiming the move on the cost of sugar is silly. ... There are many reasons they may have moved the factory, but sugar prices were only one of many. ...

Yes many reasons, but only one we can fix. - The artificially high cost of sugar in the US (more than twice the global price according to data you supplied).

Also the high cost of sugar was the main reason for the move to Mexico reported by the US makers of candy as reported by editor of the Candy Industry magazine. They too, probably focus on this high cost as it is the only thing that US can change to improve their competitivity.

I.e. All chocolate makers use automation to reduce labor cost to less than sugar costs and pay the same world price for coco. The main thing that puts US makers at a disadvantage and closes US factories and builds new factories in Mexico (or now Brazil) is high sugar cost:

... The move to Mexico began several years ago with makers of hard candy, said Bernard Pacyniak, editor of Candy Industry magazine. Many of them cited high U.S. sugar prices, which have been propped up for decades by government subsidies. ... ...

SUMMARY: I am only quoting what the candy industry itself is saying is the main reason for moving to Mexico (or now to Brazil as sugar prices in US that Hersey paid in 2011 averaged 60 cent per pound according to page 5 of their SEC filed report.) As sugar is now being used to make plastics (Braskem´s first plant now making 200,000 tons per year and second of same size is just starting to produce) as well as fuel, one can only expect sugar price acceleration to continue and close more US candy factories.

Not only that, but tens of millions more each year, who were recently too poor to buy candy now eat increasing amounts of candy. Many will still be buying when US sugar price is more than $1/pound.

My wife has a "flex-fuel" car (I own none) but has not put alcohol in the tank for more than 6 months, and probably never will again as sugar prices surge upwards but Brazil will welcome more US candy makers moving their plants to Brazil. - Thus I should put on my Brazilian hat and say: - "Certainly keep the cost of sugar in US about three times higher than world price (as it was for Hersey in 2011) as Brazil needs more low-skilled manufacturing jobs.

 

[Michael]

Arthur,

I just want to clear something up.

Thought experiments:

(1)
Someone makes an automated machine in the US that produces near-free sugar out of air and mass quantities with only him as the employee. Would this be good for the US economy or bad for the US economy. Why?

(2)
A factory owner buys a new set of automated machinery that will reduce his employees from 10,000 to 100, increase production, quality and price. Should he be allowed to do so?

(3)
Two kids are willing to rake your yard. One will do it for $25 and the other is happy to do it for $20. Both really want the work but will not work together. Which do you hire?

 

[Carcano]

A
Thought experiments:

(1)
Someone makes an automated machine in the US that produces near-free sugar out of air and mass quantities with only him as the employee. Would this be good for the US economy or bad for the US economy. Why?

(2)
A factory owner buys a new set of automated machinery that will reduce his employees from 10,000 to 100, increase production, quality and price. Should he be allowed to do so?

(3)
Two kids are willing to rake your yard. One will do it for $25 and the other is happy to do it for $20. Both really want the work but will not work together. Which do you hire?

Brilliant post Michael...I can see you've been reading Henry Hazlitt's 'Economics in One Lesson'

http://en.wikipedia.org/wiki/Economics_in_One_Lesson

 

[Billy T]

Arthur, I just want to clear something up. Thought experiments:
(1)
Someone makes an automated machine in the US that produces near-free sugar out of air and mass quantities with only him as the employee. Would this be good for the US economy or bad for the US economy. Why?
(2)
A factory owner buys a new set of automated machinery that will reduce his employees from 10,000 to 100, increase production, quality and price. Should he be allowed to do so?
(3)
Two kids are willing to rake your yard. One will do it for $25 and the other is happy to do it for $20. Both really want the work but will not work together. Which do you hire?

I´ll give my answers and some comments and hope Arthur dose too:


(1) Clearly a great benefit in the long run like any other invention or procedure that reduces production costs. Yes it will have short term negatives, such as many thousand sugar cane cutters and sugar beet growers will be out of work.

One historic example causing even greater unemployment (at least as a percentage of the then smaller labor force) was the invention of the kerosene lamp. That totally killed demand for construction of new whaling ships (and destroyed the capital existing in the ones already built) nor need of crews to sail them - separated from family for nearly a year; the makers of barrels to hold the oil had to find new markets, etc.

As the short term effects are immediately felt, most draw a false conclusion about the guest ion for the kerosene lamp or the "magic" sugar machine invention benefit for mankind.

(2) Again yes - a great long term benefit, for same reason as in (1) but again with negative short term effect on employment.

(3) The one asking for $20. That leaves me with $5 to spend on something else or invest.

Much of the advanced world has an employment problem and it is growing worse ever more rapidly as machines and automation replace jobs men (or women) once did. World´s largest electronics manufacture, Foxconn, is installing 1,000,000 assembly line automatic production machines. (They will not jump off buildings, nor demand higher pay and better working condition and do not object to working on average 23 hours per day.) I will quote the candy factory worker, again:


The answer to this huge increase in production and great reductions in jobs for men is for men to do what they do better than machines, think. Not calculate, but decides what to calculate and why. Education and more education is what men need. Dropping out of university at age 20 or so to go to work will not be a possible choice. Look at how long many college grads need to spend before they finally accept a "BigMac" job already. Intellectual efforts are man new work.

It is quite like the ancient Greeks - Plato´s et.al. Schools occupied men´s minds with fundamental question but of course only for a rich, favored few. Most Greeks worked long hours or were slaves, doing the same, with no freedom to refuse, to sustain the material needs of all Greeks. Now, of very soon, we too have slaves - intelligent machines that can produce all we need.

Our main problem is philosophical: - We still have a “John Smith mentality” appropriate for the era pof shortages. When in James Town some English aristocracy refused to work, dirty their hands, etc. John said "OK, but those who do not work, do not eat." We believe there is something immoral about eating and not working. (Ironic, is it not when 5% of the population is producting the food and 50% is "earning" it by writing memos, sending paper reports to others, who will mainly file them - or in more advance countries, skipping the paper stage, and just creating bits that will occupy space in other´s computer memories.)

We need to get over that historically ingrained POV. We need to develop a genuine concern and care for our fellow men, now that we can. Go teach where there are few schools, etc. Become a doctor, not as at present because that will give you a large income, but to because of a want to service. Write novels, plays for other to perform, paint, compose music, grow rare orchids, etc. Man is finally free or soon will be, but unfortunately seems to be either too dumb or too poorly educated to know what to with freedom. I guess we are in some transitions phase, where zillions of man hours will be consumed is social chat room exchanges or even places like sciforums, were at least some are educated rather than just entertained.

 

[adoucette]

SUMMARY: I am only quoting what the candy industry itself is saying is the main reason for moving to Mexico.

But they didn't say it was their MAIN reason.

You added that.

HINT HINT

U.S. unions bemoan the loss of candymaking jobs. "All these companies want to make it cheap overseas somewhere, then bring it back and sell it to our people who don't have any jobs to buy it," said Dennis Bomberger, business manager of Chocolate Workers Local 464 in Hershey, Pa.

 

[adoucette]

Arthur,

I just want to clear something up.

Thought experiments:

(1)
Someone makes an automated machine in the US that produces near-free sugar out of air and mass quantities with only him as the employee. Would this be good for the US economy or bad for the US economy. Why?

(2)
A factory owner buys a new set of automated machinery that will reduce his employees from 10,000 to 100, increase production, quality and price. Should he be allowed to do so?

(3)
Two kids are willing to rake your yard. One will do it for $25 and the other is happy to do it for $20. Both really want the work but will not work together. Which do you hire?

Not sure the point you are making, but I agree with Billy on these answers.

What I will point out is that #1 is not at all analagous to protecting our Sugar Beet Growers though, since in #1 we would be producing our own Sugar, just cheaper.

 

[Carcano]

What I will point out is that #1 is not at all analagous to protecting our Sugar Beet Growers though, since in #1 we would be producing our own Sugar, just cheaper.

Its not analogous to protecting domestic growers FROM foreign growers.

It is about protecting domestic growers from a domestic cheaper source.
This protection would NOT benefit the economy as a whole.

Since the whole also includes consumers.

BTW, sugar from a miraculous 'free sugar' machine would not be FREE, since much of the final price is distribution costs.

 

[adoucette]

Correct, that's what I meant, you just said it better.

 

[Billy T]

But they didn't say it was their MAIN reason.

You added that. HINT HINT

I did not intend to say what you understood me to. I was saying that high US sugar cost was the main (in fact the ONLY) reason that the editor of Candy Industry reported the owners / managers etc. of candy companies were telling him as to why they had closed US factories to open in Mexico had given.

On what basis do you think some other reason was more important than the one the factory managers were giving? Although there probably were lesser reasons, but that was the ONLY reason the editor reported the industry as giving for leaving the US.

I have also already noted that to some extent they probably focused on the high sugar cost of US as they wanted to focus attention on something the government could change. It would be silly for them to complain that the growing season in Brazil was longer than the US sugar beet growers had. - US government could not change that.

BTW my post 86 is now twice or more longer. I had to leave house for few hour so initally just left note promissing "more comments" that are now there. As we agree on the three questions, what is you POV on the much more general and important things I added to post 86?

The three questions only hint at the most serious problem (MHO) the developed world is facing - an obsolute economic system designed for the period of shortages where the John Smith rule: "Those who don´t work, don´t eat." is now destructive of social well being, causing riots, the stil mainly peaceful, 99% movements etc.

From the consistent way you support capitalism, big business, profit motives etc. I bet you disagree strongly that a new philosopical set of goals other than to amass wealth (and power over others) is needed.

 

[adoucette]

From your own source Billy:

since 2002 as cheaper labor and sugar draw U.S. candymakers south of the border.

Capitalism isn't a philosophy Billy.

I think everyone who can work, should work, and preferably at something which is both helpful to society and something that they are good at and that they enjoy doing, but I don't care if someone decides to work to make a lot of money, or just to make others lives better, or to help others, or to build things or to be an artist or an athlete or to farm or fish or teach or clean or maintain or arrange or program or indeed whatever, but I think you are totally wrong in that there will always be work available for those educated/skilled enough to do it ....

 

[Billy T]

adoucette: From your own source Billy:

since 2002 as cheaper labor and sugar draw U.S. candymakers south of the border.

Yes I have said there are other factors, but only the High cost of sugar could be changed by US government action. Also all candy factories, even in Mexico or Brazil, are highly automated. Typically (quick guess) 1000 or less workers for at least a billion dollars* of annual production. I.e. Labor cost are far less important than paying three times the would price for sugar as Hersey did in 2011 according to page 5 of their annual report for 2011 to the SEC.

I would be willing to bet that in 2012, with an even greater than 3 to 1 difference between global and US sugar prices, Hersey´s saving by buying sugar in Mexico vs. the US will several times over pay the salaries of all the Mexican factory workers. If true, then cleary the main reason Hersey will produce 10% of the chocolate it sells in US at the Mexican plant is to enjoy less cost for sugar, not lower wages of the workers.

I´ll let you check my guess: Assume that instead of 60 cents per pound Hersey´s sugar cost average was in 2011 it is 72 cents/ pound in 2012 AND would price average is still 1/3 of that or 24 cent / pound. Try to estimate how many pounds of sugar 10% of Hersey´s production requires. Then divide by say 1000 Mexican workers the product of those pounds of sugar times the 36 cents a pound saving - that I bet is much more than the worker´s salary. If true, then to block the move to Mexico, US worker would need to pay Hersey to be allowed to work for Hersey. I.e. to compensate Hersey for staying in the US and paying much higher sugar cost!

* Don´t have time just now, but think you will find Hersey´s total US sales on page 23 of the 2011 annual report as that is where the more than twice faster non-US growth data came form. My guess at a "billion" dollars for 10% of US sales may be too high or to low. Adjust accorindingly - I´ll try to get back and do that if you don´t.

 

[adoucette]

Who cares what could be changed by "govt action"?

There are LOTS of costs in making and running a factory and producing Chocolate, the issue for YOU is to find out, what percent of that is the cost of sugar and then when you apply the small differential per pound to that percent, you have some basis to claim that it is a major reason to relocate your production facilities.

I'm sure it's a reason, but how big of a reason remains unclear.

 

[quadraphonics]

Yes I have said there are other factors, but only the High cost of sugar could be changed by US government action.

The US government could just as easily take action to cut labor costs. Like the sugar market, there is a large foreign supply that is eager to get in and drive down prices, which is kept somewhat at bay by protectionist measures undertaken by the government.

 

[Billy T]

The US government could just as easily take action to cut labor costs. Like the sugar market, there is a large foreign supply that is eager to get in and drive down prices, which is kept somewhat at bay by protectionist measures undertaken by the government.

That is true, but would affect all workers, lowering their purchasing power - exactly waht the US economy does not need now, at least.

The worst damage that ending the aid to sugar beet producer could do would be to end sugar beet production and less than 1 in 10,000 jobs directly connected, but it would free up agricultural land for production of crops viable without government aid, probably increase US exports and make different jobs perhaps; even ending the migration of candy production factories out of the US and certainly decrease the fraction of imported candy the US consummes.

When I have time to find data on difference in wages between US and Mexico, and how much sugar is in the 10% of Hersey´s US sales but made in their new Mexican plant (and extra cost per pound of US sugar) I may be able to evaluate why Hersey moved better, but of course this saving to Hersey is only a tiny fraction of the total saving to US (doesn´t include better balance of trade, lower food costs for all Americans, and less taxes to pay for support of sugar subsidies, etc.) Admittedly many of these are a dozen dollars per year for each but their are a lot of Americans.

A benefit side may be that the number of Congressmen bribed decreases, but perhaps not. Perhaps the sugar beet lobby will "contribute" even more to the Congressmen in effort to get the protective tariffs and quotas restored.

 

[Michael]

But they didn't say it was their MAIN reason.

You added that.

HINT HINT

Wait wait wait, are you suggesting unions are immoral?

 

[Michael]

Not sure the point you are making, but I agree with Billy on these answers.

What I will point out is that #1 is not at all analagous to protecting our Sugar Beet Growers though, since in #1 we would be producing our own Sugar, just cheaper.

Its not analogous to protecting domestic growers FROM foreign growers.

It is about protecting domestic growers from a domestic cheaper source.
This protection would NOT benefit the economy as a whole.

Since the whole also includes consumers.

BTW, sugar from a miraculous 'free sugar' machine would not be FREE, since much of the final price is distribution costs.

I don't see the difference.

Free sugar made out of air in the USA is the same as cheap sugar grown elsewhere and purchased cheaply in the USA and made into produces sold in the USA.

 

[Michael]

I think everyone who can work, should work, and preferably at something which is both helpful to society and something that they are good at and that they enjoy doing, but I don't care if someone decides to work to make a lot of money, or just to make others lives better, or to help others, or to build things or to be an artist or an athlete or to farm or fish or teach or clean or maintain or arrange or program or indeed whatever, but I think you are totally wrong in that there will always be work available for those educated/skilled enough to do it ....

See we agree - in the sense that they should IF they want to. They shouldn't be forced to work.

The best way to determine what sort of work should be done, is through free exchange.

You're pro-Capitalism yes? What do you think about the Federal Reserves policy of destroying capital?

Ben Bernanke stated gold wasn't a currency.
Yeah, it's better than a currency, it's money. Him and his printing press are destroying our economy of free-market capitalism. We'll soon have malinvestment corrupting so many parts of the economy no one will know what anything is worth and we'll misallocate our limited resources and bye bye what's left of our prosperity.

I do not think such misallocation would be possible in a competing currency world because right now some currencies would have much much higher interest rates and that would see a flight to them from less valuable currencies like the USD. This is why there are so many laws concerning gold - as it's actually money. Something the USD only wishes it were. Well, maybe that's a little harsh. Gold has intrinsic value backing it up. The USD has Saudi's oil and our military. Let's see how long that equation holds.

 

[Michael]

Who cares what could be changed by "govt action"?

There are LOTS of costs in making and running a factory and producing Chocolate, the issue for YOU is to find out, what percent of that is the cost of sugar and then when you apply the small differential per pound to that percent, you have some basis to claim that it is a major reason to relocate your production facilities.

I'm sure it's a reason, but how big of a reason remains unclear.

Pepsi and Coke specifically switched from sugar to HFCS because of price. That was stated clearly at the beginning of the thread :shrug: