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It's Daley vs. sugar lobby to save jobs: City says costs hurt candy plants

By Stephen Franklin
Chicago Tribune
May 7, 2001

The impending shutdown of the huge Brach's candy factory on the West Side has plunged Mayor Richard Daley into a war with the nation's powerful sugar lobby, which critics blame for inflating prices and prompting an exodus of candymakers from the U.S.

But Daley's fight to keep more confection industry jobs from fleeing the city is shaping up as a battle on another front. It is a classic Downstate-Upstate showdown, pitting Illinois corn farmers and agribusiness conglomerates against thousands of blue-collar candy workers in Chicago.

The politics of sugar are complicated and emotional, and nowhere is that more evident than in Illinois.

While Chicago is the nation's candy capital, producing more candy than any other community, Illinois is also the biggest producer of high fructose corn syrup, a sweetener that costs much less than refined sugar and is used as a sugar substitute in soft drinks and many other products--though not in candy and bakery goods.

As sugar prices grew over the years, corn sweeteners became a cheap substitute. Nowadays, high fructose sugar has gained a market niche that it is unlikely to surrender even if sugar prices were to fall.

But many Downstate farmers and agribusiness interests are reluctant to let down their guard, so they back the federal price support program for U.S. cane and sugar beet growers that makes sugar at least twice as expensive in this country as it is in the rest of the world.

Daley and other critics claim that's unfair to consumers and candy workers, who experts say numbered 13,000 in Chicago five years ago but whose ranks have thinned to 10,000.

"It's time to end regulations that stifle the free market and cause a loss of good jobs in Chicago," Daley said in March as he vowed to rally the state's congressional delegation to fight renewal of sugar supports.

But Sen. Richard Durbin (D-Ill.), a Downstate native, said the situation is far more complex.

"It's a difficult vote in Illinois because you have important people on both sides of the issue," said Durbin, who has backed sugar supports but says he is reviewing the issue.

The issue is gaining new urgency, and not just because of the closing of Brach's, which is expected to take about three years and eliminate 1,100 jobs in the city. Congress is beginning to review the entire structure of farm supports, which have been lifted on most commodities but remain on sugar and a handful of other items grown in states with strong political lobbies.

At stake are jobs and money.

Nationwide about 65,000 people work in the candy industry, according to the National Confectioners Association, founded in 1884 in Chicago.

On the other side of the issue, the Washington-based American Sugar Alliance, the major trade group for the sugar growers, estimates that about 420,000 people are tied directly or indirectly to the production of sugar and corn sweeteners.

But critics of the sugar program, such as U.S. Rep Dan Miller (R-Fla.), said such numbers are highly inflated and point out that the sugar cane and sugar beet industry by themselves employ just 55,000 people. Sugar cane growing is concentrated in a handful of Southern states and Hawaii, while most sugar beets are grown in the upper Midwest and the Plains states.

The government props up the cost of sugar with quotas that prevent the import of a large amount of foreign sugar as well as with loans to sugar growers. If the domestic prices drops below a pre determined floor, the farmers forfeit their sugar to the government, something many of them have been doing lately.

Sugar costs double in U.S.

Although prices fluctuate, the effect of the government program typically doubles the wholesale cost of domestic sugar beyond world prices, and sometimes more. Currently, sugar costs 9 cents a pound on the world market, but the government sets the domestic price for raw cane sugar at 18 cents a pound and 22.9 cents for refined sugar beets.

Last year, the government bought more than 1 million tons of sugar for $435 million, and it now pays $1.4 million monthly to store the sugar, according to the U.S. Department of Agriculture.

Keeping the sugar industry afloat costs Americans in other ways too.

The U.S. General Accounting Office has estimated Americans paid an extra $1.9 billion for their sugar in 1998 because of supports. But sugar growers disagree, saying the government incorrectly assumed that candymakers would pass along the savings if sugar prices dropped.

Candy officials such as Russ Lyman, president of Peerless Confection Co. in Lincoln Park, say that competition would force them to cut costs if their sugar bills dropped.

Sugar makes up as much as 50 percent of the raw material cost of the 350 varieties of hard candy made at Lyman's company, which opened in Chicago in 1914.

The two sides also swap complaints about each other's lobbying clout in Washington.

The sugar growers say their foes' political action committees handed out $2.1 million in 1998. But those on the side of sugar reform dispute the list of givers, noting that many of the PACs listed are large food companies, which have not played any role in pushing to change the law.

The sugar reform groups point to figures from the Center for Responsive Politics, a Washington based research group, that show sugar growers' PAC donations added up to $1.8 million in 1998.

"We came close in 1996 and I am optimistic now," said Miller, who led a battle to phase out the support program a few years ago that fell nine votes short of passage in the House.

Big Sugar has backers

But Big Sugar is no pushover in Washington, as numerous lobbyists and politicians explain. It has solid loyalty among farm-belt lawmakers eager to protect hometown interests. And so, politicians swap votes with sugar for votes propping up government programs affecting pork or tobacco or corn products. They are careful not to harm another subsidy

Jack Roney, an economist with the American Sugar Association, said sugar growers are willing to face global competition as long as other countries drop protections for their sugar industries. "What we are saying is, `Let's keep these import controls until others have dismantled theirs and then we'll join them,'" he said.

Sugar matters in Illinois for another reason.

Blaming the nation's high sugar prices, 12 of the nation's 22 cane sugar refiners--including one in Chicago--have gone out of business in the U.S. since the sugar program began in 1981.

One firm suffering today from the profit squeeze faced by these refiners is the Decatur-based arm of Tate & Lyle. The British firm has put its Western Sugar Co. subsidiary up for sale, and according to news reports, isalso looking for buyers for its other major refining arm, Domino Sugar Co.

Ironically, the company is caught in a tricky middle ground over the issue.

While Tate & Lyle officials condemn the current program for hurting their sugar processing business, they are loath to urge killing it overall. That's because they also own Decatur-based A. E. Staley & Co., a major producer of high fructose sugar.

Even if the sugar program is changed in favor of the refiners and candymakers, some say that may not stem candy companies' flight.

Sugar costs are not the "biggest overall factor, but they are a factor," said Friederika Kaider, director of the Candy Institute, a community-based group founded several years ago to help stop Chicago's loss of candy industry jobs.

A major issue for some candymakers is labor costs, which they can lower by moving overseas or buying from foreign producers, she said.

But Sal Ferrara, president of the 93-year-old Ferrara Pan Candy Co. of Forest Park and chairman of the National Confectioners Association, insists that it is the high sugar costs that have led him to move 40 percent of his firm's production to Mexico and Canada.

Ferrara, who expects more flight, said: "By next year, 50 percent will be over the border."