Made in America or Not, Candy Companies are Making Money

A Pennsylvania candy company eager to send profits northward recently sent something else south—jobs. In an effort to save on overheard costs, the company relocated to Mexico.  Meanwhile ingredient costs, such as sugar, changed very little following the move.  That’s according to a new study by former USDA official Peter Buzzanell to be presented tomorrow at the 26th International Sweetener Symposium.

“We found huge disparities in wage rates to be the major economic factor,” the study read.

Buzzanell, who has studied fleeing candy companies for years, lists wages at $18.78 an hour and yearly healthcare costs at $7,680 per worker in Pennsylvania.  That plummets to 51 cents an hour and $258 per worker for healthcare in Mexico.  Rent costs and sewage bills are also much lower south of the border.

On the other hand, sugar in Mexico averaged 31 cents per pound from 2007 to 2008, while American manufacturers enjoyed 28-cent sugar.  Sugar prices in both countries have risen in 2009.

The study explains that it’s only logical that the well-known chocolate maker chose to move some of its operations to a low-wage area, considering “independent site-selection research for manufacturing firms puts labor at 58-74 percent of overall operational costs.”

The company in question has not passed on any of its savings to grocery shoppers and instead increased product prices for grocery shoppers in recent years.  The result: a 20 percent profit increase for the first quarter of the year.

Despite the padded profits of this candy maker, Buzzanell believes confectionary company flight to poor countries “has run its course and that trend of job loss may be reversing itself.”

Among his supporting evidence:

• Many large food corporations are expanding their candy production operations in the U.S.
• After years of decline: the volume of U.S. confectionary production has leveled off and the value rose by 4 percent  in 2008; the number of jobs in the U.S. confectionary industry rose by 12 percent in 2007 (data for 2008 not yet available).
• After years of increases, the amount of sugar in U.S. imports of sweetened products declined in 2007 and 2008.
• U.S. industrial use of sugar has risen by 11 percent since 2003.
• U.S. exports of chocolate candies have more than doubled in the past decade and non-chocolate candy exports have risen 30 percent.
• The U.S. confectionary industry remains among the nation’s most profitable sectors, with the industry’s trade association itself boasting profit margins of 35 percent.

When companies can enjoy strong profits while operating within the U.S., there’s less incentive to shift production elsewhere, Buzzanell concluded.