Sugar faces challenges on both the supply and demand sides
MOORHEAD, Minn. -- Here's a trend that sounds a sour note for the area sugar industry: Per-capita consumption of sugar and sweeteners has dropped 13.2 percent since peaking in 1999.
Americans still love their sugar, however. The per-capita consumption of sugar and sweeteners this year is estimated at 131.3 pounds, down from 151.3 pounds in 1999, according to figures compiled by IBISWorld, which tracks the sugar industry.
That's a sobering trajectory with implications for the Red River Valley beyond just sugar growers and processors like American Crystal Sugar.
The sugar industry injects $1.7 billion a year into the valley's economy in direct economic benefits, with gross business impact of $4.9 billion a year, including ripple effects, according to an estimate for 2011.
Lots of area jobs are tied to sugar, directly and indirectly. The industry employs 2,473 directly, with 18,830 full-time equivalent jobs supported by it, according to a 2012 study by North Dakota State University economists.
The future of the American sugar industry faces challenges on the demand side -- largely from consumers' health concerns -- and the supply side, chiefly from an influx of cheap Mexican sugar imports.
The per-capita decline in sugar and sweetener consumption is expected to continue, predicts industry analysts.
Over the next five years, Americans are expected to cut back even more on their sugar and sweeteners, plateauing at 128.1 pounds in 2017 and 2018. That's down 2.3 percent from the current level, IBISWorld projects.
Is what's touted as good for the waistline bad for the bottom line of sugar processors like Moorhead-based American Crystal Sugar?
David Berg, American Crystal's president and CEO, is well aware of publicity he believes has unfairly demonized sugar, with some health advocates going so far as to call sugar "toxic."
"It really is a drumbeat, and it's getting tiresome, frankly," Berg said. "They're saying very negative things. I'm concerned that there are people today who are making poorly informed decisions."
The American Heart Association, to cite one example, recommends that men get no more than nine teaspoons a day of added sugar, and that women limit their intake to six teaspoons. That compares to an estimated 23 teaspoons of sugar Americans eat daily, on average.
Many of the health concerns about obesity and related problems from overconsumption of sweets are directed at corn sweeteners, Berg said.
High-fructose corn syrup is the main sweetener used in soft drinks and sports drinks, which together contribute more than a third of sugar in the diet, 36 percent, according to the U.S. Department of Agriculture.
"Really what they're saying is there's too much sweetener," Berg said. "There is a difference between the two."
Many have concluded that the sucrose in granulate sugar and fructose in corn sweetener are essentially the same, but researchers have said the liquid sweeteners get to the liver more quickly, and are more likely to be converted to fat.
"People need to eat a balanced diet," Berg said, but he rejected claims by some researchers that sugar is a toxin.
"I just don't believe that something that has been in our diet for 10,000 years is toxic," he said.
While health concerns pose the most serious threat to consumer demand for the sugar industry, the glut of Mexican sugar imports poses a more significant threat in the near term, analysts say.
Mexican imports, which can enter the U.S. market unrestricted because of the North American Free Trade Agreement, along with high domestic production have decreased prices in America.
"For me, that's the bigger issue," said David Ripplinger, an economist at North Dakota State University.
"It's a challenge because we have no ability to control what the Mexicans import," he said.
The combination of pressures on both the supply side and demand side has produced a squeeze that place sugar in a "tight spot," Ripplinger said.
Berg agrees that unrestricted Mexican sugar imports pose the greater threat to the sugar industry.
In its most recent quarterly filing with the Securities and Exchange Commission, American Crystal listed uncertainty over the new farm bill and the falling price of sugar as risks.
Despite lower sugar prices, however, American Crystal's revenue for the nine months that ended May 31 was $1.2 billion, an increase of $127.7 million over the same period a year ago, following a bumper harvest.
Leasing revenues for ProGold, the corn sweetener processing plant managed by Cargill near Wahpeton, decreased during the same period, from $18.6 million to $18 million. American Crystal holds a 51 percent stake in ProGold.
A sugar industry forecast by IBISWorld projects that a surge in sugar substitutes will reduce profits, though potential rests with sugar as a feedstock for renewable fuels.
Other sugar uses have enabled demand for sugar to increase since 2009, despite the downward trend in per-capita consumer use. But sugar substitutes have taken some market share.
At the same time, health concerns about high-fructose corn syrup are resulting in a shift to sugar, said Lauren Setar, an IBISWorld sugar analyst.
Annual sugar industry revenue growth from 2008 to this year averaged 4.5 percent, but likely will drop to 1.2 percent for the next five years, according to the IBISWorld forecast.
"So, significantly slower than the previous five years," Setar said.
Despite the headwinds, analysts expect U.S. sugar production to increase. A 2012 forecast by NDSU economists predicts U.S. sugar production to climb from an average of 7.1 billion metric tons from 2009 to 2011 to 8.1 million metric tons in 2021.
The prediction assumes per-capita consumption dips by 3.1 percent during the period.
"Many products still require sugar," Setar said, adding that sugar as a feedstock for ethanol represents a "lifeline" for the industry.