High Stateside Production Costs Tied to Price of Imported Sugar
The maker of Oreo cookies and a host of other iconic food products, New Jersey-based Mondelēz International– formerly known as Kraft Foods Inc.–has said it will move production of Oreo cookies from its plant in southwest Chicago to its newest facility in Salinas, Mexico.
The company said it would invest $170 million in the installation of four “state-of-the art” production lines at the new Mexican plant to replace nine “older, inefficient lines” at the Chicago facility.
The decision to offshore its Oreo production, “builds on the company’s earlier manufacturing investments of more than $170 million in manufacturing lines at its U.S. biscuit plants in Fair Lawn, New Jersey, Naperville, Illinois, and Richmond, Virginia, as well as additional investments in recent years in technologies and capabilities within its North American supply chain.”
According to analysts, the move by the multi-national company was spurred by soaring production costs caused by the prohibitively high price of imported sugar.
The decision by Mondelēz International, which is expected to cost 600-plus jobs, isn’t the first such drawdown move that’s impacted the Chicago area – a region long known as the national epicenter for the production of chocolate, biscuits, gum, confectionery, coffee, and powdered beverages.
According to a 2006 report compiled by the U.S. International Trade Administration, Chicago “has lost nearly one-third of its SCP [sustainable consumption production] manufacturing jobs over the last 13 years. These losses are attributed, in part, to high U.S. sugar prices.”
Despite its decision to move Oreo production to Mexico, “The Chicago plant has been and will continue to be an important part of the company’s North American biscuit footprint, producing a variety of beloved consumer products,” said Mondelēz International Vice President Olivier Bouret.
“While the new investment will affect approximately 600 positions in Chicago, we’re committed to treating all impacted employees fairly through this difficult time,” he said.
The Chicago plant, he added, “will continue to be one of Mondelēz International’s largest North American manufacturing facilities in terms of headcount, and the company plans to continue to invest in capabilities, technologies and infrastructure upgrades at this facility.”
The decade-long issue of cheap sugar imports from Mexico came to a head last December when the U.S. Department of Commerce (DOC) inked agreements to suspend the antidumping and countervailing duty investigations of sugar imports from Mexico “that would prevent an oversupply of sugar” to the U.S. market.
“The countervailing agreement contains provisions to prevent an oversupply of sugar in the U.S. market,” the DOC said, adding that “export limits will be based on calculations using U.S. Department of Agriculture information, will prevent imports from being concentrated at specific times of the year, and will limit the amount of refined sugar that Mexico may export to the United States.”
U.S. sugar producers and refiners praised the move while U.S. sugar users, including Mondelēz International, expressed deep concerns.
“The final suspension agreements should achieve U.S. sugar producers’ main goal by stopping Mexico from dumping subsidized sugar onto the U.S. market and violating U.S. trade law,” said Phillip Hayes, spokesman for the American Sugar Alliance, which represents U.S. sugar producers.
But U.S. sugar users, who opposed any agreement between the two countries that would limit U.S. sugar imports, had an opposing view.
“With the stroke of a pen, these agreements dismantle the unrestricted free trade of sugar between the United States and Mexico since 2008 and undermine the core principles of the North American Free Trade Agreement,” the Sweetener Users Association (SUA) said in a statement reacting to the move by the DOC.
“While sugar is but one commodity traded between our two countries, these suspension agreements set a horrible precedent by undoing trade flows that have been established over two decades after NAFTA was first negotiated,” the trade group said.