318,794 A475734 79-2

CIFiANNiNi

OUNbAtION of Agricultural Economics

INFORMATION SERIES 79-2

Menorizi SnIt Collection pivision ol14:ct.:.-i.,..-a;aa Economics

HIGH FRUCTOSE CORN SWEETNERSg

Economic Aspects of a Sugar Su sfifule

Division of Agricultural Sciences BULLETIN UNIVERSITY OF CALIFORNIA 1894 PRINTED JULY 1979

University of California, Davis Department of Agricultural Economics

HIGH FRUCTOSE CORN SWEETENERS: ECONOMIC ASPECTS OF A SUGAR SUBSTITUTE

by

Hoy F. Carman and Peter K. Thor ii

ACKNOWLEDGMENTS

Research support for this study was provided from a gift by the

United States Beet Sugar Association. This gift, to the Giannini

Foundation of Agricultural Economics, was to support graduate student research on economic problems important .to the U.S. sugar industry.

High fructose corn syrup, a direct substitute for sugar, has important implications for the domestic sugar industry.

Several individuals contributed to the completion of this report.

We especially appreciate the excellent typing and proofreading assis- tance provided by Brenda Petersen and Sharon Baumgartner. We also acknowledge the helpful and timely review provided by Professor Andrew

Schmitz and Professor Ivan Lee. 111

TABLE OF CONTENTS

Page

I. INTRODUCTION. . • • • • • • • • . . • • • • • • • II • • • •

Study Objectives.•••••••••••••••••••.• 3

II. THE PRODUCT . • . . • • • • • • • • • • • • • • • • • • • • 3

Manufacturing Process . . . • . • • • • • • • • • • • • • • 5

Product Research. . . • • • • . • • • • • • • • • • • • • . 12

III. INDUSTRY STRUCTURE AND COSTS. . • • • • . • • • • • • . • • 13

Industry Structure. • • • . • • • • • • • • • . . • • • • • 13

Estimated Costs . • • • • 0 • • • • • • • • • 0 • • • • • • 16

Operating Costs . • • . . • • • • • • • • • • • • • • • • 16

Corn. . • • • • • • • • • • • • • • • • • • • • • • • • • 16

Overhead. . • • . . • • • • • • • • • • • • • • • • • • • 18

Total Costs . • . • • 0 • • e • • • • • • • • • • • • • 20

IV. SWEETENER DEMAND AND HFCS MARKET POTENTIAL. • • • • • . • • 20

Sweetener Demand. . • 0 • • • • • • • • • • • • • • • • • • 20

HFCS Market Potential . • • • • • • 0 • • • • • • • • • • • 27

Bakery Products . . . • • . • • • • • • • • • • • • • • • 29

Confections . • • • . • • • • • • . • • • • • • • • • • • 30

Processed Foods . • • • • • • • • • • . • • • • • • • • • 31

Dairy Products. • • • • • . . • • • • • • • • • • • • • • 32

Beverages . • • • • • • • • • • • • • • • • • • • • • • • 33

V. PROJECTIONS OF HFCS USE . . • . • • • . • • • • • • • • . • 34

Industry Estimates. • • • . • • . • • • • • • • • • • • • 35 iv

Page

Study Projections . • • • • • • • • • . • • • • • • • • • 36

A.D.L. Study. • • • • . • • • • • • • • • • • • • • • • • 36 ,

Westway Study . • • • • • • • • • • . • • • • • • • • • • 38 _

Brook Study . • • • • • • • • • • • • • • • • . • • • • • 38

A Trend Model Projection. • • • • • • • • • • • • • • • • • 40

Projected Sweetener Consumption . • • • • • • • • • • • • 40

Projected HFCS Market Share . • . • • • • • • • • • • . 44

HFCS Projections. • • • • • • • • • • • • • • • • • • • • 48

Projected Sugar Demand. • • . • • • • • • • • • • • • • • 50

U.S. Policy Impacts . • • • • • • • • • • • • • • • • . • • 52

VI. SUMMARY . • • • • • . • • • • • • • • • . • • • • • • • • • 55

REFERENCES. • • • • • • • • • • . • • • • • • • • • • • • • • • 58

APPENDIX TABLES . • • • . • • • • • • • • • • • • • • • • • • • 61 LIST OF TABLES

Table Page

1 Typical Corn Product Mix Derived from Wet-Milling One Bushel of Corn. . . • • • • • • • • • • • • • • • • 10

2 Estimated HFCS Processing Capacity by Firm and Plant, End of Calendar Year, 1975-1980 . . . • • • • • . • • • . 14

3 Estimated Operating Costs for HFCS Production . • • • • . 17

4 Corn and Corn By-Products Prices and Value of By- Products from a Bushel of Corn, 1971-1977 . • • • • • • • 19

5 Estimated Total Costs of Production for HFCS. . • • • • • 21

6 Sugar Sales to Industrial Users, Total and Percentage Distribution by User Category, 1962, 1967, 1972 and 1977. . • • • • • • • • • • • . • • • • • • • • • • • 23

7 Estimated Retail Elasticities for Sugar and Corn Syrup . . • • • • • • • • • • . • • • • • • • • • • • 25

8 Estimated Retail Elasticities for Products Containing Large Amounts of Sweeteners. . • • • • • • • • • • • • • 26

9 U.S. Sweetener Usage in 1980, 1985 and 1990 by Market Sector and Type of Sweetener Employed . . • • • • • • • • 37

10 Sweetener Consumption Since 1960 and Projections to 1985. . • • • • • • • • • • • • • • • • • • • • • • • . 39

11 Forecast of Sugar and HFCS Demand in the U.S. in 1980 and 1985 . . • . . • • • • • • • • • • • • • • • • . 41

12 Projected Per Capita and Total Caloric Sweetener Consumption for Three Alternative Retail Sugar Price Levels, 1985 and 1990 . . . • • • • • • • • • • • • • • ▪ 43 13 Estimated Logistic Function Coefficients for HFCS Sales Using Four Alternative Ceiling Values, 1967 to 1977. . . . • . • • • • • • • . • • • • • • • • • • • . 46

14 Projected Per Capita and Total HFCS Demand to 1985 and 1990 for Alternative Sugar Price Levels and HFCS Market Share Ceilings . . . • . • • • • • • • • • • • • . 49

15 Projected Per Capita and Total Demand for Caloric Sweeteners by Category, 1985 and 1990 . . • • • • • • • 51 vi

Appendix Table Page

1 High Fructose Corn Sirup: U.S. Supply and Utilization Trends, 1967-1978 . . • • • • • • • • • • 62

2 Caloric and Noncaloric Sweeteners: Per Capita U.S. Consumption, 1962-1978 . . • • • • • • • • • • • • • 63

LIST OF FIGURES

Figure

Estimated U.S. High Fructose Corn Syrup Production, 1966-1978 . . • • • • • • • • • • • • • • • • 2

2 A Flow Diagram for Corn Wet Milling . • • • • • • • • • • 7

3 A Flow Diagram for Production of HFCS from Corn

Starch...... • . . . • • • • • • • • • • • • • • • 11

4 HFCS Sales as a Proportion of Total Caloric Sweetener Sales, Actual 1966-1977 and Projected

1978-1990 . • • • • • • • . • • • • . . • • . • • • • • • 47 HIGH FRUCTOSE CORN SWEETENERS: ECONOMIC ASPECTS OF A SUGAR SUBSTITUTE

by

Hoy F. Carman* and Peter K. Thor**

I. INTRODUCTION

High fructose corn syrup (HFCS) is a recent product innovation which has gained rapid commercial acceptance. It is a caloric sweetener, made from ordinary corn starch, which substitutes for sugar in a wide range of manufactured products. Growth of processing capacity and market acceptance of HFCS have been dramatic. HFCS was introduced commercially in 1967.

Since then production has approximately doubled every two years and 1978 output was estimated at 2.40 billion pounds. The rapid industry growth is illustrated by data in Figure 1.

The future use of HFCS depends on several factors including its price relative to sugar, the nature of domestic and international sugar policies, domestic and international demand and prices for feed grains, the suita- bility of HFCS in processed foods and beverages, and future HFCS product development. Growth of the HFCS industry has economic implications to beet and cane sugar growers and processors, sweetener users, consumers, corn producers and trading partners.

* Professor of Agricultural Economics, University of California, Davis and a member of the Giannini Foundation of Agricultural Economics.

** Graduate Student in the Ph.D. program, Department of Agricultural Economics, University of California, Davis. -2--

FIGURE 1

Estimated U.S. High Fructose Corn Syrup Production, 1966-1978

2600

2400

2200

2000

1800

1200 Pounds 1000 Million 800

600

400

200

0 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Year

Source: Data in Appendix Table 1 _3_

Study Objectives

Information on HFCS, while available, is scattered among trade and semitechnical publications in a variety of subject matter areas. Avail- able statistics are limited, partly due to the newness of the product and partly due to industry reluctance to release information to government 1/ agencies or others. As a result, economic analyses related to HFCS are limited. n this report we attempt to pull together information and data from diverse sources to examine economic aspects of the production and marketing of HFCS. More specifically, our objectives are to:

1. Describe the HFCS production process and industry structure in the United States.

2. Describe the uses for HFCS and assess the market potential for HFCS by user category.

3. Attempt to project the likely rate of substitution of HFCS for sucrose to 1985 and 1990.

II. THE PRODUCT

High fructose corn syrup is a clear, sweet, low-viscosity liquid with a "waterlike" color. It is high in the simple sugars fructose and dextrose with a composition similar to liquid invert sugar. HFCS is hygroscopic (attracts moisture) and, thus, must be sold in syrup form.

1/ The United States International Trade Commission (1977, p. A-2), for example, noted that it was delayed in filing its report on sugar because of . . . "the refusal of certain corn sweetener producers to supply certain relevant data and by the fact that the U.S. District Court, for reasons for which we disagree, declined to enforce, for the most part, Commission orders issued to the corn sweetener producers." -4-

It can substitute for sucrose in all products that do not require a crystalline structure):!-

HFCS is regarded as highly stable when compared to sucrose and sucrose derived sweeteners. With HFCS there is lower potential for crystallization, which is often a problem in products with high solids and high sucrose or dextrose content. In some baked and frozen goods,

HFCS imparts a chewy or creamy texture. HFCS is subject to a browning reaction when heated which is desirable in some applications (brown crust on baked goods) but undesirable in others (vanilla pudding). It contains a high level of fermentable solids and is unaffected by most temperature and acid conditions. Manufacturer representatives report that "HFCS acts almost synergistically with all fruit flavors, especially citrus bases" (Crocco, November 1976). Storing, mixing and handling the syrups are simplified because of the low viscosity and clarity at rela- tively low temperatures. However, HFCS must be maintained at 26°-37° C. when stored or transported or it may become brownish in color and crys- tallization or fermentation can occur. Note that liquid sugar can have similar problems.

The first generation high fructose corn syrups (42 percent fructose,

50 percent dextrose and 8 percent higher saccharides) are currently being used in soft drinks, ice cream, jelly, sweet pickles, confections, canned fruit and baked goods. In most products it is used as a partial rather than as a total replacement for sucrose. The higher the fructose content,

1/ See Fruin and Scallet and Robinson for a detailed discussion of the properties of HFCS in processed food applications. Note that HFCS is also referred to as isomerized corn syrup and high-levulose corn syrup. the greater is the substitutability of HFCS for sucrose. New second generation higher fructose syrups designed as total replacements for sucrose are now being produced. Clinton Corn Processing Company has a syrup with 60 percent fructose, 36 percent dextrose, and 4 percent 1/ higher saccharides.-- They also offer a 90 percent fructose product.

A. E. Staley Manufacturing Company has announced a product with 55 per- cent fructose, 42 percent dextrose, and 3 percent higher saccharides while ADM Corn Sweeteners has products which will be 55 percent fructose or higher depending on customer requirements. These new products will undoubtedly increase the range of uses for HFCS.

The 55-60 percent fructose syrups are expected to be priced higher than the 42 percent product but somewhat lower in price (solids basis) than sucrose (Crocco, November 1976, p. 80). Test results indicate that the 90 percent fructose product has very favorable properties when combined with saccharin in diet beverage and food applications. It apparently provides an increased perception of sweetness and decreased

perception of after-taste often associated with saccharin (Crocco,

November 1976, p. 80). Acceptance of the 90 percent fructose syrup may

be limited somewhat by its premium price.

Manufacturing Process

While commercial production of HFCS is recent, much of the tech-

nology is not new. It was known in the 1800's that glucose could be

isomerized to fructose by treating with alkaline catalysts at high pH.

1/ For a description of these new products and some of their applica- tions see the two articles by Crocco (November, December 1976). -6-

While corn industry researchers were familiar with the enzyme glucose

isomerase, it was considered to be far too costly for use in batch 1/ reactions.-- It was the development of immobilized enzyme technology

by Japanese researchers and adaption of this technology to a continuous

immobilized enzyme system of production by Clinton Corn Processing

Company (a Standard Brands subsidiary) which made production of HFCS

commercially feasible.

High fructose corn syrups, as well as other corn sweeteners,

utilize corn starch produced by the wet-milling process as their basic

input. In the United States, the production of HFCS and corn wet-

milling is typically an integrated process.

The major input for corn wet-milling is hybrid yellow dent corn

(No. 2 yellow) and the main product is corn starch. The wet-milling

process separates the corn kernel into its four principal components,

the germ, hull, gluten and starch. A typical bushel of corn (56 pounds) will yield 33 pounds of corn starch and almost 19 pounds of other

products.

The corn wet-milling process is illustrated in Figure 2. The

process begins with the shelled corn thoroughly cleaned and conditioned for further processing by being soaked for 28-48 hours in weak sulfurous

acid water, also known as steepwater. The germ is separated from the kernel after the steeping process. The corn is passed to degermination mills which grind it into coarse particles. The lighter germ is then

1/ Casey presents a description of the development of the technology for production of HFCS. Note that the U.S. corn milling industry had used inexpensive soluble enzymes in batch reactions for many years and, thus, thought in terms of batch reactions. FIGURE 2: A FLOW DIAGRAM FOR CORN WET MILLING

Steep Degermination Germ Germ Corn Cleaner Tank Mill Separation Press

\ 1(

Concentrated Steepwater Germ Grinding Mill Steepwater Evaporator Dryer

Crude Corn Oil

Gluten Gluten -4--- Gluten Feed Dryer Filters Fiber Wash Extractor

\ Germ Meal/

KEY U input/output Centrifuge primary operation Ez] auxiliary operation decision 0 Starch Wash

Syrup Decolor- Filtration Evaporator ization

i

Corn Syrup

Source: Russo, 1976. -8-

centrifugally separated. After the crushing of the kernel and the removal of the germ, the hulls are sifted out of the remaining particles and dried. The remaining starch and gluten are in suspension in a slurry. They are separated by means of a centrifuge where the heavier starch particles emerge at the periphery. The isolated corn starch may then be filtered and dried. However, when sweeteners are to be made from the starch, the final filtration and drying is not performed.

The by-products of the wet-milling process are steepwater, corn germ, and gluten. When used in concentrated form, the steepwater may be used in microbiological production of antibiotic drugs such as penicillin and aureomycin and B-complex vitamins. Also, the steepwater may be used to enrich hulls (fiber) and gluten, which are often used as animal feed.

The separated germ is treated under pressure and heat to aid in removal of the oil. The crude oil may be used in soap, paints or var- nishes. However, most of the oil is further refined for human consump- tion. The remaining germ meal may be dried and used for feed. If the oil is further refined for human consumption, the filtered residue may 1/ be used to manufacture soap and glycerin.-- After the crushing of the kernel and removal of the germ, the hulls are sifted out and dried, later becoming part of corn gluten feed.

Following the centrifugal separation of starch and gluten, the gluten may be used in several different products. Most of the gluten is used in corn gluten meal which is an ingredient in livestock feeds. Some of the

The approximate distribution of corn oil by use is: salad and cooking oil, 57 percent; margarine, 34 percent; shortening, 3 percent; and refining loss, 6 percent (Chicago Board of Trade, p. 118). _9-

gluten is added to concentrated steepwater, germ meal (corn oil meal) and hulls to produce corn gluten feed. Both corn gluten feed and meal are long established high protein ingredients in animal feeds. Gluten may also be used in various drugs, medicines and paper products, or to pro- duce zein, which is a purified corn protein that may be used as a basic plastic material.

The efficiency of conversion of corn into its basic components may vary depending on plant size, manufacturer, and moisture content of the corn. The product mix will also depend on by-product markets. A typical product composition is presented in Table 1. Many others are possible.

The value placed on the by-products will depend upon their use and substitutability as ingredients in other processes.

The corn starch slurry produced by corn wet-milling is the basic input for production of HFCS. The production process for HFCS beginning with corn starch slurry is illustrated in Figure 3. The pH of the slurry is adjusted and the enzyme bacterial amylase is added. The starch is passed through a mixer/heater at which point a low dextrose corn syrup is obtained. The syrup is pumped into saccharification tanks where another enzyme is added. This enzyme (amyloglucosidase) continues to break down the starch into dextrose until a minimum 96 percent dextrose syrup is obtained. The syrup is then filtered and decolorized using granular carbon columns. The clear syrup is pumped through deionization tanks and then into isomerization reactors which contain the immobilized enzyme glucose isomerase. This enzyme rapidly isomerizes dextrose to fructose and the syrup is once again deionized and filtered. -10-

TABLE 1

Typical Corn Product Mix Derived from Wet-Milling One Bushel of Corn

Percent of Component Amount total _

pounds per bushel

Starch 33.00 58.9

Gluten feed (21 percent protein) 15.00 26.8

Gluten meal (60 percent protein) 2.00 3.6

Crude corn oil 1.75 . 3.1

Moisture 4.25 7.6

Total 56.00 100.0 ,

Source: Westway (June 1976) and Casey. FIGURE 3: A FLOW DIAGRAM FOR PRODUCTION OF HFCS FROM CORN STARCH*

Enzyme \Amylase

Mixer/ Adjust pH Saccharification Adjust pH Filtration Heater

Enzyme Ion Carbon Glucose Isomerization Exchange Filtration Decolorization Isomerase

Ion Exchange KEY

\/ input/output

primary operation

Carbon Evaporator HFCS Filtration

* This is the production process utilized in the ADM Corn Sweetners plant in Cedar Rapids. Iowa. Source: Russo, 1976. -12-

The final step in the production of HFCS is to pass the syrup through

an evaporator where it is concentrated to approximately 71 percent solids.

The syrup is then pumped into storage tanks to await shipping (Figure 3).

Product Research

Product research and development efforts continue in a number of

areas. Engineers are experimenting with methods to reduce production

costs for existing HFCS products. Researchers are also concerned with the

development of new and improved HFCS products. This includes reducing

impurities and increasing the fructose content in an effort to achieve a

greater substitutability potential. In the longer range, researchers are

trying to develop a commercially economical means of producing crystalline

fructose. This would open a nonindustrial market for high fructose corn

sweeteners. The capability to produce such a product exists at the labo-

ratory level, and it is conceivable that crystalline fructose will be 1/ available for the household consumer in the early 1980

Most of the supply of new technological information on HFCS has been

from sources outside the corn product manufacturing industry. Only two

of the seven multinational patent holders are also corn product manufac-

turers (Peckham). Expenditures for research vary among producers. Some

manufacturers have licensing arrangements which indirectly finance new

research while others have their own research programs. Peckham estimated

that research expenditures are generally less than one cent per pound of

HFCS capacity.

1/ See the remarks of D. H. Francis, President of Clinton Corn Processors, reported in the Westway Trading Corporation Newsletter, pp. 8-11, April 1976. -13-

III. INDUSTRY STRUCTURE AND COSTS

Two aspects of the supply of HFCS are considered. First, the HFCS processing industry structure and capacity and, second, estimated costs of production for HFCS.

Industry Structure

The high fructose corn sweetener manufacturing industry is compara- tively concentrated, which is not unusual for a new product. It is un- likely, however, that there will ever be a large number of firms pro- cessing HFCS because of the nature of the market for the product, the scale of operations and the large investment required. Entry will likely be limited to firms already marketing sweeteners or to very large ver- tically integrated sweetener users. Other firms would find it difficult to establish the necessary market outlets for a product which is a stan- 1/ dardized industrial type input.-

The growth of industry processing capacity has been in line with industry production as illustrated in Figure 1 but with overcapacity becoming evident in 1977. There were five firms operating six plants in

1975 with estimated capacity of 1.43 billion pounds (Table 2). In 1977 there were seven firms operating 11 plants with estimated capacity of

4.25 billion pounds: Note that estimated 1978 HFCS production was

It is interesting to note that sugar refiners have an interest in four of the 13 HFCS plants expected to be operating in 1980 (Table 2). Amstar operates a plant at Dimmitt, Texas, CPC has a plant at Argo, Illinois, Holly Sugar has constructed a plant at Tracy, California and Amalgamated Sugar Company, through a wholly-owned subsidiary Western Corn Company, has a 50 percent interest in a joint venture with American Maize for their Decatur, Alabama plant. -14--

TABLE 2

Estimated HFCS Processing Capacity by Firm and Plant, End of Calendar Year, 1975-1980

Year - Firm/plant location 1975 1916 1977 1978 1979 1980

million pounds Wry basis)

American Maize • Decatur, AL ...... _ 240 240 240 240 Hammond, IN __ ...______... --

Amstar TX 50 240 Dimmitt' a/ 340 340 340 340 Columbus, 011-- ______

ADM/Corn Sweeteners Cedar Rapids, IA 40 350 700 700 700 700 Decatur, IL -- .__. 325 325 325 325

CPC Argo, IL • 40 200 200 200 250 250

Cargill Dayton, OH -- ..... 330 330 330 330 Memphis, TN _...... _..... __ _.... --

Clinton Clinton, IA 550 700 700 700 700 700 Montezuma, NY _... __ 345 345 345 345

Heinz/Hubinger Keokuk, IA -- __ _._ 300 300 345

Holly Sugar ' Tracy, CA ...... _._ _... 160 160 160

A. E. Staley Morrisville, PA 400 400 400 400 400 400 Decatur, IL 350 350 350 350 350 600 Lafayette, IN ...... __ 320 320 320 320

Industry Total 1430 2240 4250 4710 4760 5055 1-2`6A' a/ Site selection not confirmed. ( b/ Reported in Sugar y Azucar, Vol. 72, No. 1, Oct. 1977, p. 7.

Source: McKeany-Flavell Company, Inc., San Francisco CA, Jan. 1977 (revised Sept. 1977). -15-

2.4 billion pounds (Figure 1). Industry experts foresee nine firms operating 13 plants with estimated capacity of over 5 billion pounds in

1980 (Table 2). A grinding capacity of one bushel of corn per day is roughly equivalent to ten thousand pounds (dry basis) of HFCS per year.

Using this conversion factor, the plants in Table 2 would have daily grinding capacities ranging from 16,000 to 70,000 bushels.

While there are undoubtedly economies associated with large-scale

HFCS processing operations, data are not available to evaluate the nature of cost-volume relationships. The wide range of plant capacities shown in Table 2 implies that considerations such as input supplies, product

( and by-product markets, and product distribution are as important as internal cost-size relationships in the capacity investment decision.

Industry executives suggest that minimum construction costs for a new 1/ HFCS plant to achieve economies of scale are between $50 and $75 million.--

This is consistent with recent published reports which estimate the cost of new HFCS capacity at $2,200 per bushel of corn per day (Brook, pp. 5-7).

Most of the HFCS industry capacity projected for 1980 (Table 2) is 2/ already under construction.- Utilization of this projected capacity as well as possible initiation of construction for plants for which plans were shelved due to low sweetener prices depends strongly on the direction taken by U.S. government sugar policy.

1/ See the statement by Quiftmeyer and Wardrip (p. 2).

2/ Note that HFCS processing capacity can come on-line quite rapidly. The ADM Corn Sweeteners plant in Cedar Rapids, Iowa, the largest HFCS plant in the world, was built in eight months (Russo, p. 37). -16-

Estimated Costs

Available estimates of costs of producing HFCS must be considered to be very tentative. The production process is new and has been subject to numerous changes and improvements. No published detailed cost studies are available and the firms in the industry are reluctant to provide informa- tion on their operations. In addition, specification of an average cost of production for HFCS is subject to the same problems found with other products. Major cost variations arise due to technology employed, age and cost of facilities and equipment, capacity utilization, product mix and cost differences for major inputs including labor, energy and raw materials.

Estimates of costs of production for HFCS have been made by Tsao, by

Watts and Leonard and by Brook. The major cost categories include operating costs, corn starch, and overhead.

Operating Costs

Major operating cost categories for HFCS include enzymes, utilities, labor and licenses. As noted above, these expenses can demonstrate con- siderable firm-to-firm variation. Estimates of operating costs are sum- marized in Table 3.

Corn

Corn wet-milling (Figure 2) and HFCS production (Figure 3) are typi- cally an integrated process. Wet-milling yields corn starch and valuable by-products including steepwater, gluten feed, gluten meal, and corn oil.

Sale of these by-products is typically treated as a cost off-set. Thus, -17-

TABLE 3

Estimated Operating Costs for HFCS Production

_ Cost item Estimated cost

cents per pound dry basis

Enzymes .50

Utilities .70

Other operating costs' 2.00

Total 3.20 a/ Includes labor and any necessary licenses.

Source: Connell Rice and Sugar Company, Amerop, and IBRD as reported by Brook (p. 9). the net cost of corn utilized for production of HFCS will vary with variation in prices of corn and corn by-products.

Annual average prices for corn and corn by-products for the period

1971-1977 are shown in Table 4. Note that the price of corn and the gluten by-products often move in opposite directions. Corn gluten feed and meal substitute for high protein livestock feeds, i.e., soybean products, rather than with corn)-" The value of by-products from wet- milling a bushel of corn varied from 53 percent of the price of corn in

1975 to 73 percent in 1977. During the first quarter of 1978 the ratio was 80 percent. The net cost of corn ranged from $.39 per bushel in 1972 to $1.47 per bushel in 1974. With a yield of 33 pounds of HFCS (dry basis) per bushel of corn, the cost of corn ranged from 1.18 to 4.45 cents per pound of HFCS. The average net cost during 1977 was 1.8 cents per pound and this declined to 1.3 cents per pound during early 1978.

Overhead

The major items in overhead costs include interest on investment, depreciation, insurance, taxes and management. If one assumes an interest rate of ten percent and uses straight-line depreciation over a ten year life with no salvage value, the average charge for a 35,000 bushel per day plant (with a cost of $77 million) operating 320 days per year will be approximately 3.125 cents per pound of HFCS produced. Brook estimated a comparable charge in the range of 2.4 to 4.5 cents per pound.

1/ An analysis of monthly prices for the period 1974-1977 revealed simple correlations between commodity pairs as follow: corn and corn gluten feed, -.07; corn and corn gluten meal, -.34; corn and corn oil, .55; soybeans and corn gluten feed, .73; soybeans and corn gluten meal, .52; soybeans and corn oil, .45; soybean meal and corn gluten feed, .84; and soybean meal and corn gluten meal, .71. TABLE 4

Corn and Corn By-Products Prices and Value of By-Products from a Bushel of Corn, 1971-1977

By-products

Corn gluten

2/ of corny 'Year Number 2 yellow corn Feed 1 Mealk/ Corn oily Value of by-products per bushel _ percent of corn price dollars per bushel dollars per ton dollars per cwt. dollars per bushel 67 1971 1.32 47.11 130.29 19.81 .93 70 1972 1.30 50.97 139.11 16.37 .91 ' 63 1973 2.20 84.45 259.19 22.72 1.39 54 1974 3.20 90.50 229.93 41.30 1.73 • 53 1975 2.91 86.01 215.60 32.53 1.53 57 1976 2.70 100.15 249..09 25.63 1.55 73 1977 2.22 101.43 252.52 29.63 1.63 _ a/ 21 percent protein. b/ 60 percent protein.

Cl Tank car, f.o.b. plant. steepwater, i.e. d/ Based on product yields shown in Table 1. Includes an allowance of $.10 per bushel of corn for concentrated 4 pounds at 2.5 cents per pound.

Source: Sugar and Sweetener aeport, May 1978. Quoted prices are for Chicago except corn oil which is for Decatur, Illinois. Other overhead costs (insurance, taxes, management, etc.) have been

estimated at 2 cents per pound of HFCS produced (Brook, p. 9). These

estimated overhead costs will vary, of course, with variations in capacity

utilization.

Total Costs

Estimated total costs of production for HFCS are summarized in

Table 5. These cost estimates range from approximately 9.525 to 12.725 cents per pound depending on the net cost of corn.

Tsao estimated the net total cost of production at 9 cents per

pound. A similar set of estimates by Brook (p. 11) ranged from 11.85 to

16.85 cents per pound. Note that Brook's estimates utilized a net price for corn of 2.5 to 5.4 cents per pound of HFCS and included a transporta-

tion charge of 1.75 cents per pound.

IV. SWEETENER DEMAND AND HFCS MARKET POTENTIAL

HFCS competes with sugar from beets and cane and with other corn sweeteners in the total caloric sweetener market. Thus, any discussion of the demand for HFCS must consider the demand for all sweeteners and

probable changes in market shares. Both technical and economic factors will interact to determine the total market for HFCS.

Sweetener Demand

Sweeteners are an important component of the average U.S. consumer's diet. As shown in Appendix Table 2, per capita consumption of caloric sweeteners increased from a total of 112.8 pounds in 1962 to 128.4 pounds in 1978. The increase occurred rather steadily over time except for a -21-

TABLE 5

Estimated Total Costs of Production for HFCS

Cost category Cost estimate

cents per pound (dry basis)

Operating costs 3.200

Overhead

Interest and depreciation 3.125

Other 2.000

Subtotal 8.325

Corn (net of by-products) 1.20 to 4.40 , j Total 9.525 to 12.725 a/ F.o.b. plant. slight interruption in 1974-1975 due to record high sugar and sweetener

prices. The increase in sweetener consumption between 1962 and 1978 is

due almost entirely to increased consumption of corn sweeteners, mainly

corn syrup and HFCS. Corn sweeteners' share of total caloric sweetener

consumption increased from 11.4 percent in 1962 to 26.3 percent in 1978.

Sugar's share of caloric sweetener consumption declined to just over

72 percent during the same period.

In 1977, over 67 percent of all sugar deliveries and almost all 1/ corn sweeteners deliveries were to industrial users.-- Thus, the indus—

trial sector accounts for some 75 percent of all sweeteners used in the

United States with household purchases down to 25 percent. The primary

demand for caloric sweeteners is therefore a derived demand based on the

demand for processed foods.

Sugar sales to industrial users increased rather steadily until 1973

but then decreased in response to high prices and substitution of corn

sweeteners. The increase through 1972 and the decrease between 1972 and

1977 is shown by data in Table 6. The beverage share of total industrial

sugar use has increased through time and accounted for 36.9 percent of

sales in 1977. Note that the beverage and other categories were the only

two uses which did not decrease between 1972 and 1977. Corn sweeteners,

particularly HFCS, were substituted for sugar in the bakery, confection,

processed food and dairy categories. Now that the second generation HFCS

are available, similar substitution can be expected to occur in the bev—

erage category.

1/ The percentage of refined sugar deliveries in industrial packages (liquid sugar, dry bulk and packages over 50 pounds) was almost 75 percent of total deliveries. TABLE 6

Sugar Sales to Industrial Users, Total and Percentage Distribution by User Category, 1962, 1967, 1972 and 1977

Sales by year

User category 1962 1967 1972 1977

1,000 1,000 1,000 1,000 tons percent tons percent tons percent tons percent

Bakery 1,121 23.3 1,286 22.1 1,449 20.6 1,386 20.9

Confection 863 17.9 1,004 17.2 1,057 15.0 951 14.3 Lk)

Processed food 847 17.6 843 14.5 987 14.1 746 11.2

Dairy 398 8.3 486 8.3 599 8.5 567 8.5

Beverage 1,322 27.4 1,785 30.6 2,437 34.6 2,454 36.9

Other 267 5.5 425 7.3 508 7.2 542 8.2

Total 4,818 100.0 5,829 100.0 7,037 100.0 6,646 100.0

Source: Sugar Statistics and Related Data (1970, 1974), and Sugar and Sweetener Report, May 1978. Analyses of the demand for sweeteners have concentrated on estimating retail level consumer demand for sugar and corn syrup with little consid- eration of the derived demand for sugar in manufactured products. This is not surprising given the wide variety of products which contain sweeteners.

The demand for sugar and corn syrup is both price and income inelastic

(Table 7). Thus, there will be little response to either price or income changes. Note that the corn syrup data are for ordinary corn syrup, not

HFCS. George and King used their estimated income elasticities to project per capita consumption to 1980. Projected 1980 consumption included 98.12 pounds of sugar and 13.95 pounds of corn syrup. While the projected amount of sugar will be close, it is likely that corn sweetener consumption will be close to double the projected 13.95 pounds per capita in 1980. This difference can be explained by estimated income elasticities for manufac-

tured food products containing sweeteners which are more elastic than for the basic sweeteners. This is confirmed by data in Table 8.

Our time series analysis of the demand for all sweeteners provides estimates that are very price and income inelastic. We estimated the following equation using first differences in logarithms of annual data for the period 1950-1977:

AlnQS = .005599 - .0715A1nPS .0341A1nY (2.20) (-5.57) (-.44) where QS is per capita consumption of all caloric sweeteners, PS is the average retail price of sugar deflated by the consumer price index (1967 =

100) and Y is per capita disposable income deflated by the consumer price index. The t-statistics are shown in parentheses. The income coefficient

has an unexpected negative sign but it is not significantly different from -25-

TABLE 7 .

Estimated Retail Elasticities for Sugar and Corn Syrup

Elasticity Sugar Corn syrup I

coefficients

Price -.24 -.44

Income .03 .17

Cross-price .05 .13

-..

Source: George and King (pp. 46-51).

\ -26-

TABLE 8

Estimated Retail Elasticities for Products Containing Large Amounts of Sweeteners

Estimated elasticity

Product category Price Income

coefficient

Bakery -.15 .00

Confectionery a/ a/

Processed food -.40 .20

Dairy -.53 .33

Beverage -.44 .23 a/ Not estimated.

Source: George and King (pp. 46-51). -27-

zero. The coefficients can be interpreted as elasticities. Thus, we con- clude that the estimated price elasticity of demand for all sweeteners is approximately -.07 and that the income elasticity is approximately zero.

The constant in the equation indicates that the demand for all sweeteners 1/ has been increasing at a rate of .56 percent annually.-- If the equation were to be used for projecting total sweetener demand, the trend and income variables should be considered together. Given recent increases in real income, the positive time trend slightly outweighs the negative income coefficient and there are small annual percentage increases in per capita demand.

Based on the above estimates, it appears that the quantity of sweet- eners demanded will change very little in response to price and income changes. Most of the growth in total demand for sweeteners will be due to population growth. The substitution of corn sweeteners, particularly HFCS, for sugar will continue to increase until HFCS reaches its market potential.

HFCS Market Potential

The total sweetener market share captured by IIFCS will depend on a number of factors including the suitability of HFCS in various product applications, the ratio of HFCS prices to sugar prices, rate of acceptance

1/ As suggested by Foote (1958, p. 43) and George and King (1971, pp. 44- 52) the percentage effect of time in each year can be obtained by taking the anti-logarithm of the constant term if all variables in the first- difference analysis are converted to logarithms and if the constant term is significantly different from zero. -28-

of HFCS and other factors such as the availability of handling facilities for liquid sweeteners.

The pricing of HFCS relative to sugar has been an important factor in the growth in use of HFCS since its introduction. HFCS has been priced below sugar with the amount of differential being a direct function of the price of sugar. In late 1974, when sugar prices reached record highs, the differential between sugar and HFCS price was as large as $.30 per pound.

For the period 1975-1977 HFCS prices (dry basis) were 71 percent of sugar prices (Sugar and Sweetener Report, December 1978). Calendar 1977 HFCS prices averaged 70 percent of sugar prices but during the first three quarters of 1978, HFCS prices were only 55-62 percent of sugar prices. The very competitive pricing can be attributed to the favorable price situation for wet-milling by-products and the existence of excess HFCS processing capacity.

In the following section we examine some of. the published information concerning the suitability of HFCS in various manufactured products.

The amount of HFCS which can be substituted for sugar in a product depends on the nature of the product and the percentage of sweetener con- tained by the product. Tests have indicated that humans have a saturation of perceived sweeteners at a sweetener solids content level of 15-20 percent.

In products with a low sweetener solids content (less than 15 percent), many consumers can distinguish between a sweetener formulation with a high per- centage of 42 percent fructose HFCS and a formulation based exclusively on invert sugar syrup. The percentage of the second generation (55 percent fructose) HFCS which can be substituted for sugar without detection is much higher than for the 42 percent fructose HFCS. Consumers can detect -29-

little difference in sweeteners for high levels of HFCS in products with sweetness solids content above 20 percent. Some manufacturers, for ex- ample, use up to 100 percent HFCS in jam, a product which contains over 1/ 60 percent sweetener solids by weight.--

Bakery Products

Bakery, cereal and allied products accounted for almost 21 percent of the industrial use of sugar for food manufacturing in 1977 (Table 6). The major products in this category are bread and rolls, cookies and crackers, breakfast cereals, sweet 'goods and pies.

Bread and rolls account for almost 40 percent of the total value of 2/ production of the bakery products category.-- Prior to the use of HFCS, a common sweetener formula included approximately 50 percent sucrose and

50 percent corn syrup or dextrose. It is estimated that HFCS can account for up to 20 percent of the sweetener formula, substituting mainly for sucrose. Technical restraints, particularly the syrup form of HFCS,

prevent the use of more than 20 percent HFCS in the sweetener mix. Ad- vantages of using HFCS in bread and rolls include cost, improved texture,

color and stability of the product. Moreover, it helps retain moisture

and freshness and browning occurs more readily with fructose than with

other sweeteners.

1/ The following discussion of the potential for HFCS in various manu- factured products is based on information in a number of references including Crocco, Fruin and Scallet, and Arthur D. Little.

2/ Data on the percentage of total value of a particular product category are for 1976, the most recent data available. See Sugar and Sweetener Report, December 1977, p. 35. -30-

Cookies and crackers represent almost 15 percent of baked goods shipments. Crackers contain approximately 15 percent sweetener and cookies contain approximately 30 percent. Since cookie and cracker batter is quite thick, the use of HFCS (with 29 percent moisture) is limited to a maximum of about 20 percent of the sweetener mix.

The hygroscopic property of HFCS severely limits its use in most cereals. Estimates indicate that HFCS will account for five percent of the cereal sweetener mix with current technology. However, a crys- talline high fructose sweetener would markedly expand its use as a coating on cereal. Some sugar-coated cereals contain as much as

60 percent sugar by weight.

Cakes, pastries and doughnuts represent over 26 percent of the value of baked goods. They contain an average of about 20-25 percent sweetener and it is estimated that future sweetener formulations will contain ten percent HFCS, ten percent corn syrup, ten percent dextrose and 70 percent sucrose. Once again, the use of HFCS is limited by the water content of the syrup. The hygroscopic nature of HFCS is an advan- tage in these products because it helps retain moisture and original freshness.

Pies represent less than four percent of baked goods but it is estimated that HFCS can displace all but 25 percent of the sucrose in the sweetener formula.

Confections

The confectionery goods category includes candy (hard or soft) and gum. While these products account for almost 15 percent of the industrial use of sugar, the potential for HFCS is very limited. Given present -31-

products very little HFCS will be used in hard candies or gum. Soft candies contain about 80 percent sweeteners. It is estimated that HFCS will eventually comprise about 20 percent of the sweetener formula, replacing mostly sucrose.

Processed Foods

Deliveries of sugar to food processors amounted to 987,000 tons or

14.1 percent of industrial use in 1972 (Table 6). This decreased to

746,000 tons or 11.2 percent in 1977, largely as a result of substitution of HFCS. Substitution of HFCS for sucrose by food processors can be ex- pected to continue. HFCS is very stable in canned fruit applications and can comprise 50-75 percent of the sweetener blend. It imparts improved flavor, color and sheen to processed fruit products.

Jams and jellies contain approximately 63 percent sweetener by weight. Until it was rescinded on October 29, 1974, the Food and Drug

Administration had a regulation which placed a ceiling of 25 percent of total sweetener content in jams, jellies and preserves which could be obtained from corn sweeteners. Under the revised federal standards, processors have their choice of nutritive sweeteners and are using HFCS in a wide range of blends. One major sweetener user, Smuckers, now uses

100 percent HFCS. The HFCS costs less than sugar, it doesn't mask fruit flavors but emphasizes them, and it imparts excellent color and sheen.

Fruit drinks usually contain 11-13 percent sweetener. Sucrose was the primary sweetener until 1974 when a change in federal standards allowed a revised sweetener blend. Because of low sweetener content, the use of 42 percent fructose HFCS is limited to about 25 percent of total sweeteners. Second generation HFCS with 55-60 percent fructose can now make up to 75 percent of the sweeteners in fruit drinks.

Dairy Products

HFCS is used extensively in dairy products. In general, the advan- tages of HFCS include cost, stability, color, and appearance. A possible disadvantage is that HFCS lowers the freezing point by several degrees, which may increase Storage and transportation expenses.

Ice cream, ice milk, and sherbet, which comprise approximately

80 percent of sweetened dairy product production, contain about 15 per- cent sweetener solids. A common non-HFCS sweetener formulation is

56 percent sucrose, 14 percent dextrose, and about 30 percent corn syrup.

Estimates indicate that HFCS may soon replace dextrose and some sucrose to comprise a maximum of 25 percent of the sweetener formula. Disadvan- tages of using HFCS in ice cream, ice milk, or sherbet include the freezing point problem and some difficulties with moisture content.

However, it is also less expensive, controls crystallization, and im- parts an attractive sheen and creamy texture. Moreover, pure dextrose in liquid form must be maintained at 130° Fahrenheit in order to prevent crystallizing. However, HFCS may be maintained in liquid form at

80-90° Fahrenheit.

Popsicles formerly used a sweetener mix of 55 percent corn syrup and 45 percent sucrose. A new sweetener mix of 75 percent "ultra" HFCS and 25 percent sucrose maintains the sweetness level with a 25 percent reduction in dry solids. The use of HFCS also improves product appearance by eliminating pocks and giving the popsicles a smooth surface. -.33--

Beverages

Soft drinks have accounted for over 92 percent of the value of beverages with alcoholic and nonalcoholic beverages (other than soft drinks), drink mixes, and fountain syrups making up the remainder. The share of total sugar sales used in beverages has been increasing steadily and was up to 36.9 percent of industrial sugar use in 1977. Carbonated soft drinks contain approximately 11 percent sweetener by weight. There are few if any technical restrictions on using up to 50 percent HFCS in the sweetener formulation. However, most bottlers were authorized to use a maximum of 25 percent to 42 percent HFCS in their sweetener mix. Pro- ducers using HFCS include Seven-Up, Dr. Pepper, Canada Dry, Shasta, Dads and Royal Crown. Coca-Cola Co. authorized franchised producers to use up to 25 percent HFCS (42 percent fructose) in their noncola brands, Sprite,

Mr. Pibb and Fanta. This was recently increased to 75 percent for the second generation HFCS containing 55 percent fructose (Abrams, June 30,

1978).

Coca-Cola Co. and Pepsico, Inc. still do not allow the use of HFCS in their cola products which together account for about 45 percent of the soft-drink market (Abrams, August 3, 1978). According to technologists at Clinton, tests with cola products show a high degree of acceptability with the new "ultra" HFCS. Abrams (August 3, 1978) quotes an analyst as saying that eventually Coca-Cola and Pepsico will use HFCS in their colas.

A potential ban on saccharin has implications for the use of HFCS.

Nondiet drinks have 12 calories an ounce and saccharin-sweetened drinks have less than one calorie. Since fructose in high concentrations is --34-

sweeter than sugar, soft-drink companies could make a beverage having

about six calories an ounce by using "ultra" HFCS. Canada already has a

ban on saccharin, and Pepsico, Inc. and Seven-Up bottlers are selling

fructose sweetened drinks (Abrams, August 3, 1978).

V. PROJECTIONS OF HFCS USE

Future consumption of HFCS depends on a number of factors. The

technical considerations just discussed are important but serve only to

establish market share potential. The rate at which sales approach that

potential (the rate of adoption of HFCS) depends on the profitability of

HFCS production and use, the price ratio of sugar and HFCS, and U.S.

government sugar policy. Total sweetener demand will change through time

in response to changes in prices, incomes and tastes. Thus, the analyst

must be concerned with total sweetener demand and with changing market

shares.

There have been a number of projections of HFCS production, consump-

tion and market share to 1980, 1985 and beyond. These projections demon-

strate considerable variation. Those made during the period 1973-1975,

when sugar prices were high and HFCS producers were rationing supplies to

eager buyers, tend to be much more optimistic than are more recent pro- jections. Several sales projections, made by people familiar with the

HFCS industry, offer little in the way of supporting data. We will sum- marize these. Then we will briefly discuss three sets of projections which have been presented in some detail. This will be followed by our

"best" guess of likely future developments based on a trend model pro- jection. -35--

Industry Estimates

Several individuals familiar with the HFCS industry have estimated future HFCS production and consumption in speeches, interviews and short papers. For example, Robinson (1975), in his discussion of HFCS, esti- mated annual output of near 4 billion pounds by the end of 1978. He stated that, "Some experts predict that high-fructose corn syrups may eventually account for up to 40 percent of industrial sugar consumption."

Mr. Donald Francis, President of Clinton Corn Processing Company, spoke of annual HFCS capacity of 4 to 6 billion pounds by 1980 from firms which had announced production plans in 1975. He speculated that "this could easily increase to as much as 9 to 10 billion pounds of HFCS yearly by 1990."

Gray, at a World Bank seminar in early 1976, said that "The corn sweetener industry expects that U.S. high-fructose corn syrup consumption will likely total about 3 million tons (dry basis) in 1980." Burck (1977, p. 114) projected market share rather than total consumption. He stated that: "In theory, better than 50 percent of the total sugar market is susceptible to the substitution of high-fructose syrups. Few in the in- dustry expect anything like that in the foreseeable future, but conserva- tive estimates project 20 percent by 1980, and at least a 25 percent share over the long run."

The U.S. Department of Agriculture, in a recent issue of the Sugar and Sweetener Report (May 1978, p. 20), stated that:

"People close to the sweetener market report that 'first generation' 42 percent (fructose) HFCS has nearly reached its U.S. market potential with sales of around a million tons in calendar 1977. Over half of the prospective 250,000-ton in- crease in HFCS sales in 1978 is now expected to come from the 'second generation' 55 percent product. It was originally thought by some in the industry that the 42 percent product market would eventually total 1.5 to 2 million tons. HFCS sales are reportedly slow in the first quarter this year. The apparent failure of the 42 percent product to cap- ture as large a market as originally thought suggests the possibility the eventual size of the 55 percent fructose prod- uct market could fall short of current expectations. But there are signs that economic conditions could improve over the next few years. HFCS sales are expected to continue to grow at a minimum rate of 200,000 to 250,000 tons per year for the next few years."

Continued growth in HFCS sales of 250,000 tons per year would result

in 1985 sales of 3.0 million tons. This is below the industry estimates

just summarized but is in the range of study projections which follow.

Study Pro'ections

There are three studies of the HFCS industry which include projec-

tions with some discussion of their underlying assumptions. These

studies were done by Arthur D. Little, Inc. (A.D.L.), WestWay Trading

Corporation, and Brook during the period 1975-1977. Following is a

summary of the projections in these three studies.

A.D.L. Study

The Arthur D. Little study of the sweetener industry with emphasis

on the impact of corn sweeteners was done for the St. Paul Bank for

Cooperatives. Projections of HFCS use were based on three alternative

price levels for sugar. The report contains a rather detailed examination of the potential use of HFCS by manufacturing product category.

The projections of sweetener use by market sector for 1980, 1985 and

1990 which A.D.L. felt was most likely are included as Table 9. As shown -37-

TABLE 9

U.S. SWEETENER USAGE IN 1980, 1985 AND 1990 BY MARKET SECTOR AND TYPE OF SWEETENER EMPLOYED (million of pounds)

1980 - Sweetener Usage Market Sector Sucrose Corn Sweetener HFCS Other Total

• Consumer/InFtitutional 7,180 210 315 7,705 • Industrial 10,170 5,270 6,000 1,155 22,615 - Bakery 2,370 1,470 430 40 4,310 - Confectionery 1,720 980 100 45 2,845 - Beverage 3,470 390 3,030 1,000 7,890 - Dairy 950 590 500 10 2,050 - Canners 855 735 1,400 40 3,030 - Other 805 1,125 540 20 2,490

• Total 17,350 5,500 6,000 1,470 30,320

1985 - Sweetener Usage Market Sector Sucrose Corn Sweetener HFCS Other Total

• Consumer/Institutional 7,350 215 330 7,895 • Industrial 10,390 5,935 7,000 1,770 25,095 - Bakery 2,520 1,570 460 40 4,590 - Confectionery 1,735 1,040 175 60 3,010 - Beverage 3,645 580 3,720 1,585 9,530 - Dairy 960 620 555 15 2,150 - Canners 745 820 1,690 45 3,300 - Others 785 1,305 400 25 2,515

• Total 17,740 6,150 • 7,000 2,100 32,990

1990 - Sweetener Usage Market Sector Sucrose Corn Sweetener HFCS Other Total

• Consumer/Institutional 7,600 220 - 345 8,165 • Industrial 10,740 6,340 7,600 1,955 26,635 - Bakery .2,545 1,640 470 40 4,695 - Confectionery 1,765 1,065 195 60 3,085 - Beverage 3,815 625 4,110 1,750 10,300 - Dairy 965 625 560 15 2,165 - Canners 790 860 1,770 50 3,470 - Others 860 1,525 495 40 2,920

• Total 18,340 6,560 7,600 2,300 34,800

Source: Arthur D. Little, Inc., estimates, p. 43. -38-

in Table 9, the HFCS market share is 19.8 percent in 1980, 21.2 percent in 1985 and 21.8 percent in 1990.

The A.D.L. most likely projections were based on a projected sugar price of $.20 per pound (bulk refined, Chicago-West). A projection based on sugar prices of $.30 per pound had substantially higher total consump- tion of HFCS and lower total sweetener consumption. Projected consumption of HFCS was 7.0 billion pounds in 1980 and 8.4 billion pounds in 1985 with

$.30 sugar. The HFCS market share increased to 31.9 percent in 1980 and

35.6 percent in 1985.

Westway Study

The Economic Studies Department of Westway Trading Company published projections of HFCS use in their May and June, 1976 Newsletters. They projected a total long-run potential for HFCS of 3.3 million short tons

(dry basis). In a detailed set of projections for calendar years 1970-

1980 and 1985 total consumption of HFCS reaches a maximum of 2.825 million tons (Table 10). Projected 1985 per capita consumption of HFCS at 25 pounds is 19.2 percent of total sweetener consumption. Note that the

Westway projections for 1976 and 1977 were above actual HFCS consumption as reported by U.S.D.A.

Brook Study

The most recent projection of HFCS sales was made by Ezriel M. Brook in his study published by the World Bank. He estimated market potential for HFCS as being limited by liquid sweetener handling facilities and equipment. More specifically, he multiplied sucrose use by manufacturing category by the percentage which was liquid sugar in 1973. These were TABLE 10

SWEETENER CONSUMPTION SINCE 1960 AND PROJECTIONS TO 1985 (all figures dry basis)

Per Capita Consumption Continental Total Sweetener Corn Syrup Import Year Corn Syrup HFCS Sugar U.S. Population HFCS Sugar Total Consumption and Dextrose and Dextrose Requirements (pound per year) (thousand short tons refined value, dry basis)

1960 180,000.000 13.5 - 97.5 111 16,000 1,200 - 4,800 4,000

1965 194,000,000 17.25 - 96.75 114 11,050 1.675 - 5,775 3,600

1970 204,600,000 18.5 - 102.5 121 12,375 1,900 - 5,800 4,675

1971 206,300,000 19.25 - 102.75 122 12,575 2,000 - 5,575 5.000 LA) 1972 208,000,000 20.0 - 103 123 12,800 2,075 - 5.825 4,900 1/40

1973 209,600,000 21.25 1.5 103.25 126 13,200 2,240 160 5,800 5,000

1974 211,100,000 21.5 3.75 95.75 121 12,750 2,270 380 4.900 5.200

1975 212,500,000 21.25 6.75 90 118 12,550 2,2,50 725 5,825 3,750

1976 213,600.000 21.5 9.5 95 126 13,450 2,300 1,000 6,000 4.150

1977 214,600,000 . 21.75 12.5 92.25 126.5 13,550 2,300 1,350 6,000 3,900

1978 215,700,000 22.00 15.75 89.25 127 13.700 2,375 1,700 5.825 3.800

1979 216,800,000 22.25 18.50 86.75 127.5 13,820 2,420 2,000 5,600 3.800

1980 217,900,000 22.50 20.25 85.25 128 13,950 2,450 2,200 5,500 3.800

1985 225,000.000 22.25 25.00 82.75 130 14.625 2,500 2,825 5.000 4,300

Source: Westway Trading Company; Newsletter, June 1976, p. 13. This table is also included in the study Report on World Sugar Supply and Demand, 1980 and 1985, FAS-U.S.D.A., 1977, p. 251. -40-

summed to obtain a weighted percentage of total sugar use which he uses

as the market potential for HFCS. As shown in Table 11, Brook's estimated

market potential for HFCS is 2.6 million metric tons in 1980 and 3.9 mil-

lion metric tons in 1985. This is a projected market share of 25.3 percent

of total caloric sweeteners.

A Trend Model Projection

The three studies just reviewed present a range of assumptions con-

cerning economic conditions and HFCS product developments. Utilizing the information developed in these studies together with a simple trend model

of the usual pattern of adoption for new products and projected growth in

total sweetener demand, we attempt to outline a range of likely outcomes in the sweetener industry. The future level of demand for HFCS depends on a number of parameters including population growth, economic growth,

product characteristics, and U.S. sugar price policy. We utilize prior projections of these parameters or present a range of possible outcomes.

Our projection procedure sets these parameters in perspective and permits one to evaluate the impact of differing rates of change in the parameters on sweetener projections. We proceed in three stages, first, we project total sweetener demand, then we examine the pattern of adoption of HFCS based on alternative market shares and, finally, we present projected

HFCS consumption.

Projected Sweetener Consumption

Total caloric sweetener consumption is projected to 1985 and 1990 under specified conditions of growth and change. The variables considered include population growth, changes in per capita real income and real sugar -41--

TABLE 11

Forecast of Sugar and HFCS Demand in the U.S. in 1980 and 1985

1980 1985

millions of metric tons

Consumption of sugar without competition from HFCS 11.9 12.7

Substitution of sugar by First Generation HFCS-' 1.8 2.9

Substitution of sugar by Second Generation HFCS 0.2 0.3

Total consumption of other corn sweeteners 2.4 2.7 h/ Substitution of other corn sweeteners by HFCS— 0.6 0.7

Total demand potential of HFCS 2.6 3.9

Total demand potential of sugar 9.9 9.5 a/ Full substitution achieved by 1985, when 22.6 percent of the potential sugar consumed without competition will be replaced by HFCS. b/ Full potential substitution achieved by 1980.

Source: Brook, p. 21. -42--

prices. Specification of these variables combined with estimated income

elasticity, price elasticity and trend factors yields projected total

sweetener demand. Following are the specifications upon which the pro-

jections are based:

1. The base period for the projection is 1977. Thus, all prices, in-

come, consumption, etc., are based on conditions existing in 1977.

2. Total caloric sweetener consumption changes in line with the

estimated relation:

AlnQS = .005599 - .0715A1nPS - .0341AlnY,

where QS is per capita consumption of all caloric sweeteners, PS

is average retail sugar price deflated by the consumer price

index and Y is per capita disposable income deflated by the con- 1/ sumer price index.-

3. Population will increase in line with the medium growth (Series

II) projection of the Census Bureau. Thus, U.S. population will

increase from 215,118,000 in 1977 to 230,692,000 in 1985 to

243,513,000 in 1990.

4. Real incomes will increase at the same rate as during the 1975-

1977 period, i.e., 2.5 percent annually.

5. Three alternative levels of average retail sugar prices are

examined. In real terms, they are $.20, $.25 and $.30 per pound.

6. Estimated 1977 total caloric sweetener consumption was 128.1

pounds per capita or 13,778,308 short tons for the U.S. The

average retail price of sugar was 21.62 cents per pound.

1/ A brief discussion of the derivation of this estimated relation appears on pages 24 and 27. TABLE 12

Projected Per Capita and Total Caloric Sweetener Consumption for Three Alternative Retail Sugar Price Levels, 1985 and 1990

, . Average retail price of sugar-p' 1985 1990

pounds per capita 1,000 tons pounds per capita 1,000 tons

$.20 133.68 15,419 136.73 16,648

$.25 131.48 15,166 134.49 16,375

$.30 129.28 14,912 132.24 16,101 , a/ 1977 prices. Projections of total caloric sweetener consumption given the above specifications are shown in Table 12. Total 1985 consumption is in the range of 14.9 to 15.4 million tons with per capita consumption between

129.28 and 133.68 pounds. Projected 1990 per capita consumption increases to 132.24 to 136.73 pounds with total consumption in the range of 16.1 to

16.6 million tons.

Since the demand for sweeteners is very price inelastic, different price levels have a comparatively small impact on projected consumption.

Income and trend factors also have a small impact. Most of the projected growth in sweetener demand is due to population growth.

Projected HFCS Market Share

The literature on the adoption of product innovations supports the idea that market penetration typically follows an s-shaped pattern through time. Sales (and market share) begin slowly, increase at an increasing rate, and then increase at a decreasing rate until the maximum potential market share is achieved. The rate of adoption can often be explained by economic variables related to the profitability of using the new product in the case of inputs or the cost savings (or increased satisfaction) realized in the case of consumer goods.

Sales of HFCS since its introduction in 1967 have followed the expected s-shaped pattern. However, the trend in sales and market share to date is consistent with a range of ceiling values. The market potential for HFCS depends on technical considerations, the price of sugar and costs associated with HFCS. As mentioned earlier, technical considerations will probably limit HFCS to a maximum of 35 percent of the sweetener market but this share would only be, achieved with very high sugar prices. The most likely ceiling values are in the range of 20 to 30 percent of total sweetener sales. -45-

A number of functional forms will yield an s-shaped curve. The logistic function has been used most often to describe the pattern of

sales through time because of ease of estimation. The logistic growth

curve is:

+bt) P = K/[1 + e- t

where P is the percentage of total sweetener t sales which are HFCS in year t, K is the ceiling value, a is a constant, b is the rate-of- acceptance coefficient and t is time. A simple log transformation, as described by Griliches, results in an equation linear in a and b which can

be estimated by use of ordinary least squares. The equation estimated is:

ln(Pt/K P ) = a + bt. t

Logistic equations were estimated using annual data for the period 1967 to

1977 and four alternative ceiling values, .20, .25, .30 and .35. Results are shown in Table 13. Note that the rate-of-acceptance coefficient (b) decreases as the ceiling value (K) increases. The explanatory power of 2 the equations, as indicated by the R values, is consistently high with ceiling values of .30 and .35 having the highest R2. However, the dif- 2 ference in R values is not a significant difference. It appears that the pattern of sales to date is consistent with any of the four ceiling values considered.

The estimated HFCS market share data used to estimate the logistic functions are shown in Figure 4. We have also included the projected market share of HFCS based on K = .20 through 1990. Using this projection, the HFCS share of the total caloric sweetener market would be .131 in 1980,

.188 in 1985 and .198 in 1990. Adoption of HFCS would be very rapid be- tween 1978 and 1984 and would be essentially completed by 1990. A similar -46-

TABLE 13

Estimated Logistic Function Coefficients for HFCS Sales Using Four Alternative Ceiling Values, 1967 to 1977

Estimated coefficients 2 Ceiling value (K) a b R --- .20 -5.2522 .4204 .9860

.25 -5.4494 .4114 .9864

.30 -5.6158 .4058 .9865

.35 _ -5.7593 .4020 .9865 -47-

FIGURE 4

HFCS Sales as a Proportion of Total Caloric Sweetener Sales, Actual 1966-1977 and Projected 1978-1990a/

HFCS SALES TOTAL SWEETNER SALES Ceiling Proportion .20

.18 SD( .16

.14

.12

.10

.08 Projected

.06

.04

.02

I 1 1966 1960 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990

Year

a/ Based on HFCS ceiling market share of 20 percent. -48-

pattern is true for the other three ceiling values. For example, the 1990 market share for a ceiling value of .35 would be .343.

HFCS Projections

Combination of the projections of total sweetener demand and market share for HFCS yields a projection of HFCS demand. Some care must be exercised in combining the two projections. For example, a high market share for HFCS will require relatively high sugar prices and a significant differential between sugar and HFCS prices. .Likewise, low sugar prices imply a low market share ceiling value for HFCS.

Projections of HFCS demand to 1985 and 1990 for various sugar price levels and HFCS market share ceilings are shown in Table 14. Per capita

1985 HFCS demand ranges from 25.1 to 34.5 pounds depending on the assumed sugar price and ceiling market share. The 1990 projections are higher, especially for the .25 and .30 market share ceiling values.

Comparison of the projections in Table 14 with those made by A.D.L.,

Westway and Brook (Tables 9, 10 and 11) reveal both similarities and dif- ferences. A.D.L. projects total 1985 HFCS consumption of 3.5 million tons and 1990 consumption of 3.8 million tons (Table 9). This is close to our

1985 projection and a little higher than our 1990 projection based on sugar prices of $.25 per pound and a HFCS ceiling market share of 25 per- cent. Westway projected 1985 per capita HFCS consumption of 25 pounds

(Table 10). This is similar to our projection based on sugar prices of

$.20 per pound and a ceiling HFCS market share of 20 percent. Brook's

1985 projection of 3.9 million metric tons (4.3 million short tons) of

HFCS consumption is much more optimistic than any of our projections TABLE 14

Projected Per Capita and Total HFCS Demand to 1985 and 1990 for Alternative Sugar Price Levels and HFCS Market Share Ceilings

Projected HFCS demand

Assumed conditions 1985 1990

pounds per capita 1,000 tons pounds per capita 1,000 tons

Sugar prices: $.20 25.1 2,896 27.1 3,303 HFCS ceiling value: .20

Sugar prices: $.25 24.7 2,848 26.7 3,249 HFCS ceiling value: .20

Sugar prices: $.25 30.1 3,466 33.2 4,045 HFCS ceiling value: .25

Sugar prices: $.30 34.5 3,983 39.0 4,753 HFCS ceiling value: .30 (Table 11). Achievement of this demand projection would require rela- tively high sugar prices and a comparatively large price differential between sugar and HFCS.

Projected Sugar Demand

The projected growth in HFCS demand will be primarily at the expense of sugar since HFCS substitutes directly for sugar in many product appli- cations. Thus, growth in the demand for HFCS will be associated with decreased per capita and total sugar demand until HFCS adoption is almost complete.

Per capita consumption of glucose corn syrup, dextrose and minor caloric sweeteners is likely to continue at recent levels. While there may be some substitution of HFCS for dextrose, it is likely that this will

be offset by growth in glucose consumption. Per capita consumption of

glucose and dextrose has recently averaged 22.8 pounds while consumption

of minor caloric sweeteners has averaged 1.4 pounds. These values and

the projections of HFCS demand under the'assumption of sugar prices at

$.25 per pound and a HFCS ceiling market share of 20 percent are combined

in Table 15 to derive a projection of sugar consumption.

Estimated 1977 sugar consumption was 10.29 million tons or 95.7 pounds

per capita. Projected 1985 demand for sugar shows a 13.7 percent decrease

in per capita terms and a 7.4 percent decrease in total. Since the pro-

jected adoption of HFCS is almost complete by 1985 (Figure 4), there is a

slight increase over 1985 in projected 1990 per capita sugar consumption.

While projected sugar demand increases between 1985 and 1990, total con-

sumption of 10.18 million tons in 1990 is still slightly below total

consumption of 10.29 million tons reported in 1977. TABLE 15

Projected Per Capita and Total Demand for Caloric Sweeteners by Category, 1985 and 1990

Projected demand

Sweetener 1985 1990

pounds per capita 1,000 tons pounds per capita 1,000 tons

Glucose and dextrose 22.8 2,630 22.8 2,776

Minor caloric sweeteners 1.4 161 1.4 170

HFCS 24.7 2,848 26.7 3,251

Sugar 82.6 9,527 83.6 10,179

Total 131.5 15,166 134.5 16,376 , -52-

U.S. Policy Impacts

U.S. trade, feed grains and sweetener policies will have important impacts on sugar, corn, and HFCS. The ultimate size of the domestic sugar industry, its share of the domestic sweetener market and future growth of the HFCS industry are all tied to government policy actions. Feed grains and trade policy will affect production, exports and prices of corn and corn by-products. This will affect costs of production for HFCS. Domestic sweetener and trade policy will determine the domestic price of sugar, the price level of HFCS and the rate of market penetration by HFCS.

The use of corn for sweeteners accounts for a minor portion of the annual U.S. corn crop. Thus, while sweetener use increases the demand for corn, its price impact is small. The estimated total corn grind for sweet- eners and starch grew from approximately 154 million bushels in 1960 to 1/ some 400 million bushels in 1978.-- This was only about 6 percent of the estimated 1978 corn crop of 6.5 billion bushels. The percentage of the crop used for sweeteners was about 4 percent and of that amount an esti- mated 73.2 million bushels (1.1 percent) was used for HFCS.

Our projections of 1985 and 1990 HFCS consumption imply the use of

173 to 241 million bushels of corn for HFCS in 1985 and 197 to 288 million bushels in 1990. The share of the U.S. corn crop used for HFCS will likely increase, even with projected increases in U.S. corn production.

Rojko, et al., in their study of the world grain-oilseeds-livestock model, project compound annual increases in U.S. coarse grains production of .4 to

3.3 percent to 1985.

1/ &Tar and Sweetener Report, September 1977 and December 1978. -53-

Termination of the U.S. Sugar Act on December 31, 1974 ended over

40 years of economic protection for the U.S. sugar industry. World sugar prices reached record highs just prior to termination of the Sugar Act but have since declined as a result of record world crops and an accumula- tion of global stocks of sugar. The U.S. does not now have a clear state- ment of domestic sweetener policy. Low sugar prices during the past two years have resulted in a government sugar loan program, price support payments and Import fees in addition to existing import duties. The gov- ernment took actions, effective January 1, 1979, to support U.S. sugar prices at $.15 per pound (raw value basis).

The future size of the domestic sugar industry is dependent on the form taken by U.S. sugar price policy. Likewise, future market penetra- tion of HFCS is a function of the domestic price of sugar. Government actions which affect domestic sugar prices will, thus, have an important impact on the future of both industries.

Jesse and Zepp analyzed the probable economic impacts on U.S. sweet- ener producers, processors and consumers of five alternative sugar policies.

The policy options they examined included: (1) U.S. free trade, (2) par- ticipation in an international sugar agreement, (3) foreign quotas with premium, (4) foreign quotas with variable levy and (5) target price with direct producer payments.

Under the first two policy alternatives, the U.S. price of sugar is based on world prices. Prolonged low prices would result in a reduction in domestic sugar production and would retard use of HFCS. Jesse and Zepp

(pp. 2-9) project a steady drop in world sugar prices through 1978-79 with a recovery in 1979-1980. They were highly uncertain, however, about the likely level of prices. Supply management through import quotas (options 3 and 4) could be used to support domestic sugar prices at desired levels. Jesse and Zepp

(pp. 26-27) concluded that a minimum U.S. real price of $.13 per pound

(1974-75 prices) would be necessary to maintain U.S. sugar production at recent levels. This level of real prices would result in continued growth of the HFCS industry.

A target price with direct producer payments would maintain a domestic sugar industry at the level selected but would remove the umbrella for corn sweetener producers and retard use of HFCS when world prices were below the target. Large sugar users and consumer representatives prefer direct pay- ments because they don't raise raw material costs and don't raise prices at the supermarket. Jesse and Zepp found that direct payments consistently yielded the lowest total costs of the direct support schemes considered.

It is, however, a highly visible support mechanism.

Policies which support the domestic price of sugar encourage the use of HFCS, with the HFCS substituting primarily for imported sugar. Under a direct payment scheme, the HFCS used would also substitute for imported sugar. However, with recent world sugar price levels much HFCS production would not be profitable. Under free trade policies, substitution would depend on prices relative to costs of production. With domestic prices above cost of production, HFCS would substitute for imported sugar. With domestic sugar prices below the cost of production, HFCS would tend to substitute for domestic production.

1/ Adjustment for price level changes would result in a price of $.165 cents per pound in November 1978. The producer price index for inter- mediate materials increased from 175.0 in January 1975 to 222.2 in November 1978. -55-

VI. SUMMARY

High fructose corn syrup (HFCS) substitutes for sugar in a variety of processed food products. Market acceptance has been dramatic since its introduction in 1967, and 1978 sales were estimated at 2.40 billion pounds.

This was equivalent to U.S. per capita consumption of 11.0 pounds and a total caloric sweetener market share of 8.5 percent. HFCS product improve- ments and continued adoption assure HFCS an increased share of the caloric sweetener market.

HFCS manufacturers were over-optimistic and, as a result, there is substantial excess capacity in the United States. In fact, with an assumed ceiling market share of 20 percent, projected 1980 industry capacity (2.527 million tons) will almost be sufficient to cover our low projection of 1985 consumption (2.848 million tons).

HFCS is manufactured from corn starch which is a product of wet- milling ordinary No. 2 yellow corn. The wet-milling process yields several valuable by-products which help to reduce the net cost of corn starch.

Estimates of the cost of production for HFCS are very tentative, ranging from 9.5 to 12.7 cents per pound. It is widely accepted that HFCS costs of production are below those of either domestic cane or beet sugar. This is supported by industry pricing practices. HFCS is priced below sugar, with the size of the differential being a positive function of sugar prices.

The total market share captured by HFCS will depend on a number of factors including the suitability of HFCS in various product applications, sugar prices, rate of acceptance of HFCS and other factors such as the availability of handling facilities for liquid sweeteners. HFCS can totally substitute for sugar in some products, it is a partial substitute -56-

in others and can't be used at all in certain products. Technical con-

siderations will probably establish the maximum HFCS share at about 50 percent of the industrial sweetener market or approximately 35 percent of

the total caloric sweetener market. Attainment of the maximum technical limit would require a prolonged period of very high sugar prices. Most sweetener industry experts project that HFCS will capture 20 to 30 percent of the caloric sweetener market.

Total sweetener demand is very price and income inelastic. We project

an increase in total sweetener consumption, due mainly to population growth.

Total and per capita HFCS consumption is projected to 1985 and 1990 using a logistic trend model of product adoption and ceiling market shares ranging from 20 to 30 percent. Projected per capita HFCS demand ranges from 25.1

to 34.5 pounds depending on the assumed sugar price and HFCS ceiling market share. The 1990 projections range from 26.7 to 39.0 pounds per capita.

Total demand ranges from 2.85 to 3.98 million tons in 1985 and from 3.25

to 4.75 million tons in 1990.

Substitution of HFCS for sugar will have a significant impact on sugar consumption. Using a 20 percent ceiling market share for HFCS, projected

1985 demand for sugar shows a 13.7 percent decrease in per capita terms and a 7.4 percent decrease in total from levels existing in 1977. Projected

total sugar consumption in 1990 (10.2 million tons) would still be below

1977 consumption (10.29 million tons).

The HFCS and sugar projections are based on a number of explicit and implicit assumptions. Actual consumption in 1985 and 1990 may differ sig- nificantly from the projections if underlying assumptions are not realized.

Unexpected developments in a number of areas could have an impact. Changing -.57-

rates of population and economic growth would have an effect. The form taken by U.S. policy is of central importance but is difficult to predict.

International developments could alter the entire analytical structure.

bp 4/10/79 -58-

REFERENCES

Abrams, Bill. "Coca Cola Co. Allows Bottlers to Boost Fructose Content of

Its Noncola Drinks," The Wall Street Journal, June 30, 1978, P. 4.

Abrams, Bill. "Fructose Makers Say 'How Sweet It Is' As Sweetener Wins

Major Acceptance," The Wall Street Journal, August 3, 1978.

Arthur D. Little, Inc. An Overview of the Sweetener Industry, 1975-1985,

a report to the St. Paul Bank for Cooperatives, C-78429, November 1975.

Brook, Ezriel M. High Fructose Corn Syrup: Its Significance as a Sugar

Substitute and Its Impact on the Sugar Outlook, Washington, D.C.: The

World Bank, Commodity Paper No. 25, April 1977.

Brook, Ezriel M. The Sugar Market Review and Outlook, Washington, D.C.:

The World Bank, Commodity Paper No. 20, March 1976.

Burck, Charles. "The Tempest in the Sugar Pot," Fortune, February 1977,

p. 114.

Casey, James P. "High Fructose Corn Syrup - A Case History of Innovation,"

Cereal Foods World, No. 22, February 1977, pp. 27-32.

Chicago Board of Trade. Grains: Processing, Production, Marketing

(revised edition), Chicago: 1977, 156 pp.

Crocco, Stephanie. "High, Higher, Highest Fructose Syrups," Food EngineerinD,

November 1976, pp. 80-81.

Crocco, Stephanie. "A Closer Look at New 'Higher' Fructose Syrups," Food

Engineering, December 1976, pp. 58-60.

Foote, R. J. Analytical Tools for Studyins Demand and Price Structure,

Washington, D.C.: USDA Agricultural Handbook No. 146, 1958.

Francis, Donald. "Impact of Sweeteners from Corn, paper presented at the

National Agricultural Outlook Conference, USDA-ERS, Washington, D.C.,

November 20, 1975. -59-

Fruin, James C. and Barrett L. Scallet. "Isomerized Corn Syrups in Food

Products," Food Technology, November 1975, P. 40.

George, P. S. and G. A. King. Consumer Demand for Food Commodities in the

United States with Projections for 1980, Berkeley: University of

California, Giannini Foundation Monograph No. 26, March 1971.

Gray, Fred. "What's the Word on Substitutes?" Suprbeet Grower, March

1976, p. 14.

Griliches, Zvi. "Hybrid Corn: An Exploration in the Economics of Techno-

logical Change," Econometrica, Vol. 25, October 1957, pp. 501-522.

Jesse, Edward V. and Glenn A. Zepp. Sugar Policy Options for the United

States, Washington, D.C.: ERS-USDA, Agricultural Economic Report

No. 351, February 1977.

Leonard, Jay B. "High Fructose Corn Syrup," Merrill Lynch Pierce Fenner

and Smith, Inc., The Protein Report, No. 7, May 1976.

Peckham, Brian. "Markets for Invention in the U.S. Corn Refining Industry:

A Preliminary Report," paper presented at the annual meeting of the

American Agricultural Economics Association, San Diego, California,

August 2, 1977.

Quiftmeyer, Robert. Situation and Prospects for North America, London:

International Sugar Colloquium Official Report, 1975.

Robinson, J. W. "Will High Fructose Corn Syrup Sweeten Your Future?" Food

Engineering, May 1975, p. 57.

Rojko, Anthony, et al. Alternative Futures for World Food in 1985--Volume 1,

World GOL Model Analytical Report, Washington, D.C.: ESCS-USDA, Foreign

Agricultural Economic Report No. 146, April 1978. Russo, James R. "High Fructose Corn Syrup at 4-Million Pounds/Day," Food

Engineering, May 1976, pp. 37-40.

Tsao, George T. "High Fructose Syrups," unpublished paper, School of

Chemical Engineering, Purdue University, 1976.

U.S. Department of Agriculture. Sugar and Sweetener Report, various issues.

United States International Trade Commission. Sugar: Report to the Presi-

dent on Investigation No. TA-201-16 Under Section 201 of the Trade Act

of 1974, Washington, D.C.: USITC Publication No. 807, March 1977. If Wardrip, E. K. "Sugars and Other Sweeteners in Food Processing, paper

presented at Michigan State University, March 10-11, 1975.

Watts, Katherine and Jay B. Leonard. "High Fructose Corn Syrup," Merrill

Lynch Pierce Fenner and Smith, Inc., The Protein Report, No. 3,

December 10, 1974.

Westway Trading Corporation. Newsletter, Englewood Cliffs; N.J., May 1976.

Westway Trading Corporation. Newsletter, Englewood Cliffs, N.J., June 1976. APPENDIX TABLES -62-

APPENDIX TABLE 1

High Fructose Corn Sirup: U.S. Supply and Utilization Trends, 1967-1978

Supply Utilization

Domestic disappearance Year Net change Domestic Domestic Exports In Invisible Food use shipments' shipments stocks2 Nonfood use Total Per capita

1,000 tons, ------.1,000 Ions, dry weight------. Pounds, commercial wt. dry weight

1967 23.4 16.6 2.5 0.1 14.0 .14 1968 54.5 38.7 .11••• 3.5 .2 35.0 .34 1969 85.6 60.8 5.5 .3 55.0 .54 1970 116.8 82.9 7.5 .4 75.0 .73 1971 148.0 105.1 9.6 .5 95.0 .92 1972 173.5 123.0 8.9 .6 131.5 1.26 1973 312.7 222.0 2.7 1.1 218.2 2.07 1974 421.1 299.0 1111. -19.4 1.5 316.9 2.99 1975 749.2 531.9 -1.4 2.7' 530.6 4.97 1976 1.094 776.5 ••••• 6.3 3.9 766.3 7.13 19772 1.414 1,004 2.0 8.1 5.0 988.9 9.12 19784 1,700 1.207 3.0 - 6.0 1.198 11.0

Commercial weight assumed to contain 29 percent moisture. 2 Calculated as a residual. 'Preliminary. 4 Estimated.

Source: Sugar and Sweetener Report, December 1978, p. 19. APP El TD LX TABLE 2

Caloric and Noncaloric Sweeteners: Per Capita U.S. Consumption, 1962-1978

Refined cane and beet sugar Corn sweeteners' Minor caloric' Noncaloric sweeteners' Calendar U.S. grown sugar Cane sugar Corn sirup Total Total Dex- Edible caloric Sacc- Cycla- non- Beet Cane lm. Total High- trose Total Honey sirups Total harin mate caloric sugar sugar Total ported Total fructose Glucose

Pounds

1962 24.5 27.4 51.9 46.0 73.4 97.9 - 9.3 3.6 12.9 1.1 .9 2.0 112.8 2.5 .4 2.9 1963 27.2 28.2 55.4 41.9 70.1 97.3 - 9.9 4.3 14.2 1.1 .7 1.8 113.3 3.0 .7 3.7 1964 28.6 30.3 58.9 37.9 68.2 96.8 - 10.9 4.1 15.0 1.0 .7 1.7 113.5 3.5 1.3 4.8 1965 29.1 30.1 59.2 37.8 67.9 97.0 - 11.0 4.1 15.1 1.1 .7 1.8 113.9 4.0 1.7 5.7 1966 28.3 28.7 57.0 40.3 69.0 97.3 - 11.2 4.2 15.4 1.0 .7 1.7 114.4 4.5 1.9 6.4 1967 26.6 29.6 56.2 42.3 71.9 •ON98.5 - 11.9 4.2 16.1 .9 .5 1.4 116.0 4.8 I 1968 27.8 26.8 54.6 2.1 6.9 44.6 71.4 99.2 - 12.6 4.3 16.9 .9 .7 1969 1.6 117.7 5.0 2.2 7.2 30.3 25.3 55.6 45.4 70.7 101.0 - 13.2 4.5 (....) 17.7 1.0 .6 1.6 120.3 5.3 1.6 6.9 I 1970 31.3 25.0 56.3 45.5 70.5 101.8 .7 14.0 4.6 19.3 1.0 .5 1.5 122.6 5.8 1971 31.1 22.8 53.9 (3) 5.8 48.5 71.3 102.4 .9 15.0 5.0 20.9 .9 .5 1.4 124.7 1972 30.4 5.1 (3) 5.1 25.4 55.8 47.0 72.4 102.8 1.3 15.6 4.4 21.3 1.0 .5 1.5 125.6 5.1 (3) 5.1 1973 30.4 24.9 55.3 46.2 71.1 101.5 2.1 16.7 4.8 23.6 .9 .5 1.4 126.5 5.1 (3) 5.1 1974 26.1 21.0 47.1 49.5 70.5 96.6 3.0 17.4 4.9 25.3 .8 .4 1.2 123.1 5.9 5.9 1975 30.5 24.9 55.4 34.8 59.7 (3) 90.2 5.0 17.7 5.1 27.8 .9 .4 1.3 119.3 6.2 1976 32.5 22.7 55.2 (3) 6.2 39.5 62.2 94.7 7.1 17.7 5.1 29.9 1.0 .4 1.4 19771 126.0 6.1 (3) 6.1 30.3 23.3 53.6 42.1 65.4 95.7 9.1 17.9 4.9 31.9 .9 .4 1.3 128.9 6.6 (3) 6.6 1978' 29.9 24.2 54.1 39.1 63.3 93.2 11.0 18.1 4.7 33.8 1.0 .4 1.4 128.4 6.9 (3) 6.9 Dry basis. Recent corn sweetener consumption may be under stated due to incomplete data.2Sugar sweetness equivalent-assumes saccharin is 300 times as sweet as sugar, and cyclamate is 30 times as sweet as sugar. 'Cyclamate food use was banned by the Food and Drug Administration, effective in 1970. 4 Preliminary. 'Estimate.

Source: Sugar and Sweetener Report, December 1978, p. 34. COOPERATIVE EXTENSION POSTAGE AND FEES PAID DEPARTMENT OF AGRICULTURE U.S. U.S. DEPARTMENT OF UNIVERSITY OF CALIFORNIA AGRICULTURE Berkeley, California 9 47 20 AGR 101

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.0 I l'"4 44 Collection V-.;4 COMICS

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