:«üv

.^ Sé pii Agricultural Economic Report No. 37

0 M JUN2 4J963 m- -'^'mu. «com

, .;í >-. CONFECTIONERY

■,:--á*"

tonomic Research Service Ifc U.S. DEPARTMENT OF AGRICULTURE PREFACE

This is the fifth of a group of reports dealing with the competitive posi- tion pf sweeteners in food processing industries. Prior publications are:

1. Sweeteners Used "by Food Processing Industries in the United States: Their Conrpetitive Position in the Canning Industry. Agricultioral Economic Report No. 20^ November I962.

2. Sweeteners Used by the Dairy Industry: Their Competitive Position in the United States. Agricultural Economic Report No. 30, April 1963*

3. Sweeteners Used by the Beverage Industry: Their Competitive Position in the United States. Agricultural Economic Report No. 31j May 1963*

k. Sweeteners Used by the Bailing Industry: Their Competitive Position in the United States. Agricultural Economic Report No. 32^ May 1963*

A final report summarizing the principal findings for each industry is planned.

Research analyzing and evaluating trends in the production and consumption of various sweeteners and in competition among sweeteners has been recommended by the Sugar Research and Marketing Advisory Committee

CONTENTS

Page

Summaary ^ Introduction 1 Size and location of the confectionery industry 2 ' Quantities of sweeteners used • ^ Geographic distribution of the use of sweeteners by the confectionery industry T Government regulation of sweetener use by the confectionery industry .... 10 Industry practices in the use of sweeteners 11 Use of noncaloric sweeteners • 11 Forms of sweeteners used 13 Sweetener procurement practices 1^ Cost of sweeteners relative to other raw materials used in confectionery products 15 Economic implications 16

Washington, D. C. J'une I963

- iii - SUMMARY

Thç confectionery industry--candy, candied fruits and other confectionery products, cheving gum^ chocolate and cocoa products--U3es a larger quantity of corn sirup, more than one-third of the total consumption, than any other food industry in the United States. It also uses nearly one-tenth of the sugar and mpre than one-tventieth of the dextrose consuoied in the United States.

The total quantity of sTifeeteners delivered to the confectionery industry has increased sincç 1952, "but at a slover rate than for other major food proc- essing industries. Consequently, the proportion of total deliveries of sweet- eners going to the confectionery industry in I96I vas slightly smaller than in 1952. This is of greatest importance to producers of corn sirup because of the larger proportion of sirup used by confectioners, and also because the pro- duction of the type of confections—hard candies, in the manufacture of vhich the largest proportion of corn siriip is used—has increased more slovly than certain other types, especially chocolate products.

Plants vhere confectionery products are manufactured are concentrated in the Middle Atlantic and East North Central States, although several nev fac- tories have been established in California in recent years. Availability of important raw materials at relatively favorable prices, in coiiqparison with prices in other areas, and local concentrations of population are among the important considerations determining plant locations in the industry.

The total quantity of sugar, corn sirup, and dextrose delivered to con- fectionery industry increased during the period 1952-61 at an average rate of about 25,000 tons a year, of which 20,000 tons were sugar, 5,000 corn sirup, and 360 dextrose. The increase in the use of these products was only slightly faster than the growth of population in the United States. Per capita use in- creased only about 6 percent from 1952 to 1961.

The consimiption of s^gar by the confectionery industry increased more rapidly, from I952 to I961, in the Western States than in any other region. The increase was slowest in Ifew England. These trends, are related to pop\ila- tion shifts, new confectionery plants in California, and increasing competition from imported confections in the Kortheastern States, including Hew England.

The need for maintaining quality and constmer acceptance of their products has been an inrportant factor restricting the siibstitution of corn sirup or dex- trose for STOgar as price differentials between sugar and the corn sweeteners have widened. However, a number of confectioners have indicated an interest in using a larger proportion of corn sirup if the price disadvantage of using sugar shoiald become much greater. Some substitution has occurred since 1952, although this is not apparent from the overall statistics of consumption be- cause of the greater effect of shifts in product lines.

There has been a marked trend since 1952 toward the use of sugar in diy b\iLk form. Most confectioners prefer dry to liquid sugar because of the ex- pense of evaporating excess water from liquid sugar. Most finas continued to use some bagged sugar because of special circumstances or the need for special quality sugar for certain of the products manufactured.

Prospects for increased sales pf corn sirup to confectioners may haye been improved somewhat by the recent introduction of nev types of com sirup which are reported to i32rprove the quality of hard candies.

VI - SWEETENERS USED BY TBE COHFECTIOKERY IHDUSTRY

Their Cqmpetitive Position in the United States

By

Roy A. Ballinger and L. C. Larkin Agricult-ural Economists Marketing Economics Division Economic Research Service

IIÎTRODUCTIOIÎ

Producers of confectionery products—candy^ candied friiits and other con- fectionery products^ cheTifing gum^ and chocolate and cocoa products—in the United States have long been important users of sweeteners. In 19^1^ ahout 9»6 percent of the sugar, 36.8 percent of the corn sirup, and 5*8 percent of the dextrose consumed in the United States vas delivered to the confectionery industry, l/ In addition, the industry uses some noncaloric sweeteners (prin- cipally saccharin and sucaryl) in certain of its products, although statistics shoving the quantity used are not available.

Sveeteners are an essential ingredient, in many cases the dominant one, in mo^t products of the confectionery industry. In addition to providing the desired sveetness, various combinations of sveeteners are used to produce de- sirable body and texture in the product, to prevent graining, and to prolong the shelf life of confectionery products. Certain combinations of sveeteners also are used to improve the appearance of products, especially in cases vhere visual appeal is an important factor in making sales.

Changing conditions in the confectionery industry—particularly vith ref- erence to competition among sugar, dextrose, corn sirup, and other sveeteners— have created a need for additional information concerning these shifts and their probable effects on the sveetener industries and consumers generally. A previous publication of the U. S. Department of Agriculture contains related information for an earlier period. 2/

The proportions of the various sveeteners used in the confectionery in- dustry have not changed greatly since 1952. The rate of increase in the use of sveeteners from 1952 through 1961, hovever, vas slover than that for other major industrial food processors. As a consequence, the relative importance of the confectionery industry in the use of sveeteners by food industries de- clined slightly from I952 to I961. This shift is of greater importance to the

1/ The vords "delivered" and "used" are synonymous in this report. 2/ Jones, P. E., and Thomason, F. G. Competitive Relationships Betveen Sugar and Corn Sveeteners. Agr. Infgim. Bui. No. ko, 2^5 p., 1951« prodiicérs of corn sirup than to the producers of other sweeteners because the confectionery industry uses a larger proportion of the United States total consuisption of corn sirup than it does of the other sweeteners.

The specific purposes of this report are (l) to determine trends in the quantity of each type of sweetener used; (2) to provide information concerning the problems and practices of various segments of the confectionery industry in their purchase .and Use of sweeteners; and (3) to analyze the competition among producers of different sweeteners in selling their products to the con- fectionery industry.

The information on which this report is based was obtained from a sample survey of firms in the cpnfectionery industry and from various secondary sources. The industry survey covered, firms in seven States and included repre- sentative producers of each of the principal confectionery products.

SIZE Am LOCAEtOH OF TEE OOîïFECTIOIîERY lîlDUSTRY

Most of the sweeteners purchased by producers of confectionery products are used in the production of candies^ chocolate and cpcoa products^ and chew- ing gum. The output of candy and chewing gura has increased, since World War II at approximately the same rate as the population of the United States as indi- cated by the per capita production of major industry items (table l). The pro- duction of chocolate and cocoa products has increased rapidly; per capita production rose about 32 percent from I9Í4-7 to I958. Candy accounted for about 67 percent of the physical output of the confectionery industry in 1958^ com- pared with 61 percent in 19if7r while chocolate and cocoa products increased from 27 percent in 19kl to 33 percent in 1958.

Table 1.—Production of confectionery products by census years

Year Candy Chocolate and cocoa Chewing gimi Total : Per capita ; Total ; Per capita ; Total : Per capita

1^000 1,000 1,000 pounds Pounds pounds Pounds pounds Pounds

19^7 2,501,122 17.35 1,022,975 7.10 206,578 1.43 195^ 2,580,161 15.89 1,3^,916 8.29 282,216 1958 2,989,183 17.17 1,632,148 9.38 261, Ök2 1.50

Census of Manufactures, U. S. Bureau of the Census.

More than half of the plants where candy was produced in I958 were in the Middle Atlantic and East Worth Central States (table 2). About one-third of the plants in the East Worth Central States were in Cook County 111., mostly in Chicago, and one-fourth of those in the Middle Atlantic States were in Wew

2 - Table 2.—Number of plants man-ufacturing confectionery products in the United States in 1958> "by census regions

Region Caady Chocolate Chewing gum and cocoa

Nev England ...... •*....: 99 3 2 Middle Atlantic ...... *: li-20 17 12 East Horth Central .....: 300 k 6 West North Central .....: 70 South Atlantic : 132 East South Central ....•: 3h West South Central : 98 Mountain : i^5 Pacific .: 172 • U» S. total : 1,390 28 26

1958 Census of Manufactures^ TJ, S. Bxireau of the Census.

York City. The concentration of candy plants in the Chicago and New York areas (more than 15 percent of the U. S. total) appears to be based largely on:

1. Local cpncentration of population, vhich provides a large nearby market,

2. Distribution facilities, Which increase the ease of market- ing over large areas. 3. Availability of ray materials in the required volume and variety.

k» Prices of the major raw materials in various areas. Plants located in the Nev York metropolitan area have access to the largest concentration of consumers in the country. Excellent distribution facilities also aré available, and raw materials in needed volume and variety can be obtained as veil or better than in any other area. However, the price of sugar in recent years has averaged somewhat higher than in the Chicago area.

Confectionery plants in the Chicago area also serve a large local concen- tration of population, altho-ugh less so than those in New York. Distribution advantages for plants in Chicago appear to exceed those for New York-based operations because of its location in the middle of the country. The more important rav materials--sugar and corn sirup--are available in Chicago in as great a volume and variety as anywhere in the United States. Competition among producers of refined si:igar has resulted in lower prices for siagar in the Chicago area in recent years than have prevailed generally in other sections of the country. Plants producing corn sirup are located in the Corn Belt, convenient to Chicago. 3 - More than half the plants vhere chocolate and cocoa products "were produced in 1958 were in the Middle Atlantic States. About k6 percent of the cheving g\m plants vere in the same census region.

Most confectionery produpts can be stored for several months and trans- ported long distances without adding enoiagh to the cost to justify the con- struction and operation of additional plants of smaller capacity. This is particiolarly true of chocolate and chewing gum^ although new plants for the manufacture of these products have been constructed recently in California.

Quantities of Sweeteners Used

'The principal sweeteners used in the confectionery industry are sugar^ corn sirupj and dextrose. In addition, small quantities of molasses, honey, and maple sirup are used in the preparation of a few items. Small quantities of noncaloric sweeteners, mostly sodium cyclamate and mannitol, are used in the preparation of certain dietetic confections. Mannitol is not a noncaloric substan.ee, but it has certain special qualities which maJsie it valuable for dietetic purposes.

The quantities of sugar, corn siriip, and dextrose delivered to the confec- tionery industry by primary distributors (continental cane sugar refiners, mainland cane sugar mills, domestic beet processors, importers of direct- cpnsumption sugar, and producers of dextrose and corn sirup) increased at fairly regular rates during I952-61 (table 3)- In addition to deliveries by primary distributors, some operators in the confectionery industry, particu- larly small ones, purchase part or all of their sweeteners through wholesalers. Also, some p-urchases are made in the form of blends of sugar and corn sirup or dextrose. Reliable information about such piorchases for the confectionery in- dustiy is not available. However, it is doxibtful if the inclusion of such data would change materially the trends and relationships shown in table 3, except to maJsie the tormage figures somewhat larger.

The total quantity of sugar, corn sirup, and dextrose used in manufactur- ing confectionery products increased at an annual average rate of about 25,000 tons from I952 througîi 1961 (fig. l). The increase for sugar was 20,000 tons, as compared with slightly less than 5,000 tons for corn sirup and about 360 tons for dextrose.

These increases are equal to about 2.k percent of the annual average quan- tity of the three sweeteners used during 1952-61. The most rapid rate of in- crease, 2.8 percent, was for sugar, and the slowest was I.5 percent for corn sirup. The rate of increase for dextrose was approximately I.9 percent.

While the total quantity of corn sirup used in the confectionery industry increased by ifS^OOO tons from 1952 through I961, the proportion corn sirup was of the total sweeteners used by confectioners declined slightly during the period. The proportion which sugar was of the total increased, approximately offsetting the decline in corn sirup. The slight changes in the proportions of corn sirup and sugar are the resiü.t of shifts in the relative quantities of various types of candies produced during the period, rather than changes in - k - Sweeteners'Sugar, Corn Sirup, and Dextrose, 7952-61

USE AND TRENDS ¡n the CONFECTIONERY INDUSTRY THOUS. TONS THOUS. TONS ÍDRY BASIS) (DRY BASIS) 900

1952 '58 '64 1952 '58 '64

U. S. DEPARTMENT OF AGRICULTURE NEC. ERS 1953-63(4) ECONOMIC RESEARCH SERVICE

Figure 1

- 5 Table 3«—Deliveries of sweeteners to the confectionery- industry, 1952 to 1961 1/

Deliveries Distribution Year : Corn : • • Corn : • 1 S-ugar Dextrose • TotaO. * 1 Silgar * : sirup : • •■ • • sirijip: Dextrose *. Total

: 1,000 1,000 1,000 1,000 Per- Per- Per- Per- : tons tons tons tons cent cent cent cent

1952 .... ': 647 283 18 948 68.2 29.9 1.9 100.0 1953 ... : 697 293 19 1,009 69.1 29.0 1.9 100.0 195^^ ... : 613 285 19 917 66.8 31.1 2.1 100.0 1955 ... : 658 292 17 967 68.0 30.2 1.8 100.0 1956 ...:: 738 298 17 1,053 70.1 28.3 1.6 100.0 1957 ...: ■ 766 294 19 1,079 71.0 27.2 1.8 100.0 1958 ...! 727 314 20 1,061 68.5 29.6 1.9 100.0 1959 ...: 73^ 309 20 1,063 69.0 29.1 1.9 100.0 i960 ...: 80if 322 20 1,146 70.2 28.1 1-7 100.0 1961 ...: 842 326 22 1,190 70.8 27.4 1.8 100.0

1/ Dry "basis^ sugar^ 100.0 percent; dextrose^ 92.0 percent; and corn sirup^ 80.3 percent; as produced.

Sugar Reports^ Agricultural Stabilization and Conservation Seryice, U. S. Dept. Agr. formula by manufacturers. Relatively little corn sirup is used in the manufac- ture of chocolate and cocoa products^ and the output of these products has in- creased much more rapidly than that of candy, as shomi in table 1. Most of the corn sirup delivered to the confectionery industry is used in the production of certain types of candy.

The use of sweeteners in confectionery products increased slightly faster than the population of the United States from 1952 through I96I; and per capita use in 1961 was 13-01 pounds, or O.83 pound more than in I952 (table k). Prac- tically all the per capita increase was in the use of s-ugar. There was a slight decline in the use of corn sirup, and that of dextrose shoved little overall trend, declining during the first part of the period and increasing since 1956.

Annual changes in the per capita use of sweeteners by the confectionery industry during I952-61 have been somewhat erratic (fig. 2). For instance, the per capita use of sugar declined I3.7 percent from 1953 to 1954 and in- creased 10.1 percent from I955 to 1956. The use of dextrose was at a compara- tively high level during the first 3 years of the period under review; it declined 12.5 percent in 1955^ and increased I9.O percent from 1956 to 1961. The trend in the per capita use of all sweeteners by the confectionery industry from I952 to I96I was upward at an average rate of about 0.6 percent

- 6 •Table ^.—Per capita use of sugar^ dextrose^ aad corn sirup "by manufacturero of confectionery in the United States^ 1952 to I96I l/

Year Sugar Corn sirup Dextrose Total

Pounds Pounds Pounds Pounds

1952 : 8.31 3.63 0.21^ 12.18 1953 : 8.81 3.70 .2i^ 12.75 195^^ ...... : 7.60 3-5^^ .24 11.38 1955 : 8.01 3.55 .21 11.77 1956 : 8.82 3.56 .21 12.59 1957 : 9-00 3 M .22 12.68 1958 : 8.39 3.62 .23 12.21^ 1959 : 8.32 3.51 .23 12.06 i960 : 8.93 3.58 .22 12.73 1961 : 9.20 3.56 .25 13.01

1/ Dry "basis. Sugar^ refined T/feight as produced; dextrose^ 92.0 percent; and corn sirup^ 8O.3 percent; as produced.

Adapted from SiJgar Reports, Agricultural Stabilization and Conservation Service, U. S. Dept. Agr •

per year. The increase for svi^er averaged 1.0 percent, and the decline for cçrn sirup, 1.1 percent. The trend for dextrose has little significaQce he- cause of the change in direction starting in 1957»

If the trends shovn in figures 1 and 2 should continue through I966, the total deliveries of sweeteners to the confectionery industry in that year will approximate 1,283,000 tons, of which 915,000 tons (7I percent of the total) will be sugar, 27 percent corn sirup, and 2 percent dextrose. The per capita use of sweeteners in the coirCectionery industry should approximate 13-0^4- pounds 'in 1966. The per capita use of sugar should be about 0.^4-1, poimd above I961, and that for corn sirup 0.0^ pound below the trend level of I961.

Geographic Distribution of the Use of Sweeteners by the Confectionery Industry

Deliveries of sugar to producers of confectionery products in the Middle Atlantic States were substantially larger than, those to any other region of the United States, averaging about h6 percent of the total (table ^ and fig.3)- Confectioners in the Worth Central area received the next largest q^uantity of sugar, about 30 percent of the total. The proportion of the total deliveries of dextrose made to confectioners in the Middle Atlantic and North Central States was higher than that for sugar, averaging about 52 percent and 3^ per- cent, respectively. The geographic distribution of silgar and dextrose corre- sponds roughly to that of plants in the industry shown in table 2. - 7 Sweeteners "Corn Sirup, and Dextrose, 1952-61 PER CAPITA USE AND TRENDS in the CONFECTIONERY INDUSTRY POUNPS POUNDS (DRY BASIS) (DRY BASIS) 3.76

8.80 3.68 -

8.40 --> 3.60 =^

8.00 -\-f 3.52

7.60 3.44

12.90

12.50

12.10 -.

11.70

11.30 1952 '58 '64 1952 '58 '64

U.S. DEPARTMENT OF AGRICULTURE NEG, ERS 1954-63(4) ECONOMIC RESEARCH SERVICE

Figure 2

- 8 - Table 5.--Deliverles of sugar and dextrose to the confectionery industry^ by census regions^ I952-61 l/

: New : Middle :; North United Year ; South : West : : England ; Atlantic ■ : Central • • States

: 1,000 1,000 1,000 1^000 1,000 1,000 : tono tons tons tons tons tons

Sugar (refined) 1952 ..i 7^ 296 183 5^ il-O 647 1953 ..: 71 3?1 ??0 kQ 37 697 195^^ ..: 71 288 163 5h 37 613 1955 ..: 67 310 185 57 39 658 1956 ..: 76 ^k2 PPO 58 U2 738 1957 ..: 78 350 235 60 i^3 766 1958 ..: 79 335 218 3h in 727 1959 ..: 81 329 ??9 k& hi 734 i960 ..: 81 31^ 21^2 6k 43 Bdk 1961 ..: 81 377 252 71 61 842

Dextrose (dry basis ) i 1952 ..: 0.6 8.1 7.8 1.1 0.7 18.3 1953 ..: .2 7.9 8.6 i.ii- .6 18.7 195^^ ..: .6 8.1 9.1 1.1 .k 19.3 1955 ..: .8 8.7 5.3 1.2 1.0 17.0 1956 ..: .9 9.2 5.2 1.1 .9 17.3 1957 ..: 1.0 10.7 5.1 .9 .8 18.5 1958 ..: 1.0 10.7 5.7 1.3 1.1 19.8 1959 1.0 10.5 6.0 1.5 1.2 20.2 i960 ..: .6 11.8 5.3 1.6 .8 20.1 1961 ..: .1 li^.9 5.1 i,k .8 22.3

1/ Arca boundaries shovn in figure 3-

Sugar Statistics and Related Data^ v. I and Sugar Reports, Agricultural Stabilization and Conservation Service, U. S. Dept. Agr.

Deliveries of sugar to confectioners in the Western States increased faster during 1952-61 than those to any other region (fig. 3)* The rate of in- crease vas slowest in Nev England. These trends reflect in part, at least, the establishment of nev plants for the man-ufacture of confectionery products in California in recent years and the increasing volume of candy imports vhich has provided intensive competition for domestically produced confections, particu- larly in the Northeastern States.

9 - Sugar and Dextrose -Confectionery Industry, 1952-61 ANNUAL AVERAGE RATE OF CHANGE IN QUANTITIES USED

NEW v' +6£% ENGLAND MIDDLE ■T'^iJi'^ ATLANTIC " » ^ *• £+"2.5%

SUGARi^k-^ ^—DEXTROSE

U, S. TOTAL

U.S.DEPARTMENT OF AGRICULTURE NEG. ERS ^955-63(4) ECONOMIC RESEARCH SERVICE

Figiare 3

Deliveries of dextrose increased most rapidly in the Middle Atlantic States, followed by the West. The use of dextrose in the North Central region declined diirlng the period, mostly after 195^. Average deliveries of dextrose in this region for the years 1955-6I were 36 percent below the 1952-5ií- average.

GOVEElNMEflm: RBGrULATION OF SWEETENER USE BY THE CONFECTIOIÍERY USDUSTRY

The only significant government regulations concerning the use of sweet- eners in confectionery products are those issued by the Food and Drug Adminis- tration. These relate primarily to sweetener use in certain chocolate and cocoa products—sweet chocolate, sweet chocolate coating, milk chocolate, sweet milk chocolate, milk chocolate coating, sweet milk chocolate coating, skim milk chocolate, sweet skim milk chocolate, skim milk chocolate coating, buttermilk chocolate, buttermilk chocolate coating, mixed dairy product chocolates, mixed dairy product chocolate coatings, and sweet cocoa and vegetable fat coating.

Even for these products the Food and Drug Regulations appear to have had relatively little effect on the practices of the confectionery industry.

10 - The regulations provide that the specified Chocolate ajid cocoa products may "be syeetened -with (l) sugar or partly refined cane sugar; (2) any mixture of dextrose ajad sugar, including partly refined cane sugar, in which the weight of the dextrose solids is not more than one-third the total weight of all sweetener ingredients; (3) any mixture of corn sirup solids or glucose sirup solids and sugar, including partly refined cane sugar, in which the weight of the corn Birup or glucose solids is not more than one-fourtE the total weight^ of all the sweetener ingredients; and {k) any mixture of dextrose and corn sirup solids or glucose sirup solids and sugar, including partly refined cane sugar, in which three times the weight of the dextrose solids plus four times the weight of the corn sirup solids or glucose sirup solids is not more than the weight of the solids of all the sweeteAer ingredients.

Honey, molasses, "brown sugar, and maple sugar also may he used to flavor chocolate and cocoa products.

Npncaloric sweeteners may be used to sweeten confectionery products.

IliDUSTEr PRACTICES IÏT THE U$E OF SWEETEHERS

Information obtained from k3 firms with plants in 7 States indicated that thé primary factor in determining the kinds of sweeteners and mixtures of sweeteners used in producing various confectioñeiíy products is the need to maintain quality in order to meet competition successfully and maintain con- sumer acceptance of the products.

Widening price differentials between sugar and corn sirup, and sugar and dextrose (table 6) apparently had little effect on the proportions of these sweeteners used during 1952-6I. However, about one-fourth of the confectioners interviewed expressed the opinion that they would increase the proportion of corn sweeteners in their products if there should be a further substantial increase in the price of sugar relative to the prices of corn sweeteners and if it seated likely that the wider price differentials would remain in effect for several months or longer. In general, producers of candy indicated greater readiness to substitute a corn sweetener, usually corn sirup, for part of the sugar they were using than did manufacturers of chocolate and cocoa products. There appears to be no satisfactory substitute for sugar in certain confec- tionery products, and for some products sweetener costs are only a small part of the CQSt of the finished product, so the relative cost of sugar and other sweeteners is of minor importance.

The price quotations shown in table 6 are from wholesale markets in New York. Probably few, if any, confectioners ever paid exactly these prices. Nevertheless, the trends shown are indicative of the changes in prices in other parts of the country.

Use of Moncaloric Sweeteners

Only two of the confectioners who were interviewed used noncaloric sweet- eners in any of the products they manufactured. The nçncaloric sweetener used by one firm was sodium cyclamate. The other used mannitol. These sweeteners - 11 - Table 6.—Trends in the -wholesale prices of öxigar^ dextrose (corn siigar)^ and corn sirup, I952-ÓI

: Refined sugar : Dextrose : Corn sirup Differential— Year : in bags, : in bags, : in drums, : sugar minus: : New ïork : liev York : New York : Dextrose : Corn siriip

: Dollars per Dollars per Dollars per DollaJTS per Dollars per : 100 poimds 100 pounds 100 pounds 100 pounds 100 poxmds

1952 ..: &.k3 7.29 7-37 1.16 1.08 1953 ..: 8.55 7.35 7-32 1.20 1.23 195^ 8.55 7.32 7.32 1.23 1.23 1955 ..: 8.it2 7.22 7.25 1.20 1.17 1956 ..: 8.59 7.28 7.15 1.31 l.kk 1957 ..: 8.97 ■ 7.65 7.36 1.32 1.61 1956 ..: 9.10 7.66 7.37 IM 1.73 1959 ..: 9.14 7.48 7.31 1.66 1.83 i960 9.25 7.i^8 7.32 1.77 1.93 1961 ..: 9-21 I'h^ 7.33 1.76 1.88

* The Silgar Siguation^ Econ. Res. Sery., and Stat. Rptg. Sery., U. S. Dept. Agr,.

wçre used for the production of certain low calorie confections. Both firms also manufactured products sweetened with sugar and other caloric sweeteners. However, there was no mixing of caloric and noncaloric sweeteners in the same product.

Products manxifacti;iréd with nonceO-oric sweeteners were intended for use for dietetic purposes. The market for these products appears to he çLuite small^ although adeq^uate data are not ayailahle. It is largely separate from the market for confection^iy manufactured with sugar or other caloric sweeteners. Consequently^ questions of the cQnrparatiye costs of sweeteners^ conyenience of use y and quality of product had little influencée on manufacturers^ decisions with reference to their use. While confections msde with noncaloric sweeteners usually sell at prices higher than those sweetened in other ways^ prodi^cers do not necessarily make higher profits on such products "because certain of the costs of production and distribution are likely to he higher for small volume items.

Of course^ a certain amount of coiirpetitlon does exist at the retail level between confectionery products manufactured with caloric and noncaloric sweet- eners. Majny of the consumers who purchase products made with noncaloric sweet- eners doubtless do so for medical reasons which more or less preclude the use of products sweetened with s^gar, dextrçse, or corn siriLÇ). However^ some por- tion of these products is pxirchased and used by people who haye a choice be- tween types of sweeteners. Beliefs concerning weight control and health may be important factors in the choice made. No information is available concerning

- 12 the proportion of confectionery products prepared with noncaloric sweeteners vhich are pijrchased for strictly medical or other reasons.

Forms of Sweeteners Used

All of the plants producing confectionery products^ for which records were obtained^ used sugar as a sweetening agent, nearly always in combination with either dextrose or corn sirup or both. In multiple-line plants—those in which there are two or more distinct lines of products—the sweeteners used vary among the lines. Such hoiises compionly use sugar as the sole sweetening agent in some of the confections produced and various mixtures of sugar and dextrose or sugar and corn sirup in others.

Althoa:igh there has "been a marked trend in recent years towards the use of dry "bulk sugar "by confectioners, aU "but one of the producers interviewed still used some "bagged sugar. Liquid sugar contains more water than is usable in majaufacturing certain types of confectionery products, and the excess moisture must be evaporated when it is used in the manufacture of such prodijcts. Largely because of this, only 3 of the producers interviewed "used liquid sugar in their plants, as compared with 2k who made some use of dry bulk sugar. Among the more important reasons mentioned by confectioners for using bagged sugar for at least part of their supply were:

1. The small quantity of siigar used in certain plants, which makes de- liveries in bulk form uneconomic. Some plants, because of small size or lack of STiitable storage facilities, are unable to usé sugar in either dry bulk or liquid form. The cost of installing the equipment needed to handle sugar in either of these forms ordinarily is too large to be economic for plants using less than 4,000 or 5,000 bags per year. The advantage of using bagged sugar for such plants may be increased when, it is possible to haul the sugar to the plant as a return load on a truck -used for other purposes in connection with the plantas operation. This is not feasible for dry bulk or liquid sugar be- cause of the special types of trucks needed to transport sugar in these forms.

2. The use of brands available only in bags. Some confectioners use semirefined sugar produced in domestic areas or imported refined sugar in man- ufacturing part or all their prodxicts. Ordinarily, sugar of these types is available only in bags. It usually sells at a somewhat lower price than sugar refined in mainland plants, the amount of the discoimt varying with the quality of the svigar and the quantity available when needed. Amendments to the Sugar Act in recent years have greatly reduced the quantity of refined or semirefined sugar which may be imported into the United States.

3* Special uses. Part of the output of certain confectioners consists of items which can be satisfactorily manufact-ured only with sugar of better quality than that needed for other types of confections. Since only small volumes of these specialty items are produced, the volume of the special qual- ity sugar required is small and the only practical way of handling it is in bags.

- 13 - Sweeteners in bulk form^—dry or liquid siigar or corn sirixp—are delivered to confectionery plants in covered containers, usually tank trucks or railway cars equipped with tanks, from which they are transferred to enclosed storage tanks. The sweeteners are conveyed from these tanks "by gravity or othçr means to the point of use in the plant. With this syst^ii, manual handling is greatly reduced or eliminated, sanitary conditions can he maintained more easily, and the uniformity of sweetening can "be controlled better than when a large quan- tity of sugar is handled in bags« Products of uniformly high quality are easier to produce with bulk handling of sweeteners, althou^ it is necessary to give careful attention to the cleanliness of the tanks, pipes, and other equipment with which the sugar comes in contact.

Corn sirup is purchased by confectioners in either liquid or dry (corn siriip solids) form. The advantages of handling it in liquid form are much the same as those for liquid sugar. Also corn sirup solids are highly hygroscopic and must be stored in moistiireproof bags, which increase the cost.

About one-third of the confectioners interviewed used some dextrose in coDibination with sugar in manufacturing certain products. The principal reasons for using dextrose were to extend the shelf life of the product, and as a replacement for higher priced sugar. Most dextrose is received in bags and is handled manually.

Sweetener Procurement Practices I I ■ I '■ L ' " 1 1 ' -I II ■■ L II I M^^—II I I 1 About two-thirds of the confectioners who werç interviewed reported that they purchased both s\jgar and dextrose or corn sirup through sqme type of broker. A little more than one-fourth reported the use of long-term purchase contracts. Even when such contracts were used, deliveries of sweeteners to many plants were on an "as needed" basis, although some of the larger plants were equipped with sufficient storage space to take care of operating needs for several weeks.

In most cases, producers reported that small changes in the relative prices of different forms of sugar and corn sirup, especially if they had not persisted for a considerable period of time, had no immediate influence on the method of purchase or delivery. The.size of in-plant storage facilities, ease of access to public warehouses or bulk installation, and plant operating pro- cedures were the principal factors of immediate concern for determining methods of purchasing and handling sweeteners. Price differentials which persist long enough do encourage plant managers to make changes in their physical plant or operating procedures that will enable them to take advantage of the lower prices.

Local managers of plants which were part of an organization served by a central purchasing office commonly obtained their sweeteners through the use of purchase orders handled through the central office. They had no control over the prices paid or the sources of sweeteners.

In most cases p-urchasers of sxjgar and corn sweeteners relied to a large extent on market information provided by brokers and other market middlemen in

- 14 - - making decisions regarding the purchase of sweeteners. This was less true of large concerns with central buying offices than of single-plant concerns.

Most of the sweeteners used in the production of confectionery were pur- chased without veiy precis^ specifications for quality. Producers who stated precise quality specifications listed low ash content and size of grain as "being most inrportant. Freedom from contamination with foreign material was also an important consideration. Purchasing agents usually h}jy- granulated sugar or its equivalent in liqiiid form and some standard brand of corn siriip or dextrose. Offshore refined or semirefined sugars from domestic or foreign sources, even when of a somewhat lower quality than those produced in mainland refinerieö; were suitable for certain confectionery products, especially those with a brown or gray color, and were used when available at disco\mt prices.

Corn sirup commonly is from one-half to two-thirds of the total sweetener used in producing various types of hard candies. Its use improves the qijality of the product ajid lengthens its shelf life. Recently improved types of corn sirup for use in making hard candies and similar products have appeared on the market. These generally are sirups with a relatively high content of maltose and a correspondingly lower content of dextrose. These high maltose sirups appear to improve the color and keeping quality of hard candies.

Approximately 60 percent of the plant managers interviewed reported that they had made no significant changes in their use of sweeteners in the past 5 years and that they did not expect to make any in the next 5 years. The re- mainder reported substituting corn sirup or dextrose for sugar and the use of dry bulk sugar in place of bagged sugar.

COST OF SWEaETEBERS RELATIVE TO OTHER RAW MATERIALS USED IN COHFECTIONERY PRODUCTS

Sugar and other sweeteners are part of the raw materials purchased by man- ufacturers of confectionery. The weight of sweeteners varied from 20 percent to nearly 100 percent of the total weight of raw material, depending upon the product. In the case of noncaloric sweeteners, the proportion is much lower because of their greater sweetening power.

In the plants for which survey data were obtained, the total weight of added sweeteners in chocolate and cocoa products ranged from 20 to 75 percent; in chewing gum, from 66 to 80 percent; in hard candy, from 50 to nearly 100 percent; and in other candies, from 20 to 95 percent.

The most common proportion of sugar in mixtures of sugar and corn sirup or sugar and dextrose used in confectionery was 60 percent sugar and ^0 percent corn sweetener calculated on a dry basis. Manufacturing problems, and the de- sire to maintain consumer acceptance for their products, limit most producers in making any except small changes in these proportions, except gradually over a long period of time. However, a few producers indicated that, because of rising sugar prices relative to other sweeteners, they were interested in using more corn sirup in their products.

- 15 - Producers of confectionery iníücated that the cost of sifeeteners used in manufacturing confectionery and other products varied from 10 to 95 percent of their total raw material costs. The variation was from I5 to 50 percent for chocolates and cpcoa^ and from 70 to 73 percent for chewing gum. It averaged about 30 percent for bar gopds; soft candy^ and bulk goods. Sweetener costs for certain other products^ such as hard candy^ were as high as 95 percent of total raw material costs. These variations are caused partly by differences in the physical proportions of sweeteners used in different products^ and partly by the wide differences which prevail in the prices of the other raw materials used. Because quality considerations make it difficult for confec- tioners to make marked changes in the amounts and type3 of sweeteners used in their products, except over relatively long periods of time> the quantity of sweeteners they purchase for current use is affected only slightly by moderate changes in relative prices of sugar and other sweeteners. Several managers of plants manufacturing confectionery products indicated that they were more con- cerned with purchasing sweeteners at prices no hi^er than those paid by their competitors than by publicly announced changes of small amounts in the general level of sweetener prices which affect everyone.

Price changes which affect all producers of a commodity more or less equally can be offset by changes in the price of the final product. In many cases a small percentage change in the price of the finished product^ which may hardly be noticed by buyers or sellers because of other factors affecting prices more or less simultaneously, is sufficient to offset the change in sweetener cost. However, several plant managers stated that an adjustment in the size of the product sold was frequently preferable to small price adjustments. Also, the introduction of a somewhat larger and higher priced unit sometip.es is more acceptable in the market than a price adjustment on existing items.

If, however, an individual manufact\n:er should pay a higher price than his competitors for sweeteners, he would not be in a position to adjust the price of his product or to use other means to take care of the increased cp^st^. While sweetener costs have been less variable than those of many other agricultural coimnodities in recent years^ changes have been sufficiently large and frequent to cause most pxjrchasing agents to give careful attention to their buying prac- tices.

Larger companies, particularly those operating several plants^ are likely to have one or more specialists who devote almost continuous attention to the market for sweeteners and who attempt to make purchases at the most favorable times and on the most favorable terms. Deliveries of sweeteners so purchased may be at intervals extending for several months after p-iirchase agreements are made. Other companies, usually of small or medium size, may rely on a single siipplier of one or more of the sweeteners used^ hoping that the prices they pay will be at least no higher than the average for the season and their location. The smallest companies merely make purchases as needed from local dealers. ECONOMIC IMPLICATIONS Trends in the consiimption of sweeteners in the confectionery industry since 1952 have been slightly more favorable to sugar producers than to manu- facturers of corn sirup, although corn siriip makes up a larger proportion of

- 16 . the total sveeteners u&ed in the production of confectionery products than in aay other major food processing industry. The more rapid rise in the use of sugar; as compared vith corn sirup in the confectionery industry^ appears to he the result of a shift in the importance of the types of prodxocts manufac- tured hy the industry. This shift has heen toward products made vith little or no corn sirup. There has "been no displacement of corn sirup by sugar in items where corn sirup customarily constitutes an important part of the sweet- ener used. Reports from confectioners indicate a trend In the direction of using a larger proportion of corn sirup in certain products where they had "been using only small quantities or none.

The use of sweeteners in confectionery products increased only slightly faster than the population of the United States during the period I952-6I. This is the slowest rate of increase in sweetener use for any major food in- dustry in the United States. If these trends continue, the'confectionery in- dustry will gradually become a less important market for sweeteners, relative to other food industries, than it has been in past years. Howeyer, the abso- lute quantities of sweeteners delivered to the industry should continue to in- crease, and the industry will remain a major outlet for sugar and corn sirup.

Confectioners are continually developing new products and modifying exist- ing ones. These changes are designed to meet what the manufacturers believe to be the desires of consumers, but advertising and sales promotion are used to promote consumer demand and to change it in the direction of prodoacts most profitable to the manufacturers. The relative costs of sugar and corn sirup offer confectioners an obvious incentive to use more corn sirup whenever possi- ble. Some confectioners indicated that they already have made such changes or are planning to do so.

17 -