Changes and Challenges in the Sugar Industry Jim Horvath President and Chief Executive Officer American Crystal Sugar Company
Bloomquist Lecture Series Al s Name Is Synonymous With Progressive Beet Sugar Production In The Red River Valley He Is A Pioneer Who Influenced The New Generation Cooperative Movement In The U.S.
Bloomquist Lecture Series Al s Groundbreaking Work Fathered The Purchase Of American Crystal His Bold Vision Transformed The Status Of Valley Sugarbeet Producers From Growers To Owners Today, American Crystal Is The Largest Beet Sugar Cooperative In The U.S.
U.S. Sugar Market
North Dakota Montana Minnesota American Crystal Sugar Company
How Did American Crystal Become A Sugar Industry Leader?
American Crystal s Strategy Expand Take On Calculated Increased Risks Lower Fixed Cost Per Unit Lower Variable Cost Per Unit Make More Money!
Harvested Acres 148% 2003 496,000 1973 196,000
Recoverable Sugar Per Acre 100% 2003 60 Cwt 1973 30 Cwt
Slicing Capacity - Tons Per Day 127% 2003 35,800 1973 15,800
Processing Campaign 30% 2003 250 Days 1973 195 Days
Sugar Production 1973 5.2 Million Cwt 475% 2003 29.7 Million Cwt
Quality Payment System Tonnage + Sugar Content Beet Payment
Cooperating With Fellow Cooperative s
Agri-Product Marketing
Sugar Marketing
Estimated Sales Share By Marketer United Sugars - 31% Domino - 23% 41 45 11 Imperial - 22% 10 29 Amalgamated - 10% 18 C&H - 7% Western - 5% Monitor 2% 3 8 13 Beet Cane Cargill - 1% 1 1 0 10 20 30 40 50 60 million hundredweight Source: USC and Industry Estimates
Cooperative Presence Today, 7 Out Of 9 Producers In The Beet Sugar Side Of The Market Are Cooperatives Accounting For 90% Of The Domestic Beet Sugar Volume
American Crystal Strategy Worked!
Gross Revenue (Millions) 1973 $164 Million 406% 2003 $829 Million
On-Farm Profits (In $Millions) 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Est. Fiscal Year
But Now, American Crystal s Successful Growth Strategy Is Threatened
Our Business Is Pressured By: 1. 2002 Farm Bill 2. Potential Trade Agreement Impacts 3. Core Product Challenges 4. Critical Operating Mass
1. 2002 Farm Bill
2002 Farm Bill 2002 Farm Bill Oversupplied Marketplace Market Allocations Reduced U.S. Production American Crystal Impact 10% Sugar Volume Reduction Reduce Acres from 500,000 to 450,000 Increased On-Farm and Company Costs
2. Trade Agreements
Domestic Vs. World Markets Every Sugar Exporting Country Subsidizes Its Sugar Industry Then Dumps It s Excess Product On The World Market U.S. Prices And Prices Of Sugar Producing Countries Are Triple World Dump Market Prices
Domestic Vs. World Markets U.S. Does Not Export Sugar U.S. Limits Domestic Producers In Order To Import A Regulated Amount Of Import Sugar Result: Every Sugar Exporting Country Wants To Sell More Foreign Government Subsidized Sugar Into The U.S. Market
U.S. Sugar Market About 10 Million Tons Domestic Production = 8.5 Million Tons Import Agreements = 1.5 Million Tons
Problem: Increased Imports Shrinks Size of Domestic Marketing Allotment Reduces U.S. Sugar Production Forces Farmers to Plant More Acres of Alternative Crops: Corn, Wheat, Soybeans, Canola, etc.
Administration s Free Trade Philosophy Better Economies Support Peaceful Democracies You Can t Make An Omelet Without Breaking A Few Eggs Is Sugar One Of The Free Trade Eggs?
Central American Free Trade Agreement (CAFTA) Guatemala, El Salvador, Nicaragua, Honduras, Costa Rica, Dominican Republic Current WTO Access 300,000 Tons Increased Access Year One 119,000 Tons Year 15 168,000 Tons Thereafter 3,200 Tons/Year More
CAFTA Implications Disrupted Market Place Lower Prices Reduced Domestic Allocations Year One 9,000 American Crystal Acres Year 15 13,000 American Crystal Acres Bad Trade Precedent Using Battle Plans to Defeat CAFTA
Australia Sugar Was Totally Excluded Australia Is A Developed Country
Mexico - NAFTA Terms of NAFTA Permit Unrestricted Merged Mexican and U.S. Sweetener Markets HFCS Replaces Sugar in Mexican Soft Drinks Displaced Sugar Seeks A Home In U.S. Market Working Toward A New Agreement with a Set Amount of Access to U.S. Market with Shared Consumption Growth Deal Would Be Favorable to Unrestricted Mexican Access to U.S. Market
Other Trade Threats South Africa Customs Union Morocco Thailand Panama/Andean WTO (World Trade Organization) Cuba Still Looms
Common Theme: U.S. Production Gets Reduced $
Given a level playing field, America will out-perform the competition, and America will continue to be a world leader. -- President George W. Bush March 9, 2004
Common Theme: Fight for Fair Trade and/or Limited Access $
3. Core Product Challenges
Sugar Consumption Trends U.S. Sugar Sales for Domestic Food Use: Change from Previous Year, Fiscal 1987-2004 - Thousand short tons - 229 261 279 227 200 160 86 150 144 119 108 121 7 23 5 2002 Forecast 2003 2004* 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1987-2000 Average Increase: +151,000 tons/year 2001-2004 Average Decrease: -136,000 tons/year -104-127 Source: USDA, January 2004 * Based on overall allotment quantity. -317
Recent Drivers Slow General Economy Manufacturing Globalization Of Sugar Containing Products Alternative Sweeteners Obesity Low Carbohydrate Diets
Be Proactive Sugar Contains 15 Calories Per Teaspoon Sugar Is Naturally Fat-Free Differentiate Sugar (Sucrose) From Other Sweeteners (High Fructose Corn Syrup) Inactivity Is The Real Culprit In the Obesity Epidemic
4. Managing Critical Mass
Managing Critical Mass Purchased Three Beet Factories and Allocations from Imperial Sugar Company Sidney Sugars Incorporated Sidney, Montana Acquisition Added 30,000 Valley Acres Sidney Sugars Plants About 40,000 Acres Profitable Subsidiary
Managing Critical Mass Purchased Pacific Northwest Sugar Company Plant Not Operable Pure Marketing Allocation Value Acquisition Provided 40,000 Additional Valley Acres Positive Return On Investment
Managing Critical Mass Made The Investments To Minimize Negative Impacts of Marketing Allocations, Trade Agreements, and Consumption Trends
Managing Critical Mass Maintain 2004 Crop Acres at 500,000 Supports Shareholders On-Farm Profitability Maximizes Manufacturing and Marketing Volume
Internal Strategic Initiatives
Efficiency Improvements Agriculture Gold Standards Storage Excellence Balance Sugar Recovery With Slice Rates Maintenance Excellence Safety Technology & Training Product Quality Cost Management
American Crystal s Business Is Like A Marathon Without A Finish Line
Do not go where the path may lead, go instead where there is no path and leave a trail. -- Ralph Waldo Emerson
What Questions May I Answer For You?