Global sugar prices are soaring, and the US is “more expensive”: food giants such as General Mills (GIS.US) sue sugar oligarchs for price manipulation

The Zhitong Finance App learned that General Mills (GIS.US), Mars, and McGee Foods recently joined the US food industry antitrust lawsuit, accusing top US sugar producers of colluding to raise sugar prices. In a lawsuit filed in Chicago federal court, the companies charged that American Sugar Company (ASR) and United Sugar Producers & Refiners essentially coordinated operations by reporting “competitively sensitive” pricing and sales data to independent market analysis agency Commodity Information Inc., which then released this information to subscribed sugar companies.

The US sugar refining industry is highly integrated, with few producers holding most of the market share. Coupled with the government's long-term implementation of import restrictions, it provides a natural protective barrier for the industry. General Mills, Mars, and McGee Foods claim that sugar producers “share each other's pricing, sales, and future strategies in real time,” amplifying the anti-competitive effects of existing policies.

American Sugar Company spokeswoman Mariana Martinez dismissed the accusations on Tuesday. She said the lawsuit, which was filed last Friday, is nothing more than a “repackaging of unfounded allegations that have been around for about two years. This is just another group of plaintiffs' lawyers to separate clients who have already represented them in pending lawsuits. As in previous cases, the facts do not support their accusations, and we will prove them during the defense process.”

Global sugar prices are soaring, and the US market is getting more expensive

The high price of sugar in the US has long been a major pain point for food companies, which use this sweetener in products ranging from peanut butter to pasta sauce. They believe that paying a premium for this globally well-supplied commodity would raise costs for consumers and drive the food manufacturing industry overseas.

Globally, sugar prices are rising rapidly. According to the data, sugar prices soared 21.5% in August, the strongest monthly increase since October 2010 (rising 24% at the time). The Food and Agriculture Organization of the United Nations (FAO) Food Price Index also rose at the same time in August. Among the various commodities that have generally risen, sugar prices rose the most. The FAO stated in a recent report: “This surge reflects multiple factors such as expectations of a decline in EU sugar beet production due to unfavorable weather, the impact of El Niño on the production prospects of major Asian sugar producers, the decline in sugar production in Brazil, and India's announcement of duty-free imports of raw sugar.”

In this context, the situation in the US market is more extreme. Raw sugar futures shipped to US ports are usually more than double the benchmark price of raw sugar exported from the world. In addition to global supply constraints, US domestic sugar prices are also supported by a long-standing import restriction system — the US sugar industry is strictly protected, and buyers such as candy makers and processed food producers can only import a certain amount of raw sugar and refined sugar, otherwise they will face high tariffs. These decades-old regulations are designed to protect the profits of American farmers and prevent other countries from exporting large amounts of sugar to the US. However, critics point out that these regulations have also artificially boosted US sugar prices, putting a heavy burden on US candy companies and sugar refineries trying to operate locally. Furthermore, the decline in processing capacity in the US has further exacerbated supply constraints.

The focus is on integration in the agricultural sector, and many lawsuits are already being tried

As the US midterm elections approach, inflation has become one of voters' biggest concerns. In this context, the integration of the agricultural sector, including the egg and meat processing industry, has been the focus of many lawsuits and government investigations. But the reasons for the high food prices are complex, fueled by soaring fuel costs and extreme weather.

Lawsuits brought by other food producers and grocers have been combined in federal court in Minnesota. Last year, a judge in that court allowed antitrust lawsuits against US sugar companies and United Sugar to continue, but lawsuits against some of the smaller producers were dismissed.

Supermarket chains such as ACI.US (ACI.US) and other food companies such as MDLZ.US (MDLZ.US) also filed similar lawsuits against these sugar companies and Commodity Information earlier this year.