US confectionery companies invest in Canadian facilities due to high domestic sugar prices and tariffs
Last fall, Hershey Co. repurchased a factory outside Ottawa that it closed more than a decade earlier, as reported by BNN Bloomberg.
Blommer Chocolate Co., a US competitor, is expanding in Ontario while closing an 85-year-old Chicago plant. Oreo-maker Mondelez International Inc. has invested US$250m in Ontario manufacturing facilities in recent years.
Canada's inability to grow enough sugar due to its cold climate has not hindered it from attracting significant investments to expand its candy industry.
This success is partly due to a rising population but primarily to long-standing protectionist measures in the US that make Canada more appealing for confectionery production.
“High US sugar prices over the long term drive chocolate and candy production in Canada,” said Sébastien Pouliot, an agricultural economist and consultant based in Québec.
The US sugar industry is heavily protected, with buyers such as confectioners and processed-food makers facing hefty tariffs if they exceed import quotas for raw and refined sugar.
These regulations aim to protect US farmer profits and prevent an influx of foreign sugar. Critics argue that these policies keep US sugar prices artificially high, burdening American sweets companies and refineries.
In 2013, the difference between US and global sugar prices was minimal, but recent production challenges in the US and Mexico have caused US sugar futures to nearly double the global benchmark price.
This price discrepancy makes it attractive for companies to manufacture candy and cookies in Canada and then ship some products to US consumers.
Finished goods from Canada can often enter the US without facing the strict quotas applied to raw and refined sugar imports, noted Alex Smith, a project leader at consulting firm Agralytica.
Rick Pasco, president of the Sweetener Users Association, which advocates for US sugar program reforms, stated, “The growth of the Canadian industry is directly tied to the high sugar prices in the US We’re paying twice as much for sugar, encouraging companies to move operations offshore to places like Canada.”
Data from Agralytica shows that the volume of sugar in finished goods shipped from Canada to the US last year was the highest in nearly two decades.
According to the US Department of Agriculture, Canada exported US$1.98bn in chocolate and US$615m in other sugar confectioneries to the US in the last marketing year, both record highs.
Although higher chocolate prices due to a cocoa rally contributed to this increase, chocolate imports from Canada into the US were still the second-highest ever recorded, only surpassed by 2022 volumes.
Each time the US Farm Bill comes up for reauthorization, critics lobby for changes to the import quotas.
In October, the US Government Accountability Office reviewed the program and found it costs American consumers more than it benefits producers, resulting in an estimated net economic loss of up to US$1.6bn annually.
The report also indicated that the policies encourage companies to relocate abroad, including to Canada.
Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, said, “Cheaper sugar prices are the main reason for choosing Canada over the US There’s no secret sauce there.”
John Boyd, founder of a consultancy that helps companies select site locations, also emphasized the importance of Canada's labour force, energy costs, and exchange rates.
Not all Canadian-produced sugar and candy are destined for the US; Canada's rising population is set to consume record amounts of sugar in the 2024-2025 marketing year, though still less than 14 percent of US consumption.
The influx of investment in Canada’s confectionery sector does not mean companies are abandoning the US Blommer will invest US$40m to upgrade facilities in Pennsylvania and California, and Hershey is building its first new US chocolate manufacturing facility in over 30 years.
Mondelez recently opened a research and development centre in New Jersey costing nearly US$50m. Representatives from Blommer, Mondelez, and Hershey did not respond to requests for comment.
For companies with older facilities requiring major investments, moving to Canada to install new capacity makes sense, said Pouliot. Canadian sugar refiners are also ramping up production.
Redpath Sugar increased annual production at its Toronto refinery by 65,000 tons, while Rogers Sugar Inc.'s Lantic subsidiary is investing $140m to expand its Montreal plant by 100,000 tons.
Florida-based Sucro Can Sourcing LLC is spending $135m to build Canada’s largest sugar refinery, capable of processing up to 1 million metric tons annually.
Oliver Hire, vice president and head of trading at Sucro, said, “Canada is a welcoming environment for world market sugar. It's a good home for relocating production facilities.”
