Texas candy maker adapts to market as sugar wars rage on
Jun. 12, 2017
LUFKIN, Texas (AP) — On a busy highway heading into this industrial East Texas town, a candy factory stands next to a chicken processing plant that sometimes wafts the smell of bird guts across the parking lot that divides them, mixing with the delicate scents of peppermint and peanuts.
But Atkinson Candy Co., an 85-year-old confectioner best known for its Chick-O-Stick bars sold in convenience stores across the nation, has a bigger, albeit sweeter smelling problem than the occasional foul odor from its neighbor: sugar. Because of U.S. price supports and trade barriers, Atkinson pays about double what its foreign competitors do for the industry's main ingredient, creating constant pressure on the family-owned business to either sell out, shut down or shift production overseas.
"All of my competition for the past 30 years has been from companies offshore," Eric Atkinson, third in a line of Atkinsons to run the company, told the Houston Chronicle . "Right now it's kind of like playing football on the side of a mountain, and we got the bottom goal."
As President Donald Trump tweets about the evils of imports, threatening to slap tariffs on goods brought in from overseas, Atkinson Candy Co. is a reminder that many companies and workers in America, especially in Texas, benefit from free-flowing trade. Policies aimed at protecting certain jobs and industries from foreign competition can have devastating effects on others.
The U.S. confectionery industry, excluding chocolate makers, has shed about 25 percent of its jobs over the past 20 years, as high sugar prices made it tough to compete and forced many companies to relocate overseas. Atkinson says he's lost large chunks of business over the years to foreign suppliers, forcing him to cut back production, at times, to three days a week and open a factory in Guatemala to take advantage of lower sugar prices there.
The situation recently became even more difficult for Atkinson and other U.S. candy makers after the Commerce Department struck a deal that would further limit the amount of sugar imported from Mexico — a move that will likely send domestic prices slightly higher.
All this has Atkinson, who wears his gray hair slicked back like a Texas-style Willy Wonka, worried whether he'll be able to pass the company onto a fourth generation. He faces all the usual challenges for a small American manufacturer: relatively high labor costs, a strong dollar that makes exporting difficult and pressure from enormous global brands. Sugar prices just make it all the more difficult.
"I can't tell you the number of my competitors that went the way of the dodo bird trying to compete," Atkinson said. "We finally just said, we've got to step out and do something about the opportunities that are out there."
Protecting the sugar industry is just as much of an American tradition as the Atkinsons' Chick-O-Sticks, a wafery, peanut buttery mouthful coated with toasted coconut. It started in the Depression — right around the time that Atkinson's grandfather started selling candies out of the back of his truck — when the government put quotas on sugar imports and provided farmers with a direct subsidy in order to stabilize the industry.
But President Ronald Reagan's signature of the 1981 Farm Bill was what really drove a wedge between U.S. and world sugar prices with the U.S. Department of Agriculture agreeing to buy sugar when necessary to support the price. Adjustments in the 2008 Farm Bill were even more favorable to the sugar industry, and the price of raw sugar in the U.S. nearly doubled from 21 cents per pound that year to 38 cents in 2011, according to the USDA.
There was then a short reprieve, as a bumper crop in Mexico boosted sugar imports; Atkinson brought it in by railcar and built a facility to liquefy it himself. But the U.S. sugar industry accused Mexican producers of "dumping" their product on the market and succeeded in getting duties imposed in 2014. The price bounced right back.
"I know that my price for sugar just went up 21 percent," Atkinson said.
And the sugar wars continue. The commodity was one of the first trade matters confronting the Trump administration, and last week, Commerce Secretary Wilbur Ross announced a deal with Mexico's economic minister that lowers the amount of refined sugar that can be brought over the southern border. Meanwhile, trade agreements with North and Central America that make it easier for foreign competitors to sell cheaper candy here intensify the squeeze on U.S. candy makers.
"While sugar has been protected, it's been a lot easier to move confectionery products into and out of the U.S.," says Tom Earley, an economist with the consulting firm Agralytica, which has done work for a coalition of sugar-using companies pushing to change U.S. rules.
Employment in non-chocolate confectionery manufacturing declined from 27,000 people in 1998 to fewer than 20,000 in 2015. Confectionery imports, meanwhile, more than doubled over that period, as companies moved production to Mexico and Canada in search of lower sugar prices.
The Atkinsons felt that pressure too. In the 1990s, Atkinson's father, Basil Eric Atkinson Jr., wanted to move the plant to Costa Rica, he recalled. "The kids drew that line in the sand and said 'No, we shouldn't have to leave the country to ply our trade,' " Atkinson said.
Instead, they set up a satellite factory in Guatemala, which accounts for about 10 percent of sales and helps hedge a bit against the sugar imbalance. But the bulk of their production is still in the United States, and will be, as long as the company can stay in business.
"We're kind of hard-headed like that," he said.
Candy manufacturers — alongside conservative groups that object to government interference in the market — have fought for decades to end the sugar program. Many other agricultural supports have been weakened over the years, including those for corn and cotton, and those for sugar may eventually be reduced as well.
In the meantime, Atkinson is trying other strategies to fill the holes left by overseas competition — moving far beyond Chick-O-Sticks and Mint Twists into trendy new flavors and white-label products for other brands.
Not having the capital to invest in the sophisticated machines that the largest companies — like Nestle and Mars — have used to reduce the number of workers, Atkinson's company plays up its old-fashioned methods, which have taken on artisanal cache.
The factory's 170 core workers (plus a few dozen temps, as demand merits) operate machines that might qualify as antique: Atkinson salvaged one from American Candies when its factory in Alabama shut down. Another one, dating from the 1960s, is being shipped back to England, where it was made, for an upgrade.
Other machines, imported from Germany and Italy, are more modern, able to cut and wrap thousands of individual candies per minute. But humans are still needed to stretch and stroke the giant logs of sugar mixture once they come off the cooling tables to make sure they have the right consistency and then feed long candy snakes out from the hot "kitchen" to the cool "wrapping room" where they're portioned and packaged.
"We still make it by touch and by feel, so the product's still got its soul," Atkinson said.
Instead of automation, Atkinson is betting on sanitation, embarking on a $5 million renovation and expansion to obtain a food safety certification that will allow them to sell to larger buyers — like pharmacy chains and grocery stores — that now insist on it. That means installing a segmented HVAC system and putting walls in between each kind of candy production line.
The list of adaptations goes on. In an era when more people want simple ingredients, Atkinson's is swapping artificial additives for more natural ones, like Vitamin E for butylated hydroxytoluene, an antioxidant.
They've also started pumping out crushed peppermint to sell as an ingredient for other products, such as baked goods and fancy drinks — a small but fast-growing part of the business — and talking to the biggest players in the industry about producing their branded products on a contract basis.
And they're constantly catering to new tastes, like pumpkin spice- and gingerbread-flavored candies for the holidays, as well as combinations of their own invention.
It's both a high and a low strategy: leaning into unique, almost boutique products for people tired of Twizzlers, as well as building a steady business of producing commodities that might make it into Whole Foods under someone else's label.
A lot rides on each new product, and there's not much room for error. On a recent Wednesday, the factory was testing a new blend of chocolate caramel with peppermint chunks — subtly Christmasy but suitable for any season. The new labels had been printed, and they needed to get it right.
Atkinson plucked a piece in a purple wrapper off the conveyor belt and bit into it, satisfied at the densely packed peppermint interior. He pronounced it perfect.
"You guys just witnessed the birth of a candy," he said. It felt like a relief.
Information from: Houston Chronicle, http://www.houstonchronicle.com