Sugar Prices Have Very Little Bearing on a Product’s Cost

While his admission of indifference made many sugar policy opponents gasp—candy company lobbyists have long contended that sugar prices have lead to catastrophic economic consequences for industrial users—this statement has held true to form as Pepsi ventured into a cadre of new products.

Visit your local grocery store today and you can find Pepsi made with sugar, corn syrup, aspartame, and Splenda. And chances are good you won’t find any difference in the products’ cost.

Take the Safeway grocery store located just blocks from the American Sugar Alliance’s office for example. Pepsi Throwback, the brand sweetened with sugar, costs $5.99 for a 12 pack of cans. Ditto for regular Pepsi (corn syrup), Diet Pepsi (aspartame), Pepsi One (Spenda) and Pepsi Max (aspartame and ginseng).

It is difficult to make a straight comparison between beverage sweeteners because they have varying sweetness and are used in different quantities in the product. However, you just have to stroll down a few isles to the baking and ingredient section, to see what a bargain sugar is. A five-pound bag only costs $2.39—and that’s the retail price, far higher than the wholesale price paid by industrial sugar users.

So why doesn’t the price of Pepsi products change when different sweeteners are used?

Jack Roney, an economist with the American Sugar Alliance says it’s because ingredient costs have so little to do with a product’s overall price.

“They buy in tremendous bulk and most food and beverage manufacturers pay more for packaging than they do on the sweetener inside,” he explained.

In fact, there’s only 36 cents worth of sugar in the entire $5.99 pack of Pepsi Throwback.

“Theoretically, there wouldn’t be a noticeable price change even if we gave them the sugar for free,” Roney said. But, he cautioned that manufacturers would be very unlikely to pass such a gift along.

“A pound of sugar costs less today than it did in 1980,” he explained, “and that’s not even adjusted for inflation. Yet, you’d be hard pressed to find a candy bar or cookie that cost less today than it did 30 years ago. Someone’s making a profit on the difference.”

This historical evidence that food manufacturers pocket ingredient cost savings instead of sharing the windfall with consumers flips on its head a main argument used by lobbyists looking to open the floodgates to unneeded foreign sugar, which sells far below the world average cost of production. They argue falling sugar prices would somehow help grocery shoppers.

“Since there’s no pass-through, there would be no savings to grocery shoppers if U.S. sugar farmers were pushed aside in favor of heavily subsidized foreign producers,” Roney contends. “These big food companies would simply use the savings to pad their own profits.”

And with large profit increases despite the economic recession, multinational candy companies seem to be doing just fine without any extra assistance from Uncle Sam.

Roney says people lobbying against sugar policy and begging the U.S. Department of Agriculture to bring in additional imports should be careful what they wish for.

He’s not alone. McKeany-Flavell Company, a commodities research firm from Calif., issued a report earlier this year that found volatile prices, inconsistent quality, and delivery issues would result if the domestic food industry had to depend on foreign sugar.

Luckily, Roney says, everyday Americans recognize the need to have a vibrant U.S. sugar industry and are starting to clamor for more sugar-sweetened products, which brings us back to Pepsi.