An amazing thing happened Tuesday: The nation's largest sugarcane grower said it would go out of business in six years, yet nobody expects the price of sugar to rise much, if at all, as a result.
The disconnect — between the loss of U.S. Sugar Corp.'s production and the price people pay for a candy bar — is a reflection of the highly regulated sugar industry in this country.
The good news is that U.S. Sugar's output, more than 600,000 tons of refined sugar this year, will likely be absorbed over time by another domestic producer, either in Florida or Louisiana. The bad news is that the long-standing federal system of price supports and import quotas on sugar means American consumers already pay about double the world price for the commodity. According to the Government Accountability Office, sugar supports cost American consumers $1.9-billion a year.
So if growing and refining sugarcane is so profitable, why is U.S. Sugar calling it quits and selling out to the state of Florida after nearly eight decades in the business?
Robert E. Coker, U.S. Sugar's senior vice president, acknowledged some accumulating frustrations over government regulations but denied Tuesday that the Clewiston company was throwing in the towel. He described it as paving the way for posterity.
"When you own something for 77-plus years, it's more than a business," he said of the company founded by Charles Stewart Mott in 1931 and still controlled by his family and related foundations. "For us, it was not all about the money. It's about what's going to happen to that land.
"Our company can go down in history as the missing link in Everglades restoration. It provides sustainability for everybody who stays and recognizes the value of our assets for our shareholders. It's something we can be proud of."
Coker, who has been with U.S. Sugar since 1982, sounded both exuberant and exhausted about the pending deal to sell the company's assets, including 187,000 acres in Glades, Hendry and Palm Beach counties, to the state for $1.75-billion.
If the deal is completed as hoped by year end, shareholders in the privately held company will receive about $350 a share. That's a good deal higher than the $180 to $204 price range that private shares have been trading for in recent years.
Through a lease-back agreement with the state, U.S. Sugar will also reap the rewards from at least six more years of harvests on its lands. In addition to providing about 8 percent of the nation's sugar supply, the company's Southern Gardens is one of Florida's largest citrus operations. Though the company does not disclose revenues, several outside sources estimate its sales in 2007 revenues at $398-million, down from a high of $557-million in 2000.
Coker said the landmark decision to sell was spurred by Gov. Charlie Crist's bold suggestion during a November meeting with company lobbyists.
"We wanted to clear the deck with him about a lot of issues," said Coker, ticking off a list of perennial environmental and regulatory hurdles faced by the company. "We wanted to make sure our business was sustainable.
"Halfway through the discussion, I understand the governor asked, 'Why don't we just buy you out?' When I heard about it, I just about passed out."
But U.S. Sugar's decision to take Crist up on his offer doesn't suggest cane-growing is no longer sustainable in South Florida, Coker said.
"This ensures a future for sugarcane in Florida, with the additional storage and treatment (of water through the restoration project)," he said. "And we're taking hundreds of tons of phosphorus (from fertilizer) out of the supply chain. The ones that remain will clearly benefit from these things."
The state's representative in the transaction, the South Florida Water Management District, said Tuesday that it will assess how much of U.S. Sugar's land is needed for Everglades restoration and how much can be spun off.
Among the surplus assets will be U.S. Sugar's newly renovated sugar refinery in Clewiston as well as its new citrus processing plant.
"This is an awful lot of money and we need to divest ourselves of the assets we don't need for restoration to begin paying for the construction," the water district's executive director, Carol Ann Wehle, said. "We support the remaining agriculture to stay in a very viable capacity."
Land could be leased to other companies or swapped for property that fits in better with the restoration, she added.
Gaston Cantens, vice president of Florida Crystals Corp., which has vied with U.S. Sugar for leadership of the state's sugar industry, said it will be exploring opportunities for possible acquisitions as the dust settles.
"Until they engage in deeper negotiations and get some stuff set in stone, we don't know what our role is, but we want to be helpful," Cantens said of the West Palm Beach company which is owned by the Fanjul family. "If this deal creates long-term, sustainable agriculture and resolves lingering environmental issues, then that's great. We want to continue farming."
Coker said it's possible that some of U.S. Sugar's 1,700 employees could be absorbed by other growers once the six-year transition period ends. The company is offering an incentive for employees to remain during the phase-out, then a severance package of one year's salary for hourly workers and two years' pay for salaried employees. The state will also assist in economic development and job creation in the area.
William "Butch" Wilson, 57, worked for U.S. Sugar for 32 years and is now the director of the Clewiston History Museum
"This is hard," Wilson said. "Sugar was the town and the town was sugar. But you know, I'm an optimist by nature. I see the glass half full. I think there will be new opportunities."
Times staffers Jeff Klinkenberg, Caryn Baird and Alex Leary contributed to this report. Kris Hundley can be reached at [email protected] or (727) 892-2996.