Trend towards outsourcing confectionery production grows

- Last updated on GMT

Related tags: Confectionery, Mexico

Mexico is rapidly emerging as one of the world's leading suppliers
of confectionery, and now seems set to usurp Chicago's position as
the world centre for confectionery production, a trend that is
being mirrored between western and central Europe.

Mexico is rapidly emerging as one of the world's leading suppliers of confectionery, and now seems set to usurp Chicago's position as the world centre for confectionery production, a trend that is being mirrored between western and central Europe.

According to a report in the Houston Chronicle​, lower wages and cheaper sugar prices in Mexico are giving the country a competitive edge. Now those advantages have convinced publicly traded confectioners and even startup confectionery makers, who make sweets for bigger companies, to set up there.

"The primary reason you move to Mexico is because of the labour differential between the US and Mexico,"​ said Rich Condie, president and chief executive officer of El Paso-based Franklin Connections, which produces nuts and confectionery. "The big benefit is really labour."

Mexico is not the only country profiting from this trend. Cost differentials in labour and sugar prices in many parts of the world mean confectionery contractors in Turkey, the Czech Republic and Egypt are now selling to the US and European markets.

Last year, US imports of candy, chewing gum and confections totalled $805.5 million (€810m), compared with $502.3 million in 1996. Most of that confectionery came from Canada, Mexico and the United Kingdom. A similar trend is also happening in western Europe, where growing wages are pushing production out to central and eastern Europe. In particular the Czech Republic is emerging as new centre for European confectionery production.

"It's become much more of a global marketplace in the last decade,"​ Condie said. The longtime confectionery man, who worked at companies such as Mars and Brach's Confections, created a division in the company, which had previously only produced nuts, to make confectionery.

Last year, Sunrise opened a $20 million, 175,000-square-foot plant in the Mexican border city of Juarez, just across from El Paso.

About 400 workers churn out sweets, such as butterscotch, jelly beans and gummies, mostly for the Christmas, Easter and Valentine's Day seasons for the US market.

Condie and his staff opened their plant in Mexico instead of El Paso primarily because of cheaper labour. Also, sugar prices make candy substantially cheaper.

Naturally the competitors in the established US and western European markets are frustrated by this global sourcing trend, as they are losing valuable business each year. One of the biggest complaints is of unfair trade practices.

"The combination of inexpensive labour and inexpensive raw material, we just can't deal with,"​ said James Hanlon, president of Santa Cruz, California-based Harmony Foods in an interview with the paper. "I'm trying to fly in the face of reality and use US workers. It becomes more challenging every year."

Hanlon dates this growing migration to the North American Free Trade Agreement. The trade deal, which went into effect in 1994, reduced import tariffs, allowing businesses to open south of the US/Mexico border and export products to American stores.

"All of the shackles were off, and people started running to Mexico,"​ Hanlon said.

Before NAFTA, people could export products to the United States and the trade agreement simply created more of a paperwork nightmare.

Now Hanlon can only see the trend accelerating.

"You could see a real decimation of the US confection industry in the next decade,"​ he said.

Most of the US-based companies that make confectionery in Mexico primarily export their product to the United States, helping boost exports of candy, chewing gum and confections to $137 million last year, compared with $75.5 million in 1997, according to the US Department of Commerce.

All the major US and western European confectionery players now have manufacturing operations in emerging markets, and, as Hanlon points out, the trend is undoubtedly set to grow. But what is also feeding the trend is the growth of confectionery consumption in those domestic markets. Confectionery is often marketed as a luxury good and as wealth increases in the emerging market so too does the apparent appetite for all things sweet.

Either way, the trend towards outsourcing confectionery manufacturing from both the US and Europe to the emerging markets looks set to grow in the future.

Related topics: Ingredients, Outsourcing