Hostess Brands is closing it’s doors, and many are lamenting the loss of a spongy, creme filled cake that has been a part of American culture for the past 80 some odd years.
There is a story behind the closing of Hostess Brands that many American’s do not know – and it is a story that directly impacts their wallets and sends American jobs overseas.
While Wonder Bread, the other main stay American icon of white bread, continues to live on in profitability north of the border in Canada – the Twinkie is dead – for now.
There is no doubt that the Twinkie will be back. It has a retro nostalgia that will lead to it being regurgitated by another company capable of making a profit. More than likely an American company, or perhaps a Canadian company already producing Hostess treats will buy up the rights at auction.
Weston Brands in Canada is happily producing and delivering Wonder Bread to hungry Canucks all across our northern neighbor. The Weston company actually declares dividends to shareholders while Hostess Brands has been in and out of bankruptcy since 2004.
There is apparently a lot of blame to go around with years of corporate mismanagement, a union playing Russian roulette with workers jobs, and politicians protecting a few large donors who give generously every election cycle to maintain protectionist tariffs.
The union is blaming the demise of Hostess Brands, and the loss of 18,000 jobs, on mismanagement that led to Hostess Brands entering bankruptcy twice. The most recent bankruptcy in 2012 discovered senior executive salaries were almost doubled with increases of 75% to 80% just prior to the company entering bankruptcy – those salaries were rolled back in the spring of 2012.
Management is blaming the demise on the union which refused to abide by a court ordered contract that lowered salaries by 8% and included decreases in healthcare and pension contributions by the company.
The Bakery, Confectionery, Tobacco Workers, and Grain Millers union called a strike based on an old school union hall voice vote. This informal process has been criticized by the Teamsters who were reluctant to support a strike without the workers having a more officious vote on the matter.
The third culprit in the demise of Hostess Brands is the American government.
American tariffs used to protect the sugar industry push the price of sugar for American businesses and American consumers to double or triple the prices paid on the global market.
The sugar tariffs are essentially intended to protect American jobs and industries. The United States Commerce Department reports that, “Studies suggest that the U.S. sugar program helps to maintain approximately 2,260 of these sugar industry jobs”.
But according to the same United States Department of Commerce report, “For each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost….For the confectionery industry in particular, evidence suggests that sugar costs are a major factor in relocation decisions because high U.S. sugar prices represent a larger share of total production costs than labor. In 2004, the price of U.S refined sugar was 23.5 cents per pound compared to the world price at 10.9 cents. ”
The report details that many of these 2,260 jobs are filled by “seasonal workers” – which is often used as a code word for immigrant labor. This further questions the credibility of sugar tariffs protecting American jobs.
In the year 2000, it was estimated that Americans consumed approximately 150 pounds of sweeteners each – that includes corn syrup; it’s estimated that each American consumed 65 pounds of sugar in one year.
The consumption of sugar can explain the increase of diabetes — and the sugar tariffs can explain a loss of American jobs.
LINKS:
http://dartmouthbusinessjournal.com/2011/05/u-s-sugar-protectionism/