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Did Congress kill the Twinkie? The tariff tale behind the Hostess demise.(+video)

Since 1934, Congress has supported sugar trade tariffs. In a sign of the power of the sugar lobby, Hostess picked unions, not the lobby, to fight when it had to cut costs to stay in business.

By Staff writer / November 16, 2012


Atlanta

It’s the end of a lunchbox era as baked icons such as Twinkies, Hostess CupCakes, and Wonder bread face extinction amid a contentious labor dispute, which ended Friday in the declared liquidation of Hostess Brands Inc., the Texas-based confectioner.

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So far, Big Labor has gotten the brunt of criticism for the demise of Hostess, since the Bakery, Confectionery, Tobacco Workers ,and Grain Millers union refused, despite warnings from fellow union heads, to return from strike at some 20 facilities nationwide. That forced CEO Gregory Rayburn to declare, after two rounds of bankruptcy proceedings, that “it’s over.”

Yet as the political recriminations echo amid news of 18,500 lost jobs in an already sluggish economy, some economists suggest that Americans shift their blame from Big Labor to the role Congress might have played in writing the Twinkies’ obituary.

And that, economists say, may come down to one sweet little word: sugar.

Since 1934, Congress has supported tariffs that benefit primarily a few handful of powerful Florida families while forcing US confectioners to pay nearly twice the global market price for sugar.

One telling event: When Hostess had to cut costs to stay in business, it picked unions, not the sugar lobby, to fight.

“These large sugar growers ... are a notoriously powerful lobbying interest in Washington,” writes Chris Edwards of the Cato Institute in a 2007 report. “Federal supply restrictions have given them monopoly power, and they protect that power by becoming important supporters of presidents, governors, and many members of Congress.”

Such power has been good for business in the important swing state of Florida, but it has punished manufacturers who rely on sugar in other parts of the United States, the Commerce Department said in a 2006 report on the impact of sugar prices.

Sugar trade tariffs are “a classic case of protectionism, pure and simple, and that has ripple effects through other sectors of the economy, and, for all I know, the Hostess decision is one of them,” says William Galston, a senior fellow at the Brookings Institution in Washington.

Trade restrictions on sugar have a long, complex history, and sugar is certainly not the only major industry to have Congress play nose tackle against global prices by restricting imports. Yet as those policies have come under fire in the past decade, both Republicans and Democrats have so far refused significant reforms.

That refusal to address tariffs that neither support infant industries nor provide national security has come despite damning reports from the Commerce Department about the impact on US jobs, including the fact that for every sugar job saved by tariffs, three confectionery manufacturing jobs are lost.

Some of those job losses came when candy companies like Fannie May and Brach’s moved the bulk of their manufacturing to Mexico and Kraft relocated a 600-worker Life Savers factory from Michigan to Canada, in order to pay global market prices for sugar.

The impending mass layoffs from 33 Hostess plants scattered around the US, economists say, might force Washington to take a more serious look at how public policy affects the ability of corporations to make money – especially in an economy where even iconic brands like Twinkies and Wonder bread aren’t safe.

“I think there are policy implications here,” says Mr. Edwards, an economist at the conservative Cato Institute. “The Department of Commerce, the Obama administration, and [Congress] need to look at Hostess as a case study: Why did this company have to go bankrupt? Why were its costs higher than it could afford? Are there regulatory issues with import barriers on sugar or unionization rules that we need to look at and change? We’ve got to understand why manufacturing in a lot of cases doesn’t seem to be profitable anymore.”

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