Blame Protectionist Policies for Oreo’s Exit from the United States
At the end of July, Mondelēz International, which owns the Oreo brand, announced that it would be moving the production of the delicious cream-filled sandwich cookie from Chicago, Illinois to a recently opened facility in Salinas, Mexico. Oreo’s move across the border will take with it 600 jobs.
Marilyn Katz, president of MK Communications, opined on the announcement at the Huffington Post, taking aim at Mondelēz International CEO Irene Rosenfeld. “Certainly Rosenfeld’s move is legal (although whether it should be is another question),” she complained. “But I can find no sense in which it is moral, just or defensible.”
Likewise, Donald Trump, ever the populist know-nothing, blasted the move during a rally last week in Mobile, Alabama. “You know Mexico is the new China. The other day Nabisco, Nabisco; Oreos, right, Oreos. I love Oreos, I’ll never eat them again, okay. Never eat them again,” Trump said. “Nabisco closes a plant, they just announced a couple days ago, in Chicago and they’re moving the plant to Mexico. Now, why? Why? Why?”
One conservative blogger has already opined that the United States’ corporate income tax, currently one of the highest in the world, may have something to do with the move. As a businessman, one would think that would’ve been easy conclusion for Trump.
Another logical conclusion is protectionist price supports that prop up sugar growers in the United States, which raise the cost of overhead to make sweet snacks and junk food. Oreo’s move to Mexico isn’t a new thing. The Wall Street Journal, in October 2013, noted that American-based candy producers were moving overseas, where sugar was available at a cheaper price.
“The leading ingredient in Oreos is sugar, and U.S. trade barriers currently require Americans to pay twice the average world prices for sugar,” Bryan Riley wrote at The Daily Signal. “Sugar-using industries now have a big incentive to relocate from the United States to countries where access to their primary ingredient is not restricted.”
Like the Export-Import Bank, the U.S. Sugar Program is a product of the New Deal, one that was seen by lawmakers as a temporary step to stabilize the economy in the aftermath of the Great Depression. It was supposed to end in 1940, but it has managed to stick around, usually reauthorized every five years in the farm bill, to placate sugar growers.
The sugar program, however, comes with a big price tag for consumers. “The resulting estimated costs to US consumers have averaged $2.4 billion per year, with producers benefiting by about $1.4 billion per year,” a 2011 study from the American Enterprise Institute noted. “So the net costs of income transfers to producers have averaged about $1 billion per year.” An estimate released by the Coalition for Sugar Reform pegs the cost to businesses and consumers at $3.5 billion.
It may be easy to ride the strong populist sentiment against corporations that are sending jobs oversea to score cheap political points, but Oreo’s move to Mexico is a result of a bad, market-distorting, and outdated policy that should come to an end.