The hull of Domino Sugar Corp.'s newly christened barge, "Domino Sugar," was still wet with champagne as it left Baltimore yesterday for the company's refinery in Brooklyn, N.Y.
Once there, the barge, with a capacity of 2.5 million gallons, will unload a week's supply of semiprocessed liquid sugar produced at the company's Baltimore refinery. With $10 million in new equipment, the refinery recently increased its production from five to seven days a week.
All told, Domino Sugar spent $30 million on the barge and new equipment at its Baltimore and Brooklyn refineries in a bid to make the business more efficient.
But depressed prices and what industry analysts decry as a broken government sugar program will make this another lean year for the Locust Point landmark with the famous neon sign.
"It's not a good time to be in the sugar business," said Clive Rutherford, president of Tate & Lyle North American Sugars, part of Tate & Lyle PLC, Domino's parent company in London.
Sugar refiners nationwide are struggling to become more efficient in hopes of weathering the market's latest downturn.
Company executives say Domino's 400 jobs in Baltimore are secure after the company's latest investment in new fuel-efficient evaporators, turbines and boilers.
But a recent change of strategy will result in about 100 employees losing their jobs in Brooklyn, where much of the work force has been on strike for 16 months.
And there's no guarantee that Domino won't get caught up in a round of industry consolidation as refiners seek strength in economies of scale.
"We're looking at a whole range of options; mergers, disposals - just to give it a better viability," Rutherford said.
Domino is in the process of selling its Western Sugar subsidiary to a group of growers who plan to turn it into a cooperative. Analysts expect the company to take a significant loss on the sale.
John Parker, an analyst for Deutsche Bank in London, blames the sugar industry's problems on a government support system gone awry.
The U.S. sugar program keeps domestic prices higher than world prices, largely through a system of import restrictions and a government-set minimum price.
If the domestic price for sugar falls, farmers can get the government's minimum price, using their crop as collateral.
If prices later go up, the farmer simply repays the government when his crop loan comes due.
But if prices remain low at maturity, growers have the option of forfeiting the crop as payment in full.
Many farmers chose the latter option this past year after prices fell due to two years of record production.
But with the U.S. government holding on to much of the forfeited crop, the price refiners pay for raw sugar has climbed, largely erasing profit margins.
"I'm sure all of the sugar companies in the states are talking to each other," Parker said of potential merger activity. "They are all exploring ways to get themselves out of this crisis."
"The industry is struggling at the moment, but hopefully it will get to the point where the government will start releasing this sugar and that will ease up the price of raw sugar," said Nick Kominus, president of the U.S. Cane Refiners' Association, a Washington trade group.
Domino Sugar has been a fixture at Locust Point since 1922 and now ranks as the largest such refinery in the country and the second-largest in the world.
Until recently, raw sugar was refined at both the Baltimore and Brooklyn plants. But the company recently stopped refining raw sugar in New York, opting instead to partially process the sugar at its Baltimore plant and then ship it by barge to Brooklyn for finishing.
During the strike, the Brooklyn plant is being operated by managers, temporary employees and about 100 union workers who have returned to work over the past six months.
About 100 workers who remain on strike recently voted down the company's contract proposal.
Rutherford said Domino's refineries are still capable of generating profits, though the company is banking on a political solution to recent price volatility.
"We see a good future in the long term. The issue we have to address is how we deal with the short term," he said.
