A rare article on the Canadian sugar industry

Investors in Rogers Sugar (TSX: RSI) will doubtlessly be interested in reading this article in the Globe and Mail.

In my past, I have put in more time and effort into understanding the sugar industry in the country and the protection that both marketplaces (Canada and the USA) have on their sugar industries are very relevant factors in terms of Rogers being able to compete. Rogers Sugar has a virtual monopoly on the Western Canadian operations because of transportation logistics, while on the eastern part of Canada (Ontario, Quebec) there is competition between Rogers, Redpath, and a lesser competitor called Sweet Source Sugar.

After the Canadian trade panel ruled against the domestic sugar industry’s wishes by opening up the Canadian market to EU imports, I was actually quite surprised at the decision. I was even more surprised when the sugar producers appealed and managed to overturn that ruling. This alone was worth quite a few pennies on Rogers’ stock price – mainly the implied degradation of pricing power as Canada continues to open up its borders. For instance, there is a free trade agreement between Canada and Costa Rica which will enable the duty-free import of a relatively small supply of sugar, providing that it is produced from Costa Rica. Other free trade agreements that are pending the sugar industry has been able to flex some regulatory muscle to get specific provisions against opening domestic sugar into such agreements (Columbia being one example).

From an investment perspective, I sold my sizable portion of Rogers around the 5.50 range, but continue to watch the stock, albeit, it is a rather boring company to track. If there is a hiccup in the future (and there may be considering that some of its domestic production is derived from Alberta-grown sugar beats and thus represents a slight amount of operational risk) that takes the stock price down, I may get interested again. But at $6/share, there isn’t a heck of a lot of capital upside in exchange for a 6% yield.