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Crystal Sugar CEO: We have ticked off big customers in the past few months

by Mike McFeely

Over the weekend, I had somebody tell me about large amounts of sugar sitting in the American Crystal silos at their processing plant in Hillsboro, N.D. The person told me the company couldn't sell it because there was an issue with quality.

I mentioned it on the air Wednesday during my show on KFGO and asked if any growers or employees could call and fill me in on what was happening.

A couple of people called and said, yes, not only is there a lot sugar sitting in Hillsboro, but also at Crystal Sugar's storage facility in Fargo. They also said, yes, it is a quality issue.

One person who called and identified himself as a grower agreed there was a lot of sugar still in the silos, but said it was strictly an oversupply issue, not a quality one.

After that phone call, somebody e-mailed me a blog post by American Crystal CEO David Berg. I did some checking and found out that Berg writes a blog that is meant for employees, etc., of Crystal Sugar. So it is legit, and actually quite interesting.

Bottom line: Crystal Sugar does have a lot of sugar on hand that it can't sell and it is, indeed, a quality issue. Specifically, a color issue. According to Berg's blog, the product sitting in Crystal Sugar's silos isn't as white as it needs to be in order to meet very precise specifications of some huge customers.

I wondered on-air whether this was a product of the very contentious lockout that ended only recently. Berg's blog says "no," it had to do with several factors including a sugar cooler that is not big enough to handle the amount of sugar the company puts out each day.

Here, in its entirety, is David Berg's blog post that somebody e-mailed me. If nothing else, it is very interesting and informative. It is titled "Open, Two-Way Communication":

I would like to send you nothing but good news all the time. But everybody knows that things don’t always go perfectly. So, I am going to deliver some open, two-way communication that really hurts…
We are in business because we make a product that people enjoy. Some of our product goes out in 4-, 5-, or 10-pound bags. People buy these bags in grocery stores, and they make cookies, cakes and pies with our sugar, or they stir it into kool-aid or coffee.
But a lot more of our sugar leaves our factories 40,000 pounds or 200,000 pounds at a time, in bulk trucks or rail cars. It goes to food manufacturers who make cereal, or candy, or other great stuff that makes peoples’ lives happier.
The good news is that the smartest and biggest food companies in the country buy lots and lots of our sugar. The bad news is that we have ticked off some of them in the past few months.
A few RBU can make a really big difference: An “RBU” is a Reference Base Unit. That is a measurement of the amount of color in a grain of sugar, as defined by something called the International Commission for Uniform Methods of Sugar Analysis. Really simply, a low RBU number means really white sugar, and a higher number means sugar that is not as white as we like or expect.
The higher-color sugar tastes just as good as what we normally make. But, our customers have specifications that say how much color they will accept. These companies make products that go to millions and millions of homes and families, so they have to set very precise specifications; to give them confidence their final product will be right every time.
The reason that we have some customers ticked off is that we made quite a bit of sugar that has more color than what our customers’ specifications allow. In fact, a very large share of what is left in storage at the Hillsboro factory is out of specification for color.
We have more sugar left in storage than we usually do this time of year. Most years, we want the bins empty or getting close to empty by sometime in August, so that we have room to store the new crop of sugar that is just a few weeks away. Our problem this year is that even when customers place an order, we might not have “in-spec” sugar that we can ship to them. So, they take their order to another sugar company, and our sugar stays in the silo.
How the heck did that happen?
A really short and incomplete answer is
  • record high sugar content in last year’s beet crop
  • excellent daily slice rate and sugar production at Hillsboro
  • a campaign that ran into early June, and
  • a sugar cooler that is not big enough to handle the amount of sugar we put out each day
Hillsboro’s cooler was installed when the factory was built in the 1970s. Now, we slice way more beets and granulate way more sugar each day than what the cooler can handle. Nobody messed up. (Except maybe us at Corporate, for not getting the cooler on the list of capital projects for replacement.)
Are we in major trouble with customers? I really hope not. But here’s the bottom line – In today’s oversupplied sugar market environment, customers have lots of companies begging to take their sugar. We need to have a competitive (cheap) price, we need to deliver on-time, and our product needs to be perfect.
For many years, we have fulfilled all of those expectations. That means that our customers generally like to do business with American Crystal and United Sugars. But, we need to dig our way out of this hole, and resume our normal high level of satisfying our customers.