By Chris Prentice

NEW YORK, June 9 (Reuters) – For the last U.S.-basedmanufacturer of the red and white striped candy cane that is aubiquitous North American holiday season treat, the sugar supplydeal struck between Mexico and Washington is anything but sweet.

The competitors of Ohio-based Spangler Candy Co have, overthe years, moved their plants south to Mexico and beyond to gainunfettered access to the cheaper sugar supplies there. That waspart of a shift in manufacturing out of the United States thatPresident Donald Trump has vowed to reverse.

Spangler's Chief Executive Officer Kirk Vashaw has kept thecandy cane industry alive in the United States at his plant inOhio, where his firm churns out 200 million candy canes a year.

But the new sugar supply deal will make things tougher stillfor Spangler, as an agreed rise in the minimum price for Mexicansugar will drive up Spangler's raw material cost.

"To be honest, I'm just very disappointed that the Trumpadministration didn't do more to level the playing field, whichis something they promised over and over again to do for theAmerican worker," Vashaw said in a phone interview with Reuters.

"This was an opportunity to do that, and they didn't."

The firm is one of a wide range of food producers, drinksmakers and cereal manufacturers across the country that will seesugar input costs higher by about $1 billion above governmentsupport prices, according to the Sweetener Users Association.

Many of those companies, who oppose the government's supportfor the sugar industry, will have to consider whether to passthat rise in costs on to consumers. The additional cost is afraction of the value of the packaged food industry, estimatedat around $373 billion in 2016, according to data providerEuromonitor International.

Food and beverage firms such as Hershey Co, GeneralMills Inc, J.M. Smucker Co, MondelezInternational Inc will be impacted because they are allcompanies for which sugar is a key raw material.

Hershey said in a statement that it was aware the agreementhad the potential to increase sugar prices in the long term.Both Hershey and Mondelez referred Reuters to the SweetenersUsers Association, which in a statement described the pact as a"stealth price increase."

General Mills and Coca-Cola Co declined to comment.PepsiCo Inc, Dr Pepper Snapple Group Inc andMars Inc did not respond to request for comment.

"This is putting America second," said Jeanne Shaheen, aDemocratic senator from New Hampshire, where Swiss chocolatemaker Lindt & Sprüngli has its U.S. headquarters. "It'sa bad deal for American families and businesses that will raisecosts for consumers and threaten jobs in sugar-usingindustries."

Shaheen is a long-time critic of the sugar program and haspushed for changes.

U.S. sugar companies – which process beet and cane beforeselling it to food and beverage industries – got better termsout of the deal and yet will not be impacted by the price rise.

Refiners were insulated from the impact of the higher rawsugar price by a greater increase in the minimum prices forrefined sugar in this week's agreement, so will simply chargethe companies and consumers that buy their sugar more.

The U.S. sugar industry had asked for better terms aftercomplaining the previous deal with Mexico squeezed refinerymargins and starved them of supplies.

 

COZY DEAL

The new deal revised the previous 2014 pact and aimed to endyears of dispute between the two countries. Larger sugarrefiners will benefit the most, as the new terms make it harderfor smaller competitors to import sugar from Mexico, which isthe top foreign sugar supplier to the United States.

That means the smaller sugar buyers will have to pay morefor their supplies.

Access to the 11 million-tonne annual U.S. sugar market iscoveted by sugar exporters as price of the sweetener in theworld's largest economy is higher than elsewhere. The market isprotected by the government, prices are guaranteed and importsare rationed.

The combined impact of those measures means that U.S. sugarbuyers will pay about 60 percent more than global benchmarkprices.

For Spangler, which makes Dum Dum lollipops as well, therise in prices for Mexican sugar will translate to an around 8percent rise in what it pays, estimates Vashaw.

Spangler opened a plant in Juarez, Mexico, in the early2000s and now produces a little over half its candy canes there.

"If it was all about money, we'd do it all in Mexico," saidVashaw. "When your main cost driver just went up 8 percent andin Mexico it didn’t go up at all, it just makes any foreignconfectionary supplier more cost competitive. That's why a lotof companies moved out of the United States."

(Additional reporting by Lewis Krauskopf; Editing by Simon Webband Lisa Shumaker)