Reuters | Tuesday December 11 2007
Mexican sugar industry anxious ahead NAFTA opening
By Mica Rosenberg and Frank Jack Daniel
MEXICO CITY, Dec 11 (Reuters) — Three weeks before the United States and Mexico lift the last barriers to trade in sweeteners, sugar mill owners and cane farmers south of the border are worried they are in poor shape to compete.
Mexican sugar growers had hoped tariff-free trade would catapult them into the world’s largest sweetener market. But Mexico’s high production costs and lack of investment may keep champagne corks from popping in January, which ends 15 years of protective measures for sugar and corn under the North American Free Trade Agreement (NAFTA), which took effect in 1994.
"We can’t compete with our hands tied. The United States offers its sector certain benefits and we should have the same. If not, there is no level playing field," said mill owner Juan Cortina, who heads Mexico’s sugar chamber.
Cortina said Mexico had not prepared its sugar sector sufficiently to compete with the more efficient and protected U.S. industry.
"Here in Mexico we are good at resolving immediate problems but we put off the deeper issues," Cortina said. "Now, with NAFTA just a few weeks away, we can’t put it off anymore."
Most years, Mexico grows more sugar than it consumes. It produced a surplus of between 300,000 and 400,000 tonnes last year and hopes to lift output by several hundred thousand tonnes to feed the U.S. market, where controlled sugar production falls short of demand.
"Together the two countries have a deficit, which generates more optimism than pessimism," said Carlos Blackaller, the leader of a Mexican sugar cane farmers group.
Some 160,000 small- and medium-sized farmers grow sugar cane in 15 Mexican states, turning over their harvests to 57 processing mills around the country.
FEAR OF FRUCTOSE
Mexican cane is among the most expensive in the world, due in part to high transport costs. Efforts by mill owners to pay less have caused a major labor dispute.
In November, farmers halted deliveries to mills and refused to harvest their crop, complaining they were being offered a price for cane 12 percent lower than last year. Mill owners say processed sugar prices will drop after the NAFTA tariffs are lifted and they cannot afford to pay cane growers more.
As the United States opens up to Mexican sugar, Mexico will have to let in U.S. high-fructose corn syrup, a cheaper sweetener used in fizzy drinks.
Until recently Mexico kept most corn syrup out of its soda market with a tax on drinks not sweetened with sugar. But the World Trade Organization overturned that tax last year.
Fears of a flood of cheap fructose into Mexico have been offset partially by heavier U.S. demand for corn in ethanol fuel production. This has pushed up syrup prices.
Nevertheless, with sugar import quotas included in recent bilateral trade deals, the U.S. market has less room for Mexico’s sugar than it did in the early 1990s.
Mexicans also say plans by U.S. producers to send up to 200,000 tonnes of sugar stocks blocked from sale domestically to Mexico in 2008 will affect prices in both countries. The stocks were shelved to keep the U.S. market tight.
"If you sell blocked stocks to Mexico and then you buy our surplus, at the end of the day your stocks have never really been blocked," said Blackaller.
(Editing by David Gregorio)