Title: Trade Disputes in an Unsettled Industry: Mexican Sugar
1Trade Disputes in an Unsettled IndustryMexican
Sugar
2Sugar cane production is concentrated in the
warmer areas of Central Mexico
Source Rabobank from SAGARPA data
3Consumption of sugar by major use categories2000
4Background to conflict
- Private management and government intervention
- Early attempts to regulate market
- Growth from WWII to the 1960s
- Price controls
- Decreto cañero
- Contrato Ley
- Government management of the mills (1970 1988)
- Profits squeezed
- Government rescues mills control goes from19 to
49 out of a total 66 - Productivity falls in mills and campo (4.1 ha.)
- Subsidies grow
- Mexico shifts from net exporter to net importer
5Background to conflict
- Government sells the mills (1988 - 1992)
- Policy moves to more market orientation
- Budgetary concerns also forces sales of state
assets - Mills sold in highly leveraged operations up to
80 - Implicit understanding that tight controls over
domestic prices - Yet, imports grew depressing mills sending them
anew into crisis - Government support to mills to pay cañeros
- Interest rates following economic crisis and debt
grows
6NAFTA
- Mexico negotiates structural change
- U.S. and Canada negotiate trade agreement
- Mexico negotiations sugar sector
- U.S. Negotiates sweetner sector
- Mexico net importer of sugar
- U.S.net importer of sugar
- Mexico and U.S. protect domestic markets
- Low level of HFCS trade
7Mexicos foreign trade in sugar(million dollars)
8NAFTA from agreement to confustion
- Net production surplus the side letters
- English
- definition shall include consumption of high
fructose corn syrup provided for in - Spanish
- la determinación deexcedente de producción
netoincluirá para efectos de Sección A del Anexo
Anexo 703.2, fructosa de maíz, descrita... - NPS
- U.S. Psugar (Consumptionsug
ConsumptionHFCS) - Mexico (PsugarPHFCS) (Consumptionsug
ConsumptionHFCS) - Letter not ratified by Mexican senate
- Mexicos quota en years 7 14 fixed at 250,000
MT or up to 250,00 - Similar to corn discussions
- Mexico goes to panel
9NAFTA from agreement to confrontation HFCS
- U.S. surplus corn producer
- Government supports (aka subsidies) for corn
- HFCS capacity grows
- Displaces sugar in carbonated beverages
- Limited opportunities for HFCS in other food
products - Lacks sparkle
- Excess capacity looks for new markets
- Did it grow looking to Mexico?
- Mexico initiates dumping demand
- U.S. loses and goes to panel
10Mexicos imports of HFCS
Imports of HFCS (55) (000 mt)
Source Rabobank with data from the Secretaria de
Economia
11Sugar cane area(000 ha.)
12Sugar cane yields(tons per ha.)
13Sugar cane production(Million mt)
14Sugar production(Million mt)
15Sugar production per hectare(Million mt)
16Efficiency varies greatly from company to
companyTime lost in mills
Average
17Recent events
- Consolidation of the milling sector of the
industry - GAM goes into default
- 2001 found the domestic market in disarray
- Low domestic prices
- Dumping of sugar on domestic market
- SAGARPA under state of siege by cane growers and
threats by mill workers - Mills of four companies expropriated
- Government sets up agency to run mills and to
eventually privatize them
182001 Mexican sugar prices
19Seasonal nature of Mexicos sugar harvest(mt per
week)
20Recent events (cont.)
- Congress enacts excise tax on HFCS used in soda
pop - Congress flexing muscle
- Frustrated with slow pace is resolving dispute
- Upset with SE decision to negotiate
- Cañeros strength in Congress
- National Sugar Policy (Feb. 2002)
- Bring order to the market
- Mixed capital export company
- Inventory financing
- Modernize market
- Contrato Ley
- Decreto cañero
- Temporary suspension of HFCS tax
- Steel for HFCS?
- Until Sep. 30
- Criticized by industry and Congress
21The future 2and tier tariffs
- Allows for free imports of sugar paying declining
tariffs - U.S. WTO sugar quota
- Trade policy, foreign policy or subsidies for
holders of quotas - Imports of sugar paying tariffs will displace
quota sugar - USDA baseline projection document raises question
of dumping of Mexican sugar
22Over quota tariffs for imports of Mexican sugar
into the U.S.(cents per pound)
23NAFTA high-tier Mexican sugar exports to the U.S.
Source Rabobank from USDA baseline projections
24NAFTA high-tier Mexican sugar exports to the U.S.
U.S. WTO import commitment
Source Rabobank from USDA baseline projections
25U.S. sugar prices (cents per pound)
26The future 3 scenarios
- U.S.opens market to sugar imports
- As Mexican imports grows U.S. recognizes that
they cant compete - Abandons all supports rather than support Mexican
industry - 3rd party countries displace Mexican producers
- Creation of NAFTA sugar market
- Mexico sugar displaces quota sugar
- U.S. holders, and others, invest in Mexican mills
- Minimal domestic pain
- HCFS south and sugar north happy corn growers
and share holders - U.S. refuses to open border
27The future Spoilers
- Cuba
- Life after Castro
- FTAA
- Brazil takes over the market (4 cents lbs. break
even)
28U.S. and Mexican refined sugar prices(cents per
pound)