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Published August 16, 2011, 11:11 AM

Sugar is strong, but challenges remain

STOWE, Vt. — High sugar prices and increased demand in the United States have allowed the U.S. and Mexican sugar markets to integrate more smoothly than expected under the North American Free Trade Agreement, but there could be troubles ahead, and sweetener users say more imports from other countries should be allowed to lower prices, industry and government officials said at the recent American Sugar Alliance Sweetener Symposium in Stowe, Vt.

By: Jerry Hagstrom, Special to Agweek

STOWE, Vt. — High sugar prices and increased demand in the United States have allowed the U.S. and Mexican sugar markets to integrate more smoothly than expected under the North American Free Trade Agreement, but there could be troubles ahead, and sweetener users say more imports from other countries should be allowed to lower prices, industry and government officials said at the recent American Sugar Alliance Sweetener Symposium in Stowe, Vt.

Under the sugar program in the 2008 farm bill, U.S. cane and beet producers are supposed to provide 85 percent of the sugar used in food. The Agriculture Department also is supposed to control imports so prices of raw and refined sugar remain high enough that growers do not exercise their option to forfeit sugar to the government and get paid for it.

High national demand

When Mexico was given free access to the U.S. market under NAFTA, U.S. growers warned there would excess supplies, and got measures inserted into the 2008 farm bill to try to protect them from plummeting prices. But in the past year, as consumers show a preference for sugar instead of high-fructose corn syrup, U.S. demand has been so great that increased sugar coming in from Mexico has not been a problem, and the program operates at no cost, analysts said. Meanwhile, world prices have remained far above U.S. support levels.

Francois-David Nehama, a Miami-based sugar analyst with Sucden Americas Corp., said he considers the NAFTA sugar program to be “a great success story” because it has allowed movement of sugar and high-fructose corn syrup between the two countries.

While Mexico has increased its sugar exports, Mexican bottlers also have shifted from sugar to high-fructose corn syrup as the sweetener used in soda pop.

“Bottlers use a bottom-line-oriented equation in buying HFCS,” Nehama said.

Although analysts had initially wondered if Mexican consumers would buy Coca Cola and other drinks sweetened with high fructose corn syrup instead of sugar, Mexican bottlers “don’t have to worry about consumer resistance,” he added. The Mexican government, he said “likes to protect cane growers,” but imports sugar when prices get high.

Jose Pinto, chairman of the board of Beta San Miguel, the largest Mexican sugar provider, said integration of the U.S. and Mexican sweetener markets had been pushed forward by the hurricanes in the United States that increased the U.S. need for Mexican sugar, while rising sugar prices had encouraged Mexican bottlers to use corn syrup.

Pinto noted that there has been no consumer campaign against corn syrup in Mexico as there has been in the United States, but that if such a campaign were to start, “that would lead back to more sugar consumption in Mexico.” Pinto also said that Mexican government actions in recent years had helped the Mexican sugar industry, but that the Mexican government still is slow to issue import permits when shortages occur. He added that climate change and other weather issues such as frosts, flooding and drought still affect production.

USDA economist Barbara Fecso noted that the agency has followed congressional rules in allowing imports and making sure that the program operates on a no-cost basis, and has instituted an annual meeting with the Mexican government each March so that the U.S. officials can have better information before they issue the first import permits in April.

Fecso said that Mexican sugar refiners are improving the quality of their product and that increased refined sugar imports from Mexico and increased refining capacity in the United States at some point could be in conflict.

If U.S. refiners cannot get enough raw sugar, that could lead to “attrition” in the U.S. refining industry, Fecso said, noting that if both countries have good sugar crops, “USDA will have program costs unless the world (supply) is short.”

Integrating into NAFTA

In an interview, ASA chief economist Jack Roney agreed that the integration has gone better than expected because of the “good fortune” of high world prices. But American growers still are disturbed by Mexican sugar imports, he said, and by “leakage” of those imports into the U.S. market, which is not supposed to be allowed under NAFTA.

Imports of refined sugar from Mexico are “harmful to U.S. cane refineries and jobs,” Roney said, while noting there is nothing the U.S. industry can do about it legally.

Whether that management system is working well for candy companies and other sweetener users and can be maintained in the future is subject to debate.

Roney, who works for the growers, said the program is working to the advantage of all sectors because “the U.S. sugar market has remained well-supplied with high-quality safe sugar.”

But Randy Green of the Sweeteners Users Association said that the U.S. sugar program is operated under “sugarnomics” rather than economics because economics calls for business decisions to be made on up-to-date information rather than a program of prices and import quotas set by Congress in 2008.

Sweetener users think that the Obama administration’s decision to administer the import quota system to keep the stocks-to-use ratio of sugar at about 13 percent is “excessively tight” administration, Green said.

“We would challenge (the view) that as long as no one shuts down a plant and closes it forever, the policy is a success,” Green said.

Contending that such a tight stocks-to-use ratio hurts small businesses that use sugar because they do not have the same hedging abilities as large companies, Green asked if “just getting by” constitutes a success.

Green said USDA should allow enough imports so that the stocks-to-use ratio would be about 15 percent and that the sweetener users will support bills that would end or change the program in the next farm bill as well as seeking provisions that would allow more imports.

But Paul Ryberg, vice president of the International Sugar Trade Coalition, which represents developing countries that export to the United States, said his members would encourage Congress to continue the current sugar program in the 2012 farm bill.

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