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Published August 20, 2012, 11:06 AM

U.S.-Mexico sugar markets

Barbara Fecso, the U.S. Department of Agriculture economist who helps manage the country’s sugar program, is also a runner who uses her daily trips around the National Mall in Washington, D.C., to observe other people.

By: Jerry Hagstrom, Special to Agweek, Agweek

COEUR D’ALENE, Idaho — Barbara Fecso, the U.S. Department of Agriculture economist who helps manage the country’s sugar program, is also a runner who uses her daily trips around the National Mall in Washington, D.C., to observe other people.

Fecso told sugar growers recently that in the past few months, she has encountered other people whose oddities have helped her figure out how she should manage the program, as unpredictable amounts of Mexican sugar become a bigger factor in the U.S. supply, and Mexico buys increasing amounts of U.S.-produced high fructose corn syrup.

First, she saw a man reading a book on a bicycle, which she determined requires a “balancing act.” Then she saw a blind woman running by holding hands with a man, which she said “requires faith.”

In a speech to the American Sugar Alliance International Sweetener Symposium, Fecso said she hopes sugar growers and sweetener users realize that meeting the congressional mandate of supplying Americans with sugar while avoiding price drops that would allow U.S. producers to forfeit their sugar is a balancing act that requires faith and avoidance of danger.

Dan Colaccio, the director of dairy and sweetener analysis at the Farm Service Agency, added in a separate presentation that even though candy companies and other sweetener users have urged USDA to allow more tariff-free imports earlier in the year to keep prices down, the agency has decided it must manage the supplies cautiously to avoid the forfeitures under which the government would have to pay cane and beet growers for their sugar.

During the symposium, a series of speakers cited the uncertainty of how much sugar would flow from Mexico as the biggest issue in the management of the program and sugar prices in the coming year.

Fecso noted that under the sugar program, which was last reauthorized in the 2008 farm bill, domestic producers are supposed to supply up to 85 percent of U.S. sugar needs and that the U.S. is required to import about 13 percent of its sugar supply from countries other than Mexico under various trade agreements. That leaves about 2 percent “that can float,” including sugar from Mexico, which has the right under the North American Free Trade Agreement to send an unlimited amount of sugar to the U.S. tariff-free.

In technical terms, managing the program has meant trying to maintain a 14.5 percent stocks-to-use ratio for sugar, making decisions on when to allow additional sugar into the U.S. tariff-free and how much to allow. Sweetener users say the stocks-to-use ratio should be 15.5 percent, while Owen Wagner, an analyst working for the growers said at the meeting that the ratio could be reduced below 14.5 percent because “just in time” deliveries make the current ratio antiquated. Sweetener users campaigned to convince Congress to lower forfeiture prices and ease imports in the current farm bill, but have failed so far in both the House and the Senate.

Market supply

In recent years, U.S. producers have not been able to supply 85 percent of the market, and the U.S. has needed the Mexican sugar. But this year, U.S. sugar production is expected to be up. At the same time, Mexican bottlers have been converting from sugar to U.S.-produced high fructose corn syrup (HFCS), but analysts are uncertain whether Mexico will increase its HFCS use because the drought in the U.S has led to increased prices.

“Mexico continues to flummox us,” Fecso said. “We are still getting used to how to think about Mexico.”

And while U.S. growers have feared that supplies of Mexican sugar will upset their market, Humberto Jasso Torres, director-general of the Mexican National Sugar and Alcohol Chamber, said that the Mexican industry considered entering a free market with the U.S. “agricultural giant” to be “frightful.”

“We have 3 million farmers that have on average three acres each,” Jasso Torres said. “The idea of free trade with the U.S. was a frightful thing.”

HFCS now makes up 30 percent of the Mexican sweetener market, he said.

Jasso Torres’ conclusion is that the long-term Mexican-U.S. relationship in sweeteners under NAFTA is not yet clear. “NAFTA is something we need to see mature and take care of continuously,” he said. “Export patterns have not matured yet. There are things that need to be studied more. “

While some U.S. food companies have shifted from HFCS to sugar in reaction to consumer preferences and health concerns, Jasso Torres said no one has raised concerns about HFCS in Mexico. “That is something I have to work on,” he said. “That is definitely one of our priorities. People are not aware that corn syrup exists and if they were aware, it would change the way they eat.”