Sugar producers seek stable farm policy, eye Mexico in 2008

by Ron Sterk
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TUCSON, ARIZ. — U.S. sugar producers are hoping for an unchanged sugar policy in the 2007 farm bill, while processors and buyers alike are keeping close watch on trade with Mexico as sweetener duties are eliminated Jan. 1, 2008, and on the burgeoning U.S. ethanol industry as it competes for corn supply.

About 300 producers, users and other participants in the sweetener industry gathered in Tucson Feb. 11-14 for the 2007 International Sweetener Colloquium sponsored by the International Dairy Foods Association. The farm bill, Mexico and ethanol easily dominated discussion.

Jack Roney, director of economics and policy analysis for the American Sugar Alliance, which represents sugar growers and processors, said it was important to continue the current sugar policy to avoid further concentration in the sugar industry and to keep the sugar program at no cost to the government.

One third of the sugarcane and beet mills have shut down since 1996, Mr. Roney noted, but the most efficient plants still are in operation.

Flexibility in sugar policy also was important, Mr. Roney said, based on lessons learned in 2005 when hurricanes shut down a major cane refinery near New Orleans and bulk sugar prices shot to 40c a lb or more.

"The U.S.D.A. doubled import (quotas) rather quickly," he said, "but more than half of the imports from Mexico didn’t meet quality standards and had to be re-refined."

Under the current sugar policy, retail sugar prices are about the same as they were in 1980, Mr. Roney said.

"Consumers don’t complain about sugar prices," he noted.

The U.S.D.A. has indicated its desire to keep the U.S. sugar program in the 2007 farm bill at no cost to the government by preventing forfeitures. But its proposed method for achieving that is a significant change from current policy. The U.S.D.A. has recommended eliminating the requirement for the secretary of agriculture to suspend domestic marketing allotments when sugar imports are projected to exceed 1.532 million tons.

"Domestic marketing allotments for sugarcane and sugar beets could be reduced, as needed, to balance sugar supply and demand and prevent price support forfeitures," the U.S.D.A. recommendation said. In effect, the U.S.D.A. is suggesting U.S. sugar marketings be adjusted based on potential sugar imports, rather than adjusting imports based on domestic marketings, as in the current program.

Bill Smith Jr., vice-president of marketing for the Amalgamated Sugar Company, L.L.C., told the group it was unfair for U.S. producers to be the "residual" suppliers to their own domestic market. It would be the "death knell" for the domestic sugar industry, he said.

Mr. Smith suggested the timing of the U.S.D.A. program does not serve the sugar industry well, as beet producers must make planting decisions well before the U.S.D.A. sets domestic marketing quotas each July, which in turn is well before production is known. He said the process, from farmers’ initial inputs to final marketing of the sugar, takes 22 months.

Randy Green, president of the Sugar Users Association, disagreed with extending the current program under the new farm bill.

"The current structure is not sustainable as we move into an era of free trade with Mexico," he said. Other options should be considered, Mr. Green said, such as direct government payments used for other commodities.

Mr. Roney agreed sugar exports from Mexico will be the biggest challenge in maintaining a "no cost" sugar program. He suggested excess Mexican sugar could be "absorbed" in the U.S. for non-food uses, such as a feedstock for ethanol.

The free trade of sweeteners between Mexico and the U.S. could be a "non event," at least for 2008, participants at the colloquium indicated. Current tight corn sweetener supplies in the U.S., and a smaller-than-expected sugar crop in Mexico, are pointing to limited amounts of either product available to cross the border in 2008.

When the agreement was made, it was a time of tight sugar supplies in the U.S., said Darci Vetter, director of North American Affairs Office of Agricultural Affairs of the U.S. Trade Representative. But based on current market conditions of high corn prices and a large sugar crop in the U.S. coupled with a smaller sugar crop in Mexico, it’s "unlikely we will see a flood of corn or high-fructose corn syrup going to Mexico on Jan. 1, 2008," she said. Instead, it is more likely the allowed access for U.S. HFCS to Mexico and Mexican sugar to the U.S. will not be filled, she said.

Ms. Vetter said a joint industry-government task force would be in place within a few weeks to oversee the transition to duty free trade between the U.S. and Mexico, which applies to corn and soybeans as well as sweeteners.

Some participants at the colloquium expressed concern that Mexico could import lower priced sugar on the world market and ship its own production to the U.S., rather than just shipping its own excess

production. The agreement does not prohibit such action, but requires sugar shipped from Mexico to the U.S. be originated in Mexico.

Participants also indicated concern about the lack of accurate sugar market data from Mexico, which would be important to determine U.S. marketing allocations under the administration’s farm bill proposal.

Hector Marquez Solis, trade and NAFTA office embassy of Mexico, told the group that for Mexico to secure an adequate supply of sugar for its domestic market, which was Mexico’s top priority, it also needed to have more reliable information on domestic production, stocks and consumption.

"It’s something we have to work on," he said.

Second only to Mexico’s objective of securing adequate sugar supplies at adequate prices for its domestic needs, Mr. Solis said, was Mexico’s desire to maximize export opportunities and become a reliable source of sugar for the U.S. market. The amount of U.S. HFCS imported by Mexico "will determine how much sugar is available" to export to the U.S., he said.

High corn prices in the U.S. and surging demand for corn to make ethanol likely will limit the amount of HFCS available to export to Mexico, speakers at the meeting generally agreed.

Steve Freed, vice-president of research for ADM Investor Services, said increased global demand for corn was a historical trend, not just short term because of use for ethanol in the U.S. He predicted the next six months "could be the most volatile ever" for corn futures prices.

There was little argument that in the U.S., demand for corn as the major feedstock for ethanol has driven prices up sharply since last summer and tightened corn supplies for making corn sweeteners. Participants generally agreed that as free trade develops with Mexico, the amount of Mexican sugar available to export to the U.S. will depend on the size of the Mexican cane crop as well as on the amount of HFCS Mexico imports to offset sugar use. At one time about 75% of Mexico’s beverages were sweetened with U.S. HFCS, but speakers indicated that level was unlikely any time soon because of the tight supply of HFCS and Mexico’s desire to protect its domestic sugar and cane industries.

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