U.S. and Mexico need to smooth out sweetener trade

PARK CITY, Utah (Reuters) - The U.S. and Mexico must eliminate possible distortions in sweetener trade between them caused by a free trade pact, a senior U.S. sugar industry official said.

Under the terms of the North American Free Trade Agreement (NAFTA), the U.S. and Mexico can transport unlimited amounts of sugar to one another. It started in 2008.

“If either market is oversupplied, it would be disastrous for producers and government costs,” Jack Roney, director of economics and policy analysis in industry group American Sugar Alliance, told Reuters at the start of the group’s annual meeting.

He said there is a need for both nations to develop and share data so they can “anticipate each country’s needs and avoid a disaster.”

Last year, the United States relied heavily on Mexico to meet a shortage of the sweetener especially after a sugar refinery in Georgia reduced available supply by up to a month.

NAFTA led to the creation of the world’s largest sweetener market, with total usage of over 15 million tons of sugar and around 10 million tons of corn sweetener.

Sugar merchant Czarnikow said in a monthly report released last month that U.S. and Mexican authorities would need to structure import programs to mitigate a shortfall in the combined regional market.

Roney said what happened last year is that Mexico sent to the U.S. around “1.3 million short tons of sugar...but are apparently shorting their market and will have to import world market sugar to balance their market.”

He explained, “If they could have anticipated their needs better, they probably would not have sent excessive amounts to the U.S.”

According to the U.S. Agriculture Department’s monthly supply/demand report, Mexico’s sugar exports in 2008/09 reached 1.18 million short tons.

Analysts said the Mexicans would prefer exporting sugar to its neighbor because it would fetch higher prices in the United States. They can then turn around and buy cheaper sugar on the world market.

On average, U.S. domestic sugar prices would range from 20 to 22 U.S. cents per lb while the world sugar market price is running at around 18 U.S. cents and has traded recently as low at 14 cents.

“The ‘substitution’ problem is the biggest flaw. Mexico could send all its production to us and backfill with world market imports. We could do the same to Mexico,” said Roney.

The ASA official said that no free trade agreement the U.S. has with countries like Peru, Chile, Singapore, and Colombia among others allow such a substitution program.

Roney said governments in the U.S. and Mexico “appear to agree this is a flaw. That’s a big first step.”

The other challenges facing the U.S. sugar industry would be rising production costs and nearly flat prices.

Editing by John Picinich