WASHINGTON, D.C. — The next chapter in the long, complex story of food sweeteners in North America is still in rough-draft form, as U.S. Department of Commerce (DOC) and Mexican government officials have agreed in principle on settlement of the latest sugar trade dispute.

 

It hasn’t been finalized, though that deadline is June 30, according to Corn Refiners Assoc. (CRA) CEO John Bode; this presumably includes a period for comment and changes that must happen in the next two weeks. It remains to be seen if those changes will address a loophole the U.S. sugar industry says could undermine the agreement.

In 2008, 14 years after the North American Free Trade Agreement (NAFTA) went into effect, the U.S. market opened fully to duty-free Mexican sugar imports; that same year, U.S. fructose – chiefly high fructose corn syrup (HFCS) – flowing to Mexico jumped by 54 percent.

Two years later, exports more than doubled again and have fluctuated up and down within about 13 percent of that since, according to U.S. Census Bureau data. Since 2008, sugar exports from Mexico have shifted up and down the scale, but in fiscal years 2013 and 2014, leapt to nearly twice the 2012 amount and more than three times the 2008 volume. According to the USDA’s Economic Research Service (ERS), the two growing seasons of 2012-14 were especially strong for Mexican sugar production.

In 2013 Mexico began “dumping” its surplus sugar into the U.S. market at prices under the cost of production, said Phillip Hayes, director of communications for the American Sugar Alliance (ASA), a coalition for several sugar groups. He said Mexico was able to sustain sugar prices higher than U.S. prices because its government prohibited imports and shipped excess sugar to the United States. But here, American sugar prices collapsed and put some growers and processors at a financial loss, in turn costing the federal government money through unpaid loans. So, in 2014 Hayes said the American sugar industry filed anti-dumping charges with the U.S. International Trade Commission against Mexico, as well as asking for countervailing duties.

The commission found in favor of the United States, and the DOC proposed re-imposing duties of 80 percent on Mexican sugar. In place of this, however, the ERS said the U.S. government negotiated Suspension Agreements with Mexico that limited the amount of sugar it could export here, based on a formula using USDA global production data. Mexico was also subjected to Reference Prices, or minimum prices it had to charge on raw and refined sugar.

Hayes said the agreements, which went into effect in 2015, have not stopped the dumping. According to the ASA, since then the U.S. sugar industry has lost $2 billion more in revenue, and Hawaii – long known for being one of only four states that grew sugarcane – shut down its last fields and mill in December 2016.

Too, the alliance said refined beet sugar prices are so low that loan forfeitures are a serious threat. (The ASA represents both cane and beet producers and processors; sugar beets are grown in 11 states, including Michigan and Minnesota. In Mexico, sugar is produced only from cane, Hayes explained.) The renegotiation of the Suspension Agreements that DOC and Mexican government announced on June 6 is “more about enforcing the trade laws that we have on the books,” Hayes said.

And yet, if this agreement-in-principle is finalized as it currently reads, there’s still a big problem as far as the ASA and its member organizations are concerned.

 

The volume of sugar that’s imported and the prices charged aren’t the only factors in the struggle to balance the terms of NAFTA with a profit for American sugar interests. The ERS explains that unlike commodities such as corn and grains, the product (sugar) from cane and beets has to be processed quickly for dry storage – so it’s the processors that receive government loans, not producers (though to qualify for a loan, a sugar processor is required to pay producers minimum prices for their crop).

Of the sugar Mexico exports to the United States, only a certain amount can be refined. Too much refined product means less work for U.S. processors. According to the DOC, its renegotiation with Mexico would raise refined Mexican sugar from 26 to 28 cents per pound, and raw sugar from 22.25 to 23 cents per pound. Right now, 53 percent of imported sugar is allowed to be refined; this agreement change would drop that to 30 percent.

DOC stated Mexico has agreed to increased enforcement measures and to accept “significant penalties” for violations, including a reduction in the amount of sugar allowed to be imported equal to twice the amount of any sugar found to be in violation of the modified agreements. In addition, DOC could increase this reduction to three times the amount if necessary to deter further wrongdoing.

The ASA takes issue with the portion of the DOC agreement that reads, in part: “Mexico accepted the above significant modifications on the condition that Mexico be granted a right of first refusal to supply 100 percent of any ‘additional need’ for sugar identified by USDA after April 1 of each year. Additional need is defined as demand for sugar in excess of the demand USDA had predicted for that crop year.”

Hayes said this could lead to Mexico shorting U.S. processors of raw sugar under certain circumstances. The full language does not do a good job of keeping the authority of dictating “raw vs. refined” imports with the USDA secretary, instead giving that to Mexico.