US sugar producers are banking on a new energy plan to stave off price collapse just days before the United States and Mexico launch free sugar trade, but critics see an unwise plan that will cost millions.
Free sugar trade with Mexico "makes the situation a lot less predictable because we don't know how much sugar to expect from Mexico in any given year," said Jack Roney, an economist with the American Sugar Alliance, an industry group.
Roney expects that US producers could sell as much as 300,000 short tons raw value (STRV) to Mexico in 2008, when all duties and trade restrictions disappear in a long-delayed step under the North American Free Trade Agreement, or NAFTA.
That's a change from the past, when they predicted a tide of imports that could drive down prices and put them out of business. High production and transport costs have helped keep Mexican sugar prices above US prices in recent years.
US growers' confidence rests largely on an arrangement of government price supports, trade and marketing quotas, and a proposed tie-in to growing ethanol production in the United States that the Bush administration warns is a big mistake.
Under a new plan approved by Senate and House of Representatives this year, the Agriculture Department would buy up excess US sugar and sell it to ethanol plants to be used making the alternate fuel, absorbing any difference in cost.
Acting Agriculture Secretary Chuck Conner, arguing that the economics just don't add up for using sugar as a biofuel stock, said last week he hopes Congress will make eleventh-hour revisions to a plan USDA sees costing $140 million a year.
The measure faces a veto threat from President George W. Bush as part of the 2007 farm bill, the umbrella agriculture law the administration says would raise taxes while failing to do enough to rein in wasteful farm subsidies.
A LIFELINE OR BALL AND CHAIN? But Roney contends the new ethanol plan is a necessary buttress for sugar growers in the NAFTA free-trade environment and is one that could ultimately save taxpayers money.
He estimates the government could buy up to 230,000 STRV of excess sugar a year, costing anywhere between $0.10 and $0.15 cents a lb. He sees it as a fair swap after the US industry's long-standing opposition to the NAFTA sugar arrangement.
"It seems kind of fair that if they're forcing us to take this subsidised sugar from Mexico that they be willing to dispose of it," he said. Without that safety valve, "we'd have a mess," Roney said.
But if harvest patterns or market conditions change, and the government ends up purchasing more surplus sugar, the price to the US taxpayer could soar. The government "is going to lose a ton of money on the ethanol thing," said Tom Earley, an economist at Promar International, an agricultural consulting firm. He believes sugar will be of slim interest to ethanol producers, predicting the government could lose up to $0.20 a lb. in the ethanol transaction.
The sugar might be more valuable as animal feed than in biofuel production, he said. Greater sugar imports could also be ahead free trade deals with Central American nations, Peru and other countries. "Under the current US sugar program, all these increased imports increase the likelihood of high federal expenditure to support the sector," USDA said in a report this year. The sugar trade is closely tied to US production of high fructose corn syrup, which is used to sweeten most soft drinks here but is less common in Mexico.
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