As the countdown continues to free sugar trade between the United States and Mexico, the US sugar industry is wagering that favourable prices and poor Mexican output will stave off a ruinous flood of imports.
But there are no sure bets for US sugar cane and sugar beet growers just seven months before all duties and trade restrictions disappear on January 1, 2008. That's the date when the countries finally embrace a key provision of the contentious North American Free Trade Agreement, or NAFTA.
Free trade has been a perennial worry for farmers on both sides of the border. US sugar interests have feared a surge in imports would squeeze their producers out of business, and growers on both sides of the border are wary of lower prices.
With those concerns in mind, NAFTA negotiators crafted a long phase-in period for lifting sugar trade restrictions. But even now, the landscape after January is uncertain. One US trade official, speaking on the condition of anonymity, said some US growers were holding out for more government intervention. "There is a lot of ... refusal ... to believe that 2008 was really going to happen," he said.
But now, with a rosier outlook for US sugar, the American industry is actually banking on exporting to Mexico. "We're more efficient producers than the Mexican (producers) are," said Jack Roney, an economist with the American Sugar Alliance.
He believes higher Mexican prices and the potential for lacklustre Mexican crops, along with a higher price for alternative sweeteners that could compete against sugar, bode well for the US industry.
The US Agriculture Department predicts a declining Mexican sugar surplus over the next decade, but just how much will be available to export to the United States hangs on a host of other issues, including how much high fructose corn syrup, or HFCS, Mexico will use to sweeten soft drinks.
Increased prices for HFCS -- fed here by a boom in alternative fuel ethanol, made from corn -- could also make it less likely that Mexican beverage producers switch sweeteners.
The Mexican sugar industry is expecting its crop, smaller than a US crop forecast at 7.7 million tonnes in 2006/07, to come in lower than forecast this harvest, as low as 5.2 million tonnes. But they also hope to ramp up production by 2012 to 6.5 million tonnes a year. Another unknown is how free trade will dovetail with possible changes to the US sugar support program.
The Agriculture Department sets import quotas and can limit domestic sales of sugar in a bid to assure a minimum price and avoid paying out too much to farmers in price supports. The restrictions are lifted when there's an import surge.
A recent USDA proposal would allow the government to keep limits in place even when imports spike, as they well may under free trade with NAFTA. Otherwise, the department predicts, it could spend $141 million a year to compensate farmers on price-support loans.
But USDA's proposal to tweak sugar policy may fare poorly in Congress, especially with Rep. Collin Peterson, who hails from the biggest sugar-producing district in the country, as head of the House Agriculture Committee.
The Minnesota Democrat, who will help set the agenda for the 2007 farm bill, the umbrella farm law, opposes any changes until the impact of free trade is more clear. But he, too, believes the US industry will soon be shipping sugar south of the Rio Grande.
"I think we could sell more sugar to Mexico than they sell to us ... It could solve some of our problems," he said. Peterson says that if he's wrong, the committee could step in later on to make sure USDA isn't spending million of dollars a year on loan forfeitures.