U.S. Set to Determine Need for Probe of Mexico Sugar Exports

Apr 18, 2014 9:54 am ET

(Updates with comment from spokesman for Mexico’s sugar industry in seventh paragraph.)

April 18 (Bloomberg) -- The U.S. will announce today whether it will investigate allegations that Mexico unfairly subsidized its sugar exports, a step that may lead to penalties on trade that was valued at $1.1 billion last year.

A probe, requested by U.S. sugar producers, would examine whether sugar cane and sugar beets from Mexico are being sold at below cost, a practice known as dumping.

“Mexico is clearly dumping sugar onto our market and seizing market share from U.S. producers,” said Phillip Hayes, spokesman for the Washington-based American Sugar Alliance, which represents growers and processors including American Sugar Refining Inc., maker of Domino Sugar.

The dispute pits the domestic sugar industry, among the most active lobbies in Washington among commodity groups, against the main source of sugar imports, which under the North American Free Trade Agreement are unfettered. Mexico’s government and its supporters say the exports are proper, while backers of a probe say cheap Mexican goods pose a dire threat to U.S. producers.

The American Sugar Coalition, representing farmers’ groups, filed complaints with the U.S. Commerce Department and the U.S. International Trade Commission March 28, saying the Mexican industry’s practices will cost producers almost $1 billion for the most recent crop year. The Commerce Department said it will announce its decision on whether to initiate an investigation today.

‘Delicate Balance’

The coalition’s complaint excluded specialty sugar such as rock candy, or processed foods that contain sugar, including cereals and soft drinks.

“Sugar is the most protected industry in the United States” and was exempt from Nafta rules until five years ago, James K. Glassman, chairman of Public Affairs Engagement in Washington, which represents Mexico’s sugar industry, said today in an e-mail. “Sugar companies had plenty of time to get ready. Instead, they decided to go piggish.”

Mexico’s Agriculture Ministry in March disputed the coalition’s complaint, and said the dispute could “seriously affect the delicate balance” in trade of the sweeteners and the import of fructose from the U.S. and pledged to defend its sugar industry.

Mexico government officials didn’t respond to requests for comment yesterday, a holiday there.

Guarantees, Quotas

U.S. producers have benefited from government policies, including price guarantees and import quotas. The U.S. spent more than $250 million in 2013 to boost the domestic sugar industry after two years of bumper crops and booming imports triggered federal supports. The price fell 37 percent in 2012.

For the first time, the U.S. bought the sweetener at a loss for use in ethanol plants as part of an aid program. The purchase prompted calls to change the supports, an effort that failed to materialize in the farm bill Congress passed in February.

U.S. sugar sold in New York closed yesterday at 24.68 cents, and on April 4 reached its highest since October 2012. Futures are up 20 percent for the year, reducing the likelihood of future government aid. The U.S. Agriculture Department projects that imports from Mexico, estimated at 2.124 million tons last year, will fall 18 percent to 1.745 million tons this year.

Lobbying Clout

In part because its business is controlled by government policy, sugar groups are among the largest spenders on Washington lobbying. Four of the top five political contributors among crop organizations are sugar-affiliated, according to data from the Center for Responsive Politics in Washington.

Global trade in sugar, one of the world’s most heavily subsidized and regulated commodities, is governed through a complex international quota system.

Trade between the U.S. and Mexico is set by Nafta, which U.S. sugar-producer groups maintain allows Mexicans to dump cheap sweetener into the U.S. The coalition is asking the Commerce Department to impose duties that would make up for subsidies and artificially low prices on Mexico’s sugar.

U.S. Agriculture Secretary Tom Vilsack last month called the sugar-lobby effort “ill-timed.”

“We are at a very delicate circumstance and situation with Mexico on a variety of issues, and I’m sure that they don’t see this as a particularly friendly gesture,” Vilsack said in a hearing of the House Agriculture Committee this month.