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MEXICO CITY, May 25 (Reuters) - Mexico's beleaguered sugar sector
is hoping to boost exports to the United States and does not rule
out production cuts to help end a long and bitter crisis, an
industry official said on Thursday.
``It could be that in the next meeting between (Mexican)
President Ernesto Zedillo with President (Bill) Clinton in June,
there will be a definition of Mexican sugar access'', said Carlos
Seoane Castro, president of the National Sugar and Alcohol Chamber,
which represents the country's 60 mills.
The world's eighth biggest sugar industry is dogged by $2.6
billion debt and low and volatile domestic markets, caused mainly by
oversupply and a lack of viable export alternatives.
Mexico had expected to be able send all of its excess sugar north
of the border duty free under the North American Free Trade
Agreement (NAFTA) from Oct. 1. But under a side letter to the NAFTA
treaty, which Mexico does not accept, exports will be limited to
250,000 tonnes.
Seoane told reporters he did not rule out production cuts, which
are advocated by the No. 2 mill, Grupo Azucarero Mexico (GAM) . He
said they should not be undertaken without a full analysis of the
industry, and would not be necessary if U.S. access were widened.
Output could be limited by cutting back on growing areas, so as
not to penalise efficiency or productivity. ``The idea is not to cut
back, but not to increase (growing areas).''
Productivity on each of the country's 650,000 hectares should be
raised from 70 tonnes per hectare to 75/80 per hectare, Seoane said.
This year's sugar yield is expected to be a record 11.2 percent per
tonne milled.
Drought and floods may seriously affect some of the crop in the
north of the country, and diversification -- where producers use
land to grow other crops -- could help stem output, he added.
Internal demand would match supply if it weren't for imports of
U.S. high fructose corn syrup (HFCS) -- a sugar substitute used in
soft drinks and many other products, Seoane said. Mexico's sugar
industry says U.S. HFCS is being dumped at unfairly low prices.
``Curiously, without this consumption of HFCS, there would be an
internal balance,'' said Seoane. Mexico consumes 550,000-600,000
tonnes of HFCS a year, half from the U.S.
Controversial HFCS anti-dumping duties, which the U.S. wants
scrapped because the World Trade Organisation ruled they were
unfairly imposed, have helped curtail a steady growth in imports,
Seoane added.
``If Mexican sugar is not given access (to the U.S.), we hope
they will cut HFCS imports,'' he said.
Output for the current harvest, almost complete, is seen at 4.77
million tonnes, similar to the previous year, and Seoane said he
expected the following crop to fall short of this because of the
industry crisis. Mexico has one of the highest consumption rates in
the world, using almost 90 percent of its own output.
RESCUE PLAN ALMOST IN PLACE
The chamber expects to have a $450-500 million inventory finance
plan agreed by next week with state import-export bank Bancomext to
provide funds for the next cycle.
This will include credits for exports of 326,000 to the world
market, which is priced at under 8.0 cents a lb, about than half
Mexico's costs. The loss will be compensated by higher, stable
prices in the domestic market, Seoane said.
Domestic prices have dropped 20 percent since the start of the
year to 215/220 pesos per 50 kg (about 20 cents a lb) Seoane said a
competitive price for the industry would be 250 pesos per 50 kilos,
(approximately 23 cents a lb).
He said average production costs were about 14 cents a lb, but
industry officials say debt financing inflates the figure
dramatically.
Seoane said the industry has long had practically no access to
credit, which it needs to operate for 12 months when production
lasts just six months.
Sugar producers are seen joining forces to weather the crisis.
GAM, which is trying to reschedule $125.9 million debt, has been
negotiating a merger with Beta San Miguel, the third biggest Mexican
mill.
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