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Supported
by NAFTA regulations, it appears that Mexico could soon win its appeal to
sell large quantities of surplus sugar to the US. If this happens, the
price of baked goods, soft drinks, and a number of foods and beverages
made of sugar could decline over the next year. The sweetener battle
between the US and Mexico began in 1997 when large quantities of high
fructose from the US were exported to Mexico and began to displace cane
sugar in that market. Faced with sugar surpluses, the Mexican government
erected a protective trade barrier against fructose. In retaliation, the
US took steps to block any increase in Mexican sugar imports.
In
accordance with NAFTA regulations, Mexican sugar should have free access
to the United States as of October 2000. It looks as though Mexico will
not sit by idly if the US continues to restrict sugar sales. Trade
officials there have already made it clear that any move contrary to the
spirit of NAFTA will be met by restrictions on the importation of corn
from the US. That would inevitably undermine the already depressed price
of that commodity.
The
influx of Mexican cane sugar has not even begun and there is a sugar glut
in the United States and international markets. This situation has forced
sugar prices to a 22-year low. Assuming that Mexican sugar gains free
access to the US market, the price there will drop even further. At least
in the short term this should come as a boost to food processors which
consume high volumes of sugar.
Agriculture
and trade authorities in the US fear that any further decline in the price
of cane sugar will prove damaging to Hawaii's sugar plantations. Faced
with high production and distribution costs, their profit margins are
already dangerously thin. No matter how the NAFTA sugar dispute is
resolved, the underlying problem will not disappear – global sugar
production greatly outstrips demand.
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