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.

By Steve Lewis

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