Some trade issues between the U.S. and Mexico, like sugar, were sensitive when NAFTA was negotiated, and the agreement provided for a 15 year transition that ends on January 1, 2008. The two countries remain major sugar producers, and both continue to use government policies to support sugar prices above world market prices. The ultimate problems for the two industries are domestic policies, not trade policy.

Els EUA. produces about 7.7 milions de tones mètriques valor cru (MMTRV) of sugar per year, the worlds fifth largest output, and imports 1.9 MMTRV under tariff rate quotas (contingent) based on WTO, NAFTA and CAFTA commitments. Exports are 0.2-3.0 MMTRV per year leaving domestic consumption, at about 9.3 MMTRV per year. en el 2005/06 marketing year after Hurricane Katrina total U.S. imports were 3.1 MMTRV. Els EUA. is usually the fourth largest importer of sugar, just ahead of Indonesia and Japan.

Mexico is the seventh largest sugar producer at 5.6 MMTRV per year and has imports of 0.2-0.4 MMTRV per year. a 2004/05 Mexico produced over 6 MMTRV of sugar, but in no other recent year has production exceeded 5.6 MMTRV. Exports average 0.4-0.5 MMTRV per year with consumption of 5.6 MMTRV per year. Most of the imported sugar is re-exported in other products. Mexico had a NAFTA refined sugar TRQ for the U.S. for 2007 de 250,000 MTRV. Per capita domestic consumption is 105 pounds per year making Mexico the worlds sixth largest per capita consumer. The Mexican sugar industry provides 450,000 jobs and directly benefits 2.2 milions de persones.

The sugar industries of both countries require government import protection from the worlds low cost and average cost producers. According to data in the Sugar Backgrounder released in July of 2007 by the Economic Research Service (ERS) de l'USDA, the main cane sugar growing areas of the U.S. de 1999-2004 had average raw cane production costs of $0.1255 per $0.2008 per lliura. The eastern growing regions of Mexico had costs of $0.1333 per $0.1640 per lliura, with the western growing regions having higher costs. The weighted world average costs from 1999-2004 were $0.1076 per $0.1226 per pound with the six lowest cost countries at $0.542 per $0.1153 per lliura.

Per 70 years the Mexican government has had income support programs for sugar and in April of 2007 made changes to be competitive with U.S. sugar by 2012. According to U.S. Agricultural Attach reports, Mexicos goal is to supply the 5.7 MMTRV domestic market and have 0.84 MMTRV for export to the U.S., including 0.22 MMTRV in re-exports. They also plan to produce 120 million gallons of ethanol per year from sugar. The increase in production is to be achieved by increasing acreage, improving efficiencies at field and plant levels and improving the flow of market information to the industry.

The other sweetener that influences U.S. and Mexican sugar markets is high fructose corn syrup (HFCS). The ERS Sugar Backgrounder reports that the cost of production of HFCS-55 in Mexico and the U.S. de 1999 encara que 2004 averaged $0.1003 per $0.2146 per lliura. During most of those six years HFCS was cheaper than sugar in both markets and is used in the beverage industry. Production costs are similar in the U.S. and Mexico because 70-75 percent of the corn used in Mexico to make HFCS is imported from the U.S. Production of HFCS in Mexico is estimated at 0.4 MMT for the 2006/07 marketing year and again for 2007/08. Imports of HFCS from the U.S. are estimated at 0.3 MMT for the 2006/07 i 0.33 MMT for 2007/08. Current high prices for U.S. corn could be a limiting factor for production in Mexico and imports from the U.S. The two countries have had repeated disagreements on trade in HFCS, but have agreed to keep the market open.

The role of HFCS in the Mexican sugar market was shown by projections of sweetener consumption in Mexico to the year 2020 made by ERS in late 2006. Population growth and increases in per capital consumption are expected to increase the sweeteners market from 5.6 MMTRV in 2008 per 7.1 MMTRV in 2020. Different growth rates in HFCS used in the beverage market were analyzed and solved for sugar market prices that were equal in the U.S. and Mexico. One scenario assumed HFCS would account for 30 percent of the beverage market, about the same as in 2007. The other two assumed HFCS would increase to 50 percent and 75 percent of the beverage market. Under continuation of the 2007 HFCS use rate of 30 per cent, sugar movements to the U.S. would decline from about 0.6 MMTRV in 2008-10 to almost zero by 2020. en el 50 percent HFCS share scenario, sugar exports decline from 0.8 MMTRV over the next few years to 0.4 MMTRV by 2020. la 75 percent share for HFCS resulted in exports of about 1.3 MMTRV for the next few years and a decline to just under 0.9 MMTRV by 2020.

U.S. and Mexican farm policies support the price of sugar above world market prices and those high prices also attract the use of close substitutes such as HFCS. But the issue is larger than just HFCS. According to the ERS Sugar Backgrounder, imports of sugar containing products contained 1.15 million tons of sugar in 2005 compared to only 350,000 tons in 1995. Els EUA. also exports sugar containing products, but the net sugar inflow has increased from 32,000 tons in 1995 per 559,000 tons in 2005.

The ending of the transition under NAFTA for sugar trade does not end the challenges of domestic sugar policies. Those policies have been and can continue to be managed through import constraints. Much harder to manage are the economic forces when prices are held at a level that encourages the production and import of substitutes. As sugar trade policy problems develop in the coming months between the U.S. and Mexico, remember that the issue is a product pricing problem that trade negotiators cannot solve.