CLASSIFICATION: NOT USDA OFFICIAL DATA                                          
 AGR Number: MX8033                                                             
 From:   American Embassy, Mexico City, Mexico                                  
 To:     USDA/FAS Washington D.C.                                               
 Country:     MX                                                                
 Year:        1998                                                              
 Report Code: 19  Post Report Sequence Number: 005                              
 Report Title: Sugar                                                            
 Report Type:  A  - Annual Report                                               
 Report Subject: MEXICAN SUGAR EXPORTS TO INCREASE                              
 Approved By: NORVAL E. FRANCIS                                                 
 Drafted By:  D.FLORES                                                          
 Security Classification: NOT USDA OFFICIAL DATA                                
 Date Due (MM/DD/YY): 04/10/98                                                  
                    Table of Contents                                           
-General Summary......................................................   1      
-Sugar Cane for Centrifugal...........................................   2      
-Centrifugal Sugar....................................................   3      
   SWEETENERS PRODUCTION..............................................   4      
     SUGAR............................................................   4      
     HFCS PRODUCTION..................................................   5      
   SUGAR AND HFCS CONSUMPTION.........................................   5      
   SWEETENERS TRADE...................................................   6      
     SUGAR TRADE......................................................   6      
     HFCS TRADE.......................................................   8      
   SUGAR PRICES.......................................................   9      
Report Code: MX9819A       AGR Number: MX8033           Page:    1              
   General Summary                                                              
Mexico is forecast to export about 900,000 MT of sugar in MY                    
1997/98 because of higher production levels and an almost flat                  
domestic demand.                                                                
Domestic consumption is expected to remain nearly flat, but could               
vary depending on the progress of the country's economy and the                 
volume of alternative imported and domestic sweeteners.  Bank of                
Mexico sources foresees continued growth in the Mexican economy                 
despite the Asian problem and the corresponding drop in oil                     
prices. Growth for 1998 is currently expected to be in the 5                    
percent range.                                                                  
The sugar production estimate for MY 1997/98 has been raised                    
slightly over the previously projected level, to 5.05 million                   
metric tons (MMT) raw value.  MY 1998/99 sugar production                       
forecast is approximately 5.1 MMT.  Higher outputs are a result                 
of higher yields.                                                               
U.S. imports of HFCS are faced with high anti-dumping duties                    
imposed by the Mexican government as a result of an anti-dumping                
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Report Code: MX9819A       AGR Number: MX8033           Page:    2              
   Sugar Cane for Centrifugal                                                   
                       Global Economic Data Exchange System                     
 Commodity: Sugar Cane for Centrifugal  (0548290) (1000 HA) (1000 METRIC TONS)  
 Beg. Month/Year of Marketing Year:  11 / 96          11 / 97          11 / 98  
 MEXICO                      Revised 1997      Prelim 1998      Forecast 1999   
                                 Old     New      Old     New      Old     New  
 Area Planted                      740     740      740     740        0     700
 Area Harvested                    585     585      600     615        0     615
 Production                      42170   42170    43500   44000        0   45000
 TOTAL SUPPLY                    42170   42170    43500   44000        0   45000
 Utilization for Sugar           42170   42170    43500   44000        0   45000
 Utilizatn for Alcohol               0       0        0       0        0       0
 TOTAL UTILIZATION               42170   42170    43500   44000        0   45000
Report Code: MX9819A       AGR Number: MX8033           Page:    3              
   Centrifugal Sugar                                                            
                       Global Economic Data Exchange System                     
 Commodity: Centrifugal Sugar (0612000) (1000 MT) (1000 MT RAW VALUE)           
 Beg. Month/Year of Marketing Year:  11 / 96          11 / 97          11 / 98  
 MEXICO                      Revised 1997      Prelim 1998      Forecast 1999   
                                 Old     New      Old     New      Old     New  
 Beginning Stocks                  714     714      659     634        0     624
 Beet Sugar Production               0       0        0       0        0       0
 Cane Sugar Production            4835    4835     5000    5050        0    5100
 TOTAL Sugar Production           4835    4835     5000    5050        0    5100
 Raw Imports                       100      75       80      80        0      80
 Refined Imp.(Raw Val)               0       0        0       0        0       0
 TOTAL Imports                     100      75       80      80        0      80
 TOTAL SUPPLY                     5649    5624     5739    5764        0    5804
 Raw Exports                         0       0        0       0        0       0
 Refined Exp.(Raw Val)             750     750      750     900        0     950
 TOTAL EXPORTS                     750     750      750     900        0     950
 Human Dom. Consumption           4240    4240     4300    4240        0    4240
 Feed Dom. Consumption               0       0        0       0        0       0
 TOTAL Dom. Consumption           4240    4240     4300    4240        0    4240
 Ending Stocks                     659     634      689     624        0     614
 TOTAL DISTRIBUTION               5649    5624     5739    5764        0    5804
Report Code: MX9819A       AGR Number: MX8033           Page:    4              
   Centrifugal Sugar                                                            
      SWEETENERS PRODUCTION                                                     
The sugar production estimates for MY 1997/98 (November/October)                
were raised to 5.05 MMT (raw value) according to recent data.                   
Some sources, however, estimate even higher production due to                   
good weather conditions and higher cane yields.  The milling                    
industry indicates that, due to improved efficiency in harvesting               
and milling processes, sugar yields are increasing.                             
The estimate of area harvested to cane for MY 1997/98 has been                  
raised due to newly available data.  It is important to note that               
about 15 to 20 percent of area planted is for seed.  Sugar cane                 
yields have increased from an average of 68 MT/Ha in 1990 to                    
about 72 MT/Ha in 1997 due to technical improvements.                           
The initial forecast of Mexican sugar production for MY 1998/99                 
is placed at 5.10 MMT (raw value), if good weather conditions                   
prevail.  According to various sources, the sugar industry does                 
not want to surpass 5,300 MMT of sugar production, due to current               
high inventories and low international sugar prices.  Cane area                 
is forecast to decrease because the industry wants to eliminate                 
low yielding areas.  Cane yields are expected to be higher due to               
expected good weather conditions and technical improvements.  The               
current outlook is for yields of more than 72 MT/Ha in 1998.  The               
net result is that both sugar cane and sugar production are                     
forecast to increase slightly.  Virtually all sugar cane goes to                
the production of centrifugal sugar, with the remainder consumed                
as cane.                                                                        
The Mexican industry is also working hard to achieve higher mill                
yields and recovery rates.  Mill yields in MY 1996/97 were about                
10.78 percent and the forecast for MY 1997/98 yields are very                   
Growers indicate that the most expensive inputs continue to be                  
fertilizers, herbicides and fungicides which increased in price                 
by more than 20 percent from 1996 to 1997.  The principal factor                
affecting the sugar industry's ability to improve efficiency                    
continues to be the availability of credit, which remains tight.                
In fact, the sugar industry has recently indicated that, due to a               
decrease in domestic sugar consumption, it will be difficult to                 
repay its debt which has increased from US$1.5 billion in 1997 to               
approximately US$2.0 billion in 1998.  Furthermore, the sugar                   
industry point out that these financial problems and                            
inefficiencies could lead to a closing of about 16 mills from 60                
mills currently working.  This is an important factor underlying                
the industry's  petition for anti-dumping protection against                    
imports of HFCS.                                                                
Report Code: MX9819A       AGR Number: MX8033           Page:    5              
   Centrifugal Sugar                                                            
      SWEETENERS PRODUCTION                                                     
HFCS PRODUCTION                                                                 
Mexico has two plants producing high fructose corn syrup                        
(HFCS), one in Queretaro an another in Jalisco.  Much of the corn               
used for HFCS production is imported from the United States under               
the NAFTA tariff rate quota (TRQ).  Thus far, the Secretariat of                
Commerce and Industrial Development (SECOFI) has authorized the                 
wet-milling industry to import 429,362 MT of U.S. corn during the               
first quarter of 1998.  According to sources, domestic HFCS                     
production for 1998 will be very similar to that of 1997 ranging                
from 350,000 MT to 400,000 MT, and replacing 270,000 - 350,000 MT               
of domestic sugar.  According to sources, both plants have almost               
reached full production capacity for HFCS.  The main users of                   
HFCS will continue to be the bakery, food processing, fruit                     
canning and soft drink industries.                                              
SUGAR AND HFCS CONSUMPTION                                                      
Millers expect sugar consumption to remain almost flat at 4.2 MMT               
(raw value) for MY 1997/98.  Furthermore, some sources estimate                 
that sugar consumption could even be less than that figure.  The                
sugar industry maintains that sugar consumption has not been                    
growing due to the volume of alternative imported and domestic                  
sweeteners.  The soft drink industry's use of refined sugar                     
dropped and the use of HFCS increased in the last two years,                    
before the August 1997 HFCS anti-dumping duties, because the                    
price differential with sugar was becoming less and less.                       
Interestingly, for MY 1997/98 more standard sugar is being                      
produced (about 62 percent of total) than refined sugar (about 38               
percent).  The soft drink industry has different levels of HFCS                 
consumption.  Coke's Vice President of Communication claimed in                 
1997 that it bought close to 800,000 MT of sugar and that HFCS                  
represented between 20 and 25 percent of Coke's sweeteners.  On                 
the other hand, Pepsi claims that sugar is still their main                     
ingredient because they have their own sugar supplies.  Due to                  
expected higher sugar exports, inventories for MY 1997/98 and MY                
1998/99 are expected to decrease.                                               
The soft drink industry estimates its sugar needs for 1998 at                   
about 1.2 - 1.4 MMT plus about 300,000 to 400,000 MT of HFCS.                   
The soft drink industry first began to use HFCS during 1996.                    
Several sources forecast that sugar consumption for MY 1998/99                  
will remain almost flat.  Growth, however, will largely depend on               
the progress of the country's economy and the volume of                         
alternative imported and domestic sweeteners.  Due to the high                  
anti-dumping duties for imported HFCS, most of the soft drink                   
industry will rely on HFCS domestic production for 1998.  It is                 
Report Code: MX9819A       AGR Number: MX8033           Page:    6              
   Centrifugal Sugar                                                            
      SUGAR AND HFCS CONSUMPTION                                                
important to note that several sources, including the sugar                     
industry, indicate that the "so-called agreement" between the                   
sugar mills and the soft drink bottling industry to limit the use               
of HFCS in Mexico (See MX7092) does not exist.  Whether an                      
agreement exists or not there is definite pressure on the soft                  
drink bottlers to use sugar instead of HFCS.                                    
SWEETENERS TRADE                                                                
SUGAR TRADE                                                                     
With slightly higher sugar production, export volumes for MY                    
1997/98 are estimated to be greater than those of MY 1996/97.  It               
is important to note that domestic prices for sugar are higher                  
than prices for sugar in the international market.  This outlook,               
however, is tempered by the final results of actual sugar                       
production and substitution by alternative domestic and imported                
sweeteners.  Sugar exports under the U.S. quota for MY 1997/98                  
will be approximately 25,000 MT, including both raw and refined                 
The Mexican sugar industry, however, is pressing the Mexican                    
government for more access to the U.S. market, equivalent to                    
relatively free access to the Mexican market for HFCS.  This was                
prompted by the announcement from the USTR Office of an                         
additional sugar allocation of 200,000 MT under the U.S. tariff-                
rate quota (TRQ) for fiscal year 1998, which did not increase                   
Mexico's allocation.  The Mexican government has requested                      
consultations under NAFTA Chapter 20.  The objective is to                      
clarify the content of the letters that were exchanged between                  
the U.S. and Mexico in 1993, concerning the Mexican access to the               
U.S. sugar market.  SECOFI believes Mexico is entitled to                       
increased access to the U.S. market.  Another key definition that               
Mexico wants to clarify is the process to determine net producers               
status, which, according to SECOFI, seem to be different in both                
The Mexican sugar industry wants the U.S. sugar quota to be                     
higher, in agreement with the higher Mexican sugar production.                  
Basically, the Mexican sugar industry is not against U.S. HFCS                  
imports into Mexico; what they want is to gain access for more                  
than the 25,000 MT of sugar currently allowed under the TRQ for                 
Mexico.  With the high levels of imported HFCS and higher levels                
of sugar production, the sugar industry claims there is danger of               
a closing of 15 to 20 mills, resulting in layoff of about 100,000               
Report Code: MX9819A       AGR Number: MX8033           Page:    7              
   Centrifugal Sugar                                                            
      SWEETENERS TRADE                                                          
The forecast for MY 1998/99 sugar exports are expected to be                    
slightly higher at approximately 950,000 MT.  Sugar is exported                 
mostly under the Temporary Export Program (TEP).  Under TEP,                    
exporters receive an exemption from the export tax if they pledge               
to import an equivalent amount of sugar within the year when                    
there is a shortfall in domestic market.  Imports would also be                 
free from duty.  Also, under TEP Mexico has imported about 80,000               
MT of sugar for MY 1997/98.  Industry sources indicate that                     
imports are mainly a way for producers to recuperate from low                   
priced export losses and keep some sugar mills working.  The                    
government declares when sugar is not needed in the country.                    
Afterwards, the sugar mill is released from the contingent                      
obligation to re-supply an equivalent amount of sugar to the                    
domestic market.                                                                
Another program which permits sugar imports is called PITEX,                    
where sugar can be imported if it is incorporated into processed                
products and then exported.  According to sources, companies                    
such as tequila producers have used the program.  However, both                 
industry and government admit that it is difficult to track PITEX               
transactions.  Under PITEX, some sugar mills have reportedly                    
imported raw sugar and then exported refined at world market                    
The Mexican sugar market continues to be protected through a                    
system of high variable levies on imported sugar.  The import and               
export tariffs for sugar announced by SECOFI on December 29, 1995               
remain in force (Ref MX6025).  The export tariffs for sugar were                
modified for fiscal years previous to 1996/97 and left exported                 
sugar exempted from duties, due to an oversupply in Mexico. (See                
MX 7108)                                                                        
TRADE MATRIX FOR SUGAR                                                          
                  UNITS: METRIC TONS                                            
  EXPORTS FOR 1996 TO:        IMPORTS FOR 1996 FROM:                            
  U.S.         377,365        U.S.             46,426                           
  U.K.         218,215        Cuba             44,850                           
  Other          7,140        Guatemala        41,500                           
                              Other           154,602                           
  Grand Total  602,720        Grand Total    287,378                            
Report Code: MX9819A       AGR Number: MX8033           Page:    8              
   Centrifugal Sugar                                                            
      SWEETENERS TRADE                                                          
  EXPORTS FOR 1997 TO:        IMPORTS FOR 1997 FROM:                            
  U.S.            176,648     U.S.             31,767                           
  U.K             245,361                                                       
  Other           197,632     Other            12,106                           
  Grand Total     619,641     Grand Total      43,873                           
SOURCE: BANCO DE MEXICO                                                         
Note: Trade data may differ from U.S. Census data.                              
HFCS TRADE                                                                      
Due to the application of definite anti-dumping tariffs on HFCS                 
imports, companies have almost stopped importing HFCS into                      
Mexico. It is estimated that U.S. producers and exporters could                 
loose annual sales of approximately 300,000 metric tons of HFCS                 
to the Mexican market.                                                          
SECOFI announced on January 23, 1998, the final results of the                  
imported HFCS anti-dumping investigation.  SECOFI imposed anti-                 
dumping tariffs for HFCS-42 and HFCS-55 (H.S.T 1702.40.99 and                   
1702.60.01).  The compensatory quotas will be of $63.75 to                      
$100.60 dollars/MT for HFCS-42, and $55 to $175 dollars/MT for                  
HFCS-55.  In addition to imposing dumping duties, Mexico also                   
initiated a new investigation to assess whether some U.S. firms                 
had circumvented the preliminary anti-dumping duties on HFCS-55                 
by importing HFCS-90. (See MX8005)                                              
According to Mexican sugar industry contacts, the U.S. Corn                     
Refiners Association filed a Section 301 with petition with USTR                
regarding Mexico's treatment of HFCS.  A dispute settlement case                
under the NAFTA and WTO is also being considered.                               
Also, to better monitor HFCS imports, the Mexican government                    
added three new tariff lines to the harmonized tariff system:                   
1702.60.01; 1702.60.02; and 17.60.99. (See MX 8031).                            
Report Code: MX9819A       AGR Number: MX8033           Page:    9              
   Centrifugal Sugar                                                            
      SWEETENERS TRADE                                                          
TRADE MATRIX FOR HFCS                                                           
TARIFF NO. SUBHEADING   1702.40                                                 
  EXPORTS FOR 1997 TO:        IMPORTS FOR 1997 FROM:                            
  U.S.             20         U.S.            8,834                             
  Ecuador         362                                                           
  Other            94         Other               3                             
  Grand Total     476         Grand Total     8,837                             
TARIFF NO. SUBHEADING    1702.60                                                
  EXPORTS FOR 1997 TO:        IMPORTS FOR 1997 FROM:                            
  U.S.            2,248       U.S.           337,974                            
  Other              51       Other                0                            
  Grand Total     2,299       Grand Total    337,974                            
TARIFF NO. SUBHEADING    1702.90                                                
  EXPORTS FOR 1997 TO:        IMPORTS FOR 1997 FROM:                            
  U.S.            715         U.S.             2,848                            
  Other         2,463         Other              533                            
  Grand Total   3,178         Grand Total      3,381                            
Note: Trade data may differ from U.S. Census data.                              
SUGAR PRICES                                                                    
The formula to pay sugar cane producers in Mexico includes a                    
reference price for standard sugar.  The Mexican sugar cane                     
growers pressed both government and industry for an increase in                 
the reference price of standard sugar to pay sugar cane.  On                    
March 31, 1998, SECOFI published in the Diario Oficial (Federal                 
Register), the agreement reached between growers and the                        
Agroindustry Committee to receive 57 percent of the wholesale                   
reference price of a ton of standard sugar, which increased to                  
$3,512 pesos FOB mill (US$408.44).  This translates to                          
approximately $2,002 pesos per ton to the growers for MY 1997/98,               
compared to last year's price of $1,903 pesos per ton.  The way                 
to determine the reference price is outlined in the Diario                      
Report Code: MX9819A       AGR Number: MX8033           Page:   10              
   Centrifugal Sugar                                                            
      SUGAR PRICES                                                              
Oficial of March 31, 1998, as well as other specific payment                    
Sugar prices in the domestic market are from $430 - 440                         
dollars/MT for standard sugar and $517 - 520 dollars/MT for                     
refined sugar, while world prices are from $230 - 300 dollars/MT.               
Sugar mills expect prices to increase beyond $465 dollars/MT                    
which is the cost of production.  If such an increase occurs,                   
retail prices are expected to increase.                                         
The industry agreed to hold approximately 600,000 MT of sugar off               
the market during MY 1997/98, 1998/99 and 1999/2000 to prevent a                
downturn in prices.  The government will finance storage costs.                 
The March 31 announcement also declares that the government will                
define the sugar production levels per mill to promote                          
productivity and competitiveness.  However, when a mill exceeds                 
the agreed level of production and does not export the surplus                  
volume produced, it will be penalized through a pricing                         
END OF REPORT                                                                   
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