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Import tariffs and other government controls serve to maintain high do- mestic sugar prices.100 For example, Mexico’s applied tariffs on sugar im- ports from the United States were around 17 percent in 2001 and about 18 percent on imports from Canada. 101

While Mexico finished privatizing its sugar mills and partially deregu- lating its sugar industry in 1992, it increased protection for sugar by rais- ing tariffs on raw sugar from 65 to 136 percent and from 73 to 127 percent on refined sugar (Mitchell 2004). As a result, domestic sugar prices in- creased by 60 percent and sugar production increased by 50 percent from 1990 to 2002. To manage the oversupply of sugar, the Mexican government has since 1997 acquired predetermined amounts of sugar for sale in export markets.102 Nevertheless, in 2001, Mexican sugar production was so great that domestic sugar prices dropped by 40 percent, driving several Mexican sugar mills into bankruptcy.103 To alleviate the resulting financial distress, the Mexican government created a $270 million last minute line of credit to pay farmers.

A government-controlled development bank also offers loans on easy terms to help the sugar industry pay its debt. Since 1998, FINASA has granted quitas or borrowing concessions to cane millers. As of 1999, FINASA held over $1.3 billion of concessional Mexican sugar industry debt. 104

As Mexican government programs kept domestic sugar prices high in the late 1990s, one result was to attract imports of HFCS for use as a sweetener, especially in the soft drinks industry.105 A combination of Mex-

100. Mexico’s domestic wholesale price for refined sugar was 25.6 cents per pound in 2002, even higher than the US price of 21.5 cents per pound in 2003, which makes Mexico the fifth highest country in terms of price support for domestic sugar producers. US wholesale re- fined sugar price estimates are based on futures contract prices for number 14 raw cane sugar on the New York Coffee, Sugar, and Cocoa Exchange. For sugar price market infor- mation, see www.csce.com (accessed in November 2004). See also LMC International, Inc.

  • (2003)

    and GAO (2000).

  • 101.

    Applied tariffs do not include Mexico’s AD duties of 20 percent on HFCS imports from

the United States. Based on the World Bank’s World Integrated Trade Solution (WITS) data- base, April 2003. See Mitchell (2004).

102. Domestic sugar production over the government-allocated sugar quota is either held in stocks, sold for nonfood uses, or exported. The Mexican government helps keep at least 600,000 metric tons raw value sugar from the domestic market. See Haley and Suarez (1999).

103. Among 60 Mexican sugar mills, some 30 are under receivership with a debt totaling $2 billion with the Mexican government alone. See Andrea Mandel-Campbell, “Commodities and Agriculture: Debt Mountain Threatens Mexican Sugar,” Financial Times, June 28, 2001.

104. All outstanding sugar industry debt was supposed to be transferred from FINASA to another agency, FIDELIQ. But in 2003, FINASA was still offering concessions at 21.8 percent of any outstanding principal repaid by borrowers.

AGRICULTURE

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Institute for International Economics | www.iie.com

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