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The Sugar Worker, December 2003. News from the Sugar Sector.

Posted to the IUF website 31-Dec-2003

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The Sugar Worker
Information and Analysis for Unions in the Sugar Sector
Volume V, Number 12
December 2003

Contents




Sugar Trade: CAFTA Agreement Reached

The United States and four Central American countries: El Salvador, Guatemala, Honduras, and Nicaragua reached a deal for a Central American Free Trade Agreement (CAFTA) at the ninth and final round of negotiations held in Washington DC. The round took place over nine days of meetings and ended in the early hours of 17 December.

The Central American countries will see their sugar quota increased by 85,000 tonnes immediately after the agreement is signed, up from the current 110,000 tonnes. Their quota would then grow by 2 percent per year over 15 years to reach a total of 236,000 tonnes. However, US import tariffs for sugar above quota would remain in effect even after the 15-year period ends. Central American sugar producers had pressed for the elimination of the tariffs but the US sugar lobby was successful in keeping them in force. Press reports said that the deal includes two provisions: the US would be able to stop imports in order to protect the domestic industry but would have to make cash payments to the Central Americans, while the latter will not be allowed to import sugar at world prices to cover their domestic needs, in order to export the domestically-produced sugar to the US.

Although the US negotiating team said that Central American sugar currently accounts for only 1 percent of the total US market, which would rise to 1.4 percent at the end of the 15-year period, the US sugar and sweetener groups, in particular in Louisiana and Florida, were adamant in their opposition to include sugar in CAFTA or any bilateral or regional free trade agreement. In early December, a group of 60 sugar companies and organisations from 18 states sent a letter to President Bush emphasising that sugar trade liberalisation ought to be discussed at the WTO multilateral negotiations rather than in bilateral agreements. They vowed to oppose any CAFTA deal that threatens the domestic sugar industry, a politically charged statement taking into account that 2004 is an election year in the US, and Congress would have to pass or reject, but not modify, the CAFTA text. US sugar groups fear that if the CAFTA sugar agreement is used as a "template" for negotiating other agreements, the domestic sugar industry would collapse, because, they feel, imports would flood the market and prices would fall below production costs.

After the collapse of the WTO meeting in Cancun and the "watered-down" deal of the FTAA reached in Miami, the US is already or about to start negotiating with, among others, Peru, Panama, Colombia, Bolivia and Ecuador in the Americas; Australia and Thailand, among some of the world's largest sugar exporters; and five Southern African countries, including South Africa and Swaziland. These talks are in addition to the regional negotiations for a Free Trade Area of the Americas (FTAA), which basically confronts the US with Brazil. The Bush Administration has already announced its plans to add the Dominican Republic to CAFTA. In this context, some US sugar groups have said that CAFTA "is only the beginning."

According to the Office of the US Trade Representative (USTR), the CAFTA text includes some "unprecedented provisions" that allow workers to better protect their rights, with a three-prong approach: ensuring enforcement of existing labour laws, working with the ILO to improve existing labour legislation and enforcement (including the statement that it is "inappropriate to weaken or reduce domestic labor protection to encourage trade or investment") and building local capacity to improve rights. On the latter, says the USTR, CAFTA would set up a cooperation mechanism to support specialized consultation and training programs, and the US Department of Labor would allocate USD 6.7 million "to educate Central Americans on (ILO) core labor standards and to improve the administrative capacity of the CAFTA countries in labor matters."

Costa Rica walked away from the CAFTA negotiations, not being "in a hurry to close negotiations," as the Costa Rican president told the press in San Jos�. Costa Rica found it extremely difficult to deal with the demands to open the insurance and telecommunications sectors to US competition, and also felt that the other Central American countries were negotiating bilaterally, instead of as a bloc. Costa Rica expects to resume negotiations in January 2004.

Mexico: Expected Losses of Five Billion Pesos in Privatisation of Expropriated Mills

The Mexican government expects to lose between 3 and 5 billion pesos (USD 268-446 million) when privatising the 27 mills expropriated in September 2001, according to local papers. The mills have a total debt of 20 billion pesos, which has been written off and transferred as a loss to the national coffers. With their value estimated at between 15 and 17 billion pesos, the Mexican people would be saddled with a net loss of between 3 and 5 billion when the mills are reprivatised.

Last October, the Minister of Agriculture said the Fox Administration plans to finalize the privatisation by 2006. Ten mills, he said, would be sold in 2004, another ten in 2005, and the remaining seven in 2006. The court cases on the expropriated mills, which until now have gone against the government, will have been completed by then. In 2006, added the Minister, Mexican sugar production is expected to reach 6 million tonnes, with one million exported to the United States.

Access to the US sugar market depends heavily in the resolution of the years-long sugar and sweetener dispute. President Fox said that the Executive would submit a proposal to eliminate the 20 percent tax on drinks containing high fructose corn syrup (HFCS). The proposal is contained in the 2004 fiscal package sent to Congress and is part of some "broad principles" to end the sugar and sweetener dispute. In early November, US and Mexico said that a possible sweetener deal would allow Mexico to sell some 300,000 tonnes of sugar in the United States and, in exchange, Mexico would remove restrictions in the use of HFCS in soft drinks. The elimination of the HFCS tax, however, also depends on the Mexican Congress agreeing to such legislation, a step that appears difficult because the results of the mid-term elections of July 2003, when the political opposition had a strong showing, and got analysts to speak of a possibility of legislative inaction in the remaining years of the Fox Administration.

Adding to the sweetener dispute, last October, Archer Daniels Midland (ADM) announced plans to launch a complaint against the Mexican government for alleged losses related to the HFCS tax. The tax, says ADM, violates the North American Free Trade Agreement (NAFTA) and has forced the company to stop production in its HFCS plant in Guadalajara and cut HFCS exports from its US-based plants. ADM would seek USD 100 million in damages.

Meanwhile, the Mexican government said it would suspend all negotiations for new free trade agreements, once it finalises negotiating with Japan, reported the El Economista paper. The government and private sector groups said the country should focus on developing the already signed FTAs and strengthen the domestic market. Since 1992 to date, Mexico has signed eleven free trade agreements (FTAs) that comprise 32 countries, and it had started preliminary talks with about 10 other countries. After concluding negotiating with Japan, said a government official, the government would focus on the Free Trade Area of the Americas (FTAA) and the World Trade Organisation (WTO).

In related news, Costa Rica plans to export some 13,300 tonnes of sugar duty-free to Mexico before the end of 2003, under a free trade agreement that grants Costa Rica an access of 70,000 tonnes per year in the Mexican market.

Poland: National Sugar Company Set Up

The Krajowa Spolka Cukrowa (KSC) was registered in early October, comprising 22 sugar factories, which account for 40 percent of the Polish market, and the Cukrownie Torunskie trading company, reported international sources. The KSC was initially to include 27 factories, and the WGK/Pro-Invest advisory group recommended closing eleven of the factories, which would have represented a total loss of 1,700 jobs. The KSC, however, decided to close one factory in 2003 (in Rejowiec), and divided the remaining ten factories in two groups. Five of them would be closed in January 2004 and, the other five would follow a year later.

The KSC was reported to face a debt of 1.1 billion zloty (USD 1.00 = PLN 3.88), of which 650 million were short-term liabilities. In late October, the governmental Agricultural Market Agency (ARR) said it would guarantee KSC a loan for 570 million zloty to pay for the beet contracted and storage costs.

The KSC is reckoned to be among the 20 largest Polish companies.
Meanwhile, the German Pfeifer & Langen said it has invested 7 million euros (Euro 1.00 = USD 1.24) in the Goslawice factory to improve energy consumption and decrease production costs. The factory plans to process 250,000 tonnes of sugar beet in 2003/04, expecting to produce 40,000 tonnes of sugar.

The Polish 2003/04 harvest is expected to produce 1.9 million tonnes of sugar, a 6 percent fall on the year. However, domestic consumption is below production and Polish producers would have to export some 280,000 tonnes without subsidies in 2004 to avoid fines. Adding the subsidised exports of 102,000 tonnes under a WTO agreement, Poland would have export availability of 380,000 tonnes in 2004. The domestic market quota for 2004 is 1.52 million tonnes of sugar.

Ukraine: Production and Imports Rise

Ukrainian sugar production to October 2003 (Jan./Oct.) was 1.936 million tonnes of refined sugar, compared to the 975,776 tonnes produced in the same period last year, with some 800,000 tonnes manufactured from imported raws, official sources said. Refined sugar manufactured from duty-free imported raws must be exported.

Ukraine imported over 1.5 million tonnes of sugar, raw value, in 2002/03 (Oct. /Sept.), up from 317,000 tonnes in the same period last year, said international sources. Parliament set two raw sugar import quotas for 2003, of 360,000 tonnes and 200,000 tonnes respectively. The 360,000 tonne quota was granted a 6 euro/tonne preferential tariff, while the latter paid 60 euro/tonne duty.

In 2004, imports under the preferential quota are set at 125,000 tonnes (half of what it had been allocated in the draft of the 2004 national budget), and the tariff proposed for these imports is 30 euros per tonne. Imports above quota would be 50 percent of the contract price but not less than 300 euros per tonne.

Ukraine has also agreed, as condition to entering the World Trade Organisation (WTO) to import 260,000 tonnes of sugar per year, said the Ukrainian government. The country had to agree to some other conditions as well, including the level of state support, quotas on seafood imports from the Baltic States, and meat imports from Canada and Australia.

The country has an installed production capacity of about 5 million tonnes of refined sugar, and some 192 factories. Local sources reported that 128 factories participated in the 2002 harvest, while some 147 did the same in 2003. The Ukrainian sugar industry is located in 18 regions of the country, said a trade union source. At some point, the 192 factories provided close to 50,000 jobs, but production has fallen dramatically in the past five years, with only about one third of the factories operating at acceptable levels. Union sources estimated that some 20,000 jobs have been lost in the past three years. The average monthly wage is 200 Ukrainian hryvnias (USD 1.00 = 5.40 UAH), which sometimes is paid in sugar instead of cash.

India: Mills Inflating Reports on Sugar Stocks

A 2-million tonne discrepancy between reported and actual sugar stocks was revealed after the sugar directorate initiated a probe to see if mills were selling more than the allowed sugar on the free-market, reported Economic Times in mid November. Mills cannot sell more than 5 percent of their sugar stocks per month on the free market.

Big sugar mills in Uttar Pradesh have been identified in the probe. The VK Goel's Dhampur Sugar Mills, for instance, reported a stock of 355,933 tonnes as of 31 August but the certificate on stocks requested by the government's probe showed the mill holding only 192,490 tonnes. Figures for Vivek Sragogi's Balrampur Chini showed stocks of 424,036 tonnes against the actual 290,762 tonnes; Bajaj Hindustan reported 289,194 tonnes against 184,425 tonnes, and GMS Mann's Simbhaoli Sugar said it hold 118,045 tonnes when in actually had 44,747 tonnes in stocks.

It is estimated that several mills in Uttar Pradesh and Maharashtra have reported between 40 to 230 percent more sugar than they actually hold. Such difference cannot be attributed to an "accounting error," sugar officials told the press. The financial benefits are clear: with higher stocks reported, higher the volume of sugar to be sold in the free market.

Meanwhile, the sugar cooperative sector in Maharashtra continues in a weak financial position, showing poor efficiency and puzzling practices. The National Bank for Agricultural and Rural Development (Nabard) expressed concerns about the sector explaining that, in addition to four years of high production that have resulted in growing sugar stocks (am observation that might be not so accurate after the government's probe described above), the cooperatives have incurred in delays in cane payments, despite having contracted loans to the maximum predetermined by the banks and therefore having had the required money in their hands. With delays in cane payments, farmers are thrown into liquidity problems, affecting their ability to continue growing cane. The situation also allows the practice of "double financing," as the cooperatives end by owning money to the banks and farmers on the same sugar. Not surprisingly, questions about who the actual owner of the sugar is and whether the mills can pledge the sugar as collateral for loans have arisen.

There are 107 cooperative mills, out of 181, participating in the 2003/04 Maharashtra sugar campaign, in addition to nine privately owned mills. (Financial Express, 29 December 2003.)

Syria - Brazil: One-million Tonnes New Refinery

In the first-ever investment of Brazilian groups in Syria, Crystalsev, one of the largest Brazilian sugar and alcohol marketers, Cargill, the U.S. agribusiness giant, and Syrian partners, who would be the majority shareholders, agreed to build a USD 150 million new refinery in Syria, with a processing capacity of one million tonnes of refined sugar, targeting the markets in Jordan and Iraq. The refinery will come on line in 2005, equipped with Brazilian technology, and would process mainly raw sugar from Brazil. Crystalsev and Cargill are partners in two sugar terminals in the Santos and Guaruj� ports in the state of Sao Paulo, Brazil. The contract was signed during a visit of Brazilian President Lula da Silva to Syria.

Neither Iraq nor Jordan produce sugar domestically and both countries import refined sugar. Iraq's sugar requirements of about 880,000 tonnes per year, and Jordan's annual imports of some 200,000 tonnes are sourced from Brazil, the European Union, Thailand, and Egypt, in the case of Iran.

Brazil is also exploring investments in Cuba, after the visit of President Lula to the island last September. According to the Brazilian press, Sao Paulo companies are trying to close deals worth USD 350 million in projects for the modernisation of 80 factories and distilleries, and the construction of six new plants. The sources said that the Cuban government is considering using ethanol as fuel, and that Brazilian companies would provide technology and management. The Cuban projects are among the first efforts by Brazilian companies to create an international ethanol market (based on cane), which would strengthen the expansion of sugar cane with a product equally important as sugar.

Honduras: Cogeneration Plant in Tres Valles

The Compa��a Azucarera Tres Valles (Cantarranas) will build a 12.3-megawatt cogeneration plant, using bagasse as raw material, a by-product of sugar manufacturing, reported the Central American Bank for Economic Integration (Cabei). The Cabei is the main source of financing with a loan for USD 3.15 million from the project's total USD 3.7 million, on an eight-year term, including one year of grace. Tres Valles would source the remaining USD 550,000 through a loan from a local bank. The company would use the electricity in the sugar mill and sell the surplus to the national grid. The project would save USD 600,000 per year in foreign exchange, it was added. The plant will be built in the San Juan de Flores municipality, department of Francisco Mozar�n; some 50 km northeast of Tegucigalpa.

United States: American Sugar Closes Brooklyn

The 145-year old Domino refinery in Brooklyn will cease all operations as of the end of January 2004, said American Sugar on 1 December. Last August, the company had announced that Brooklyn would cease refining sugar and keep only packaging operations with some 60 jobs. The company, however, has decided to permanently close the plant, which currently provides 290 jobs. American Sugar owns three other refineries: Chalmette in Louisiana, Baltimore, and Yonkers in New York.

The closure of Brooklyn, due to high costs according to a company spokesperson, continues the consolidation of production in the US sugar refining segment. In addition to the three refineries owned by American Sugar, a company formed by Florida-based groups; in Florida, U.S. Sugar and Florida Crystal operate two refineries, Clewiston and South Bay respectively; Imperial Sugar operates two refineries, Gramercy (Louisiana) and Savannah (Georgia); while C&H runs the Crockett refinery in San Francisco.

Sugar and Sweeteners: EU Approves Twinsweet

In late November, Holland Sweetener, a join venture of DSM and the Japanese Tosoh Company, announced that the European Union had approved the use of the high intensity sweetener Twinsweet in food applications. The sweetener targets the chewing gum segment, but it is suitable for use in the beverage and dairy industries, reported Nutra Ingredients. The DMS-Tosoh partnership dates from the early 1980s.

The sweetener is produced by the combination of aspartame and acesulfame, two other high intensity sweeteners, and is reported to be 350 times sweeter than sugar. It was patented in 1995 and received a temporary approval for use in the United Kingdom and the Netherlands. The recent approval opens EU's low calorie sweetener market to Twinsweet.