A battle over Mexican sugar could increase US prices on everything from pizza to cereal

A precursor to NAFTA talks.
A precursor to NAFTA talks.
Image: Reuters/Edgard Garrido
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It’s a bitter battle over sweet stuff. A trade squabble between the US and Mexico over raw sugar is threatening to boil over, promising a showdown that has pit two longtime allies, and two massive American food industries, against one another.

The two countries are expected to announce today (June 6) whether they’ve found a way to settle their differences and avoid the US imposing higher tariffs on Mexican sugar in response to perceived unfair trade practices—something that could potentially leave American consumers paying more for a lot of their food.

In many ways, the outcome will be seen as a harbinger of future trade negotiations between the two countries, especially in the wake of US president Donald Trump’s announcement that he wants to renegotiate the broader North American Free Trade Agreement (NAFTA).

When the US, Canada, and Mexico inked NAFTA in 1994, the American sugar industry was able negotiate a deal that put a limit on the amount of sugar Mexico could import from the US for 14 years. In 2008—when that limit expired—Mexico gained unfettered access to the US sugar market.

Per the agreement, no more than 53% of Mexican sugar exported into the US could be refined. The remaining 47% from Mexico had to be raw, allowing US sugar processors to refine it themselves.

But American sugar processors have long complained that Mexico has exported a type of sugar that is technically raw but in practice needs so little processing that it can be used as if it were already refined. That has hurt the American sugar processing business, and the industry lashed out at Mexico by filing a complaint in 2014 with the US Department of Commerce accusing the Mexican sugar industry of unfair trading practices. The department sided with US companies (pdf), and prepared to assess the possibility of saddling Mexico with punitive duties on the sugar it sends into the US.

The Obama administration punted the case—so now the decision has landed on the plate of Trump’s commerce secretary, Wilbur Ross, who faces the unenviable task of trying to strike a compromise or risk igniting a trade war with one of America’s most important trade partners.

One of the demands processors have sought is a tweak to the ratio of sugar Mexico can ship into the US. They are asking that from now on, 85% of Mexican sugar must be raw, and 15% refined.

Mexican authorities have countered that such demands are proof the US sugar industry is attempting to eliminate competition with Mexican refined sugar.

Higher food prices

If a compromise cannot be met and the US decides to impose duties on US sugar, it would send a ripple effect throughout the food industry. A group of Congressional lawmakers have sent a letter (pdf) to the US Department of Commerce, asking Ross to do everything he can to avoid placing tariffs on Mexico. “[A]n increase in the tariffs on imported sugar will increase the price of food to American consumers,” they wrote.

Meanwhile, major food manufacturing companies and the corn syrup industry say erecting a tariff on Mexican sugar will wind up hurting US jobs and make food more costly for Americans.

“As U.S. sugar-using companies, both large and small, our objective is to serve consumers and sustain and create American jobs,” the US Sweetener Users Association said in a statement (pdf). “Doing so depends on ensuring that, as US manufacturers, we can access a reliable and adequate supply of sugar at reasonable prices. The current US-Mexico suspension agreements do the exact opposite.”

Those companies are worried because, if the US did raise tariffs, Mexico could easily retaliate by limiting the amount of  high-fructose corn syrup—a sugar substitute—it imports from the US. That’s not good news for American corn or corn syrup producers, who’ve sold more than $3 billion in sweetener to Mexico over the last five years.

Renegotiate or terminate

Any deal the two countries wind up striking could further shake up the politically volatile situation in the US. Trump, who garnered the overwhelming support of the agriculture sector during his presidential campaign, could also risk alienating that important part of his base if tariffs are raised. This group includes the powerful corn growers, who have a stake in the sugar battle as corn is an integral component of high-fructose corn syrup, a sugar substitute.

In Nebraska, for instance, the state corn board, the US Grains Council, and the National Corn Growers Association, have mobilized to organize town hall meetings and arrange transportation for farmers planning to descend on the US capital later this week. These farmers have one main goal: to get lawmakers to support NAFTA, according to state media. Mexico is Nebraska’s biggest export market for corn, making up close to $290 million of the state’s economy.

Trump’s threat to shake up trade pacts should come as no surprise, of course, as he promised to renegotiate or terminate NAFTA on the campaign trail.