Cato: Managing Sugar Markets Gets Even Messier

In a previous blog post I discussed the implications of the proposed agreement to settle the antidumping and countervailing duty (AD/CVD) cases brought by U.S. sugar producers against imports from Mexico.  That article amounted to a lament on the difficulties of trying to balance sugar supply and demand by government fiat.  Market managers employed by the U.S. Department of Agriculture (USDA) and the Department of Commerce (DOC) have a really hard job, as do their counterparts in the Mexican government.  Not only do the supply, demand, and price of sugar tend not to stay quiet and well behaved, but important firms involved in the business also can prove (from the perspective of the program managers) to be vexing and disputatious.

Such is the case with Imperial Sugar Company and AmCane Sugar, both of which are U.S. cane refiners that rely on ample supplies of raw sugar to run their operations.  Much of that raw sugar comes from other countries; in recent years Mexico has been the largest supplier to the United States.  It now appears that U.S. cane refiners were not too happy with either the original proposed settlement that was announced on October 27, 2014, or the final suspension agreements announced December 19 that set aside the underlying AD/CVD investigations.

One source of that unhappiness seems to have been that the initial proposal would have allowed 60 percent of imports from Mexico to be in the form of refined sugar rather than raw.  The U.S. and Mexican governments acknowledged that concern in the December 19 agreement by reducing the allowable level of refined sugar imports to 53 percent.  Another issue bothering U.S. refiners likely was the relatively narrow spread between the original proposal’s import reference prices, which were 20.75 cents per pound for raw sugar and 23.75 cents per pound for refined.  U.S. refiners may have feared suppression of their processing margins, if imported refined sugar from Mexico could have been sold at only 3 cents per pound above the price of raw sugar imports.  The December 19 version increased that price spread to 3.75 cents (22.25 cents for raw and 26.0 cents for refined).  From the standpoint of the refiners, that margin still may be uncomfortably narrow.

Read more at http://www.cato.org/blog/managing-sugar-markets-gets-even-messier