Sugar for Ethanol Seen Helping Mexico

August 9, 2000

Jack Roney, director of economics and policy analysis for the American Sugar Alliance (ASA), believes ethanol made from sugar could be a long_term solution for surplus sugar problems in Mexico and possibly contribute toward a resolution of U.S. and Mexican surplus sugar concerns.

Roney said sugar_produced ethanol could improve environmental conditions in Mexico where 60-70% of the gasoline uses MTBE. MTBE, which is also used in the United States as an octane and oxygen enhancer, has been found to be a polluter of groundwater supplies. The additive is being phased out in California and other U.S. regions but has not yet been recognized in Mexico as a groundwater pollutant.

In the United States, most analysts say sugar is not an economically viable substitute feedstock for corn. Sugar would need to be priced as low as 5 cents per pound to compete with corn in the ethanol market, presumably requiring a large subsidy since raw cane sugar now trades around 17 cents per pound. Brazil, however, which exports sugar at low world market prices, devotes a large portion of its sugar crop to its long-standing ethanol program.

Roney’s remarks came at the annual International Sweetener Symposium, sponsored by ASA. The panel on which Roney appeared also included Timothy Galvin, Administrator, Foreign Agricultural Service, U.S. Department of Agriculture; and Dave Juday, senior analyst, World Perspectives, Inc.

Galvin, referring to USDA's recent purchase of surplus sugar and announcement of a program known as PIK, or payment in kind, to reduce surpluses, said these give only temporary price relief. As for long_term relief from ethanol, he said he thought the potential in the United States is minimal but there could be "a major potential role in Mexico as a substitute (for MTBE) octane enhancer."

He also said that when the annual tariff rate quota is set for sugar Oct. 1, "it is not a given that we will have non_recourse loans." Non_recourse loans permit a farmer to repay a government loan with the crop that has been put up as collateral if prices fall below a forfeiture level. Under the 1996 farm law, sugar can have non_recourse loans only when imports are expected to exceed 1.5 million tons.

Juday said that with a new farm bill, "sugar reform is inevitable." A driving force for sugar reform, he said, will be international trade agreement negotiations.

Roney differed with Juday on that. Roney recalled that in a panel discussion the day before, policy experts from Washington, Paris and Rome all said that instead of becoming more free trade oriented, the world appears to be moving toward more protection for agriculture.

Juday said the other driving force for changes in U.S. sugar policy is government held stocks of sugar. He said the payment_in_kind program is "just a short_term solution. The final answer has not yet been developed."