Informe Semanal English Version

Sugar Agro-industry at 6 April 2009

• Prices fixed “the Mexican way”

• Rather re-establish the “official price”

• Preliminary report for the 2008/2009 harvest at 28 March

• Weekly market

In one of our recent weekly reports we commented on the fragility of the Mexican sugar market. Participants, suppliers and consumers do not appear to be in the same situation. For a market to exist, it is imperative that there are informed participants, transparency in transactions and independent suppliers and consumers. There should also be a legal and operational framework respected by all participants. If these conditions are not met, then we cannot speak of a market, and less so of a sugar market which is taken over “in the Mexican way”, as described by Blackaller. When referring to price fixing, the sugar cane leader of the CNPR stated that “we have to do it ourselves, and not use Harvard methods, and they may not be the best, but they work for us… we are doing it the Mexican way”.

Criticising this way of “fixing the sugar price” through the taking over of the bodegas belonging to Mexican mills, the Minister of Agriculture, Alberto Cardenas, commented that “there is a slight rebound in the price of sugar; hopefully it won’t be a scheme which could force higher prices. The market sometimes works in a certain way and, well, sometimes if it is forced to function in another way can be counterproductive. I believe that the sugar producers have a right to protest; however there are signed agreements that exist and we expect them to be respected.”

To increase the price ‘in the Mexican way”, as stated by Blackaller, doesn’t seem fair, especially because he as a representative, participates in high level decisions between the government, industrialists and sugar cane producers. He participates on both sides – the “official” and that of the leaders. In any case, if the price is imposed the Mexican way, by taking over bodegas and pressuring the commercial agro-industry channels, then the rules of the game should be changed: a fair price should be guaranteed for producers and at the same time a fair price should be guaranteed for entrepreneurs and for industrial consumers , as well as for families who consume sugar. Fairness is not a privilege for a select few.

Let us understand what a market is:
“The market in economics – according to the internet encyclopedia, Wikipedia – is any set of transactions, agreement or interchange of goods and services, between buyers and sellers. As opposed to a simple sale, the market implies regular and regulated trade, where a certain level of competition exists among participants”. Another definition is “the social or virtual environment that leads to conditions for interchange”. In other words, it should be interpreted as “the institution or social organization through which suppliers (producers and sellers) and “demanders” (consumers or buyers) enter into a specific commercial relationship for a determined product or service in order to carry out abundant transactions and under these conditions establish a given price.”

These definitions refer to a market of the capitalist ilk, a “free market”. If this does not work for sugar in our country, caution should be exercised so that all interested parties, producers, entrepreneurs and consumers receive their share of the benefit if this is to be regulated by the Federal Government, as per a decision by the State. It is not possible that some win and some lose. Some receive subsidies and some don’t. It is not possible to co-exist with “official” prices in one part of the process, and with a free market in the other part of the chain, in the part of the sale of the final product. Nor can an industry which opposes the rights of the consumers be protected. Imagine a country where the prices are fixed like that – “in the Mexican way”.

Preliminary report of the 2008/2009 harvest at 28 March
At 28 March 2009 there were 54 mills in operation, three less than during the previous harvest. The harvested area covers 446.867 hectares, with an industrialized volume of crushed gross sugar cane of 31.35 million tons. There has been 3.6 million tons sugar produced to date, of which 1.19 million tons is refined, 2.4 million tons is standard grade, 1.057 million tons is molasses and 11 million liters is alcohol. It is worth mentioning that in relation to the alcohol that the La Gloria mill has produced every year and despite their not having reported on their alcohol production, neither this year nor last, we know that from 2005 to 2007 they produced an average of between 19 and 21 million liters of alcohol per year, which should be added to annual production. The first mill to finish harvesting was Bellavista.

In accordance with Siap-Sagarpa estimates, this month 13 mills will finish, while 22 of them will finish in May and 8 of them in June. This adds up to 43 mills. The remainder do not have finishing dates while others like Independencia, San Gabriel and La Concepcion will not harvest this year. Compared to the last harvest, 65 thousand tons more cane sugar has been crushed and 68 thousand tons more sugar has been produced to date. The alcohol figure is deceptive, as we have already said, because La Gloria has not published its production figures since last year.

The same as every week, we look at field yield, which this week is at 15 tons per hectare less than the previous harvest in the national average. The fall in field yield is drastic. On the other hand, factory yield is very high, more so because of the huge energy savings related to crude oil. The fuel saving is at almost 15 liters per tons of sugar produced, with a consumption of 129 million liters to date as compared to 178 million liters in the previous harvest. This is a saving of 49 million liters.

During Week 20 of the harvest there was a big resurge in production, thanks to a crushing of 2.2 million tons of sugar cane, 181 thousand tons above production estimates, although it was 51 thousand less than the previous harvest. Sugar production was up 36 thousand tons over the forecasted figures, giving a total of 264 thousand tons, retaking a positive trend in relation to the estimates, as we can see in the following graph.

Weekly market
At 3 April, the prices of the “Forma” trust lagged in comparison to prices fixed by pressure exerted by the sugar cane producers of the CNPR. The price of standard grade sugar was 357.26 pesos free on board at the mill, which means that the aforementioned price was its pre-sale price to the bigger wholesalers before the taking over of the bodegas. It could also mean that it is not possible to supervise the sale price of sugar in the way that the sugar cane producers promised, which means that this is the reality of the market, in spite of the fact that in the main retail outlets the price has skyrocketed to 320 pesos per 50 kg bulk. The same is happening with refined grade – the price surveyed by FORMA on 3 March is 300.81 pesos per 50 kg bulk, much less than the mill price. In practice, the existence of contracts of sale signed at the end of 2008 and at the beginning of 2009 make it impossible to sell at the price wanted by the producers.

From January to the present, a domestic market sale of 328.265 tons of refined sugar and of 509.7 thousand tons of standard sugar has been reported. As not all mills report their sales, we have to assume that these figures published by FORMA don’t correspond to the facts. It is thought that on average in Mexico, around 400 thousand tons of sugar are consumed monthly and we don’t think that the drop in the local market has been of that great magnitude.