Low Offers Results Scraps Sale of State-Owned Mexico Sugar Mills

Mexico’s government will postpone the sale of 13 sugar mills after rejecting offers that were as much as 70 percent below estimates, said Agriculture Minister Alberto Cardenas.

Bids for four of the mills were below the price the government wanted, Cardenas, 49, said. He declined to say who offered to buy the mills and how much they bid. The 13 mills accounted for about 18 percent of the 5.5 million metric tons produced in Mexico last year.

“I wish we could sell at least these four” said Cardenas, in his Mexico City office yesterday. The current economy makes the divestitures more difficult, he said.

Mexico, which had decided against investing in the mills, wants to sell them to fuel spending in the industry as it seeks to boost production by 13 percent by 2012. Domestic sugar producers want to take advantage of selling sugar to the U.S. after the two countries lifted trade restrictions on the commodity last year.

“These mills require large investments to make the most of them, and of course, we don’t have a large enough budget to invest,” he said. Each plant may need as much as 800 million pesos ($57.5 million) for upgrades, he said.

Since 2001, the government has sold 14 mills. Mexico, the sixth-largest producer of the sweetener in 2007, wants to raise output to 6.23 million metric tons in three years and exports to 840,000 tons, according to government estimates. Not selling the mills may make that goal harder to reach.

Less Profitable
“It seems that the mills that the government still owns are the least profitable, the least productive,” said Cardenas, a former governor of Jalisco state, whose family still owns peach orchards there. “We don’t want the government to own any sugar mills, it’s not our activity, that should be a private-sector activity.”

The government expropriated 27 mills in 2001 after talks fell apart with producers on providing loans for upgrades. Grupo Azucarero Mexico SA, owner of six mills at the time, went bankrupt, and protests by sugar-cane cutters for $500 million in back pay led to mill closures. Today, Mexico has 57 mills.

Mexican producers may increase exports to the U.S. by 50 percent to 750,000 tons in the year that began Oct. 1, Cardenas said. Imperial Sugar Co. Chief Executive Officer John Charles Sheptor said exports may rise 44 percent in an interview last month.

Raw sugar for May delivery rose 0.06 cent, or 0.5 percent, to 12.73 cents a pound on ICE Futures U.S. in New York yesterday. The price has gained 7.8 percent this year.

Doha Revival?
Talks between members of the Group of 20 nations in London today may spark a renewal of discussions to revive the Doha trade talks, said Cardenas.

“The main obstacles for a global trade agreement are the subsidies, which are especially large in Europe and the U.S.,” said Cardenas, a former candidate for the National Action Party’s presidential nomination. He lost to President Felipe Calderon.

“Countries need to reduce subsidies to its production and to the transportation,” Cardenas said. “The G-20 leaders may be able to get us closer to revitalize the Doha talks.”

Mexican consumers are paying as much as 12 pesos per kilo (0.39 cents a pound) for sugar, Cardenas said. Mills are selling the sweetener for half that price, or as much as 6 pesos, he said. There may be room for prices to drop for consumers, he said.

Farmer Payments
Farmers are paid based on the amount of raw sugar produced per ton of cane. Payments are made after the crop year ends. The harvest runs from October to May.

Sugar-cane workers halted shipments to mills during the last two seasons demanding mill owners pay 2 billion pesos in back pay. The government stepped in last September and offered to pay subsidy of 145 pesos per ton to sugar- cane producers. The government also agreed to set up a pricing system that will be adopted by 2011.

source: bloomberg