The Wall Street Journal-20080202-Ethanol and Sugar- Consumers Get Squeezed

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Ethanol and Sugar: Consumers Get Squeezed

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In regard to your Jan. 22 editorial "Sweet and Sour": When describing recommendations for better facilitating Nafta's sweetener trade, you ignore the fact that these are joint recommendations made by the Mexican and U.S. sugar industries to their respective governments. They are not "unilateral," and can only take effect if implemented by our two governments. Mexico's sugar industry is very supportive of the plan because it will help maximize sugar trade and ensure the economic success of Nafta for both Mexican and U.S. sugar producers.

The Mexican sugar industry realizes that sugar-growing communities on both sides of the border will face economic hardships if the governments do not implement these recommendations. And under such conditions, food manufacturers run a risk of losing reliable domestic sugar suppliers.

Clearly, market chaos was not the intent of Nafta. Its purpose was to create a common North American sugar market to benefit the U.S. and Mexico. It will succeed only if the governments work together to make such coordination possible, and the joint recommendations made by the sugar industries is the roadmap for making this possible.

Jack Roney

Director of Economics

and Policy Analysis

American Sugar Alliance

Arlington, Va.

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The long-term artificially supported U.S. sugar price has cost U.S. consumers at least $ 1.6 billion a year, with, as you point out, many additional negative economic effects. It also has done nothing to promote U.S. sugar world competitiveness, just as releasing a part of this artificially supported market to Mexico almost ensures reduced competitiveness there. How much more sugar will be produced to capture the artificial U.S. price level and will Mexican production become more or less efficient? The fact that the high fructose corn syrup (HFCS) market (more than nine million tons using over 525 million bushels of corn) even exists in the U.S. is also partially related to the long-term subsidized price of sugar. The irony that HFCS exports to Mexico may increase, and in turn support even more Mexican sugar exports to the U.S., is a perverse additional consequence of the artificial U.S. sugar price support level. The current plan to restrict the level of efficient Nafta imports and/or have the Agriculture Department buy such sugar or other U.S. sugar and release this to ethanol producers is ludicrous.

The 2006 Agriculture Department report on sugar feasibility for ethanol makes clear that the U.S. sugar industry is: 1. Extremely inefficient in energy usage in comparison with the most competitive world sugar makers. If you're being subsidized there's no reason to invest and become efficient; 2. If rationalized and re-mediated in terms of energy use, U.S. mixed sugar and ethanol output would likely create larger differential net energy and environmental benefits than the entire much larger corn ethanol industry.

The real multiple benefits and synergies from sugar-material-based ethanol production occur when it's done at the sugar production site using biomass cogeneration -- i.e., when sugar cane is used to make both sugar and ethanol, the energy used in sugar production is decreased and the molasses and some part of the sugar juice is used to directly make ethanol. Any plan that first creates sugar (either in Mexico or the U.S.), then buys it at an artificial price and provides it to a separate-location ethanol plant as feedstock at another artificial price is an abomination.

Kenneth Donnelly

Bangkok, Thailand