Required Report - public distribution

**Date:** 10/13/2006

**GAIN Report Number:** MX6085

MX0000

**Mexico**

**Sugar**

**Semi-Annual Report**

**2006**

**Approved by:**

![](media/image1.wmf)Sue Heinen

U.S. Embassy Mexico City

**Prepared by:**

Dulce Flores

**Report Highlights:**

Sugar production for MY 2006/07 was revised upward to 5.75 million
metric tons (MMT) due to favorable weather conditions. The sugar import
forecast for MY 2006/07 was revised upward as Mexico announced sugar
import TRQs to cover increased demand. Sugar exports for MY 2006/07 were
revised downward because of lower beginning stocks which resulted from
larger than expected exports during MY 2005/06. Domestic consumption was
revised upward for both MY 2005/06 and MY 2006/07 despite increases in
HFCS consumption.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Mexico \[MX1\]

\[MX\]

Table of Contents

[**SECTION I. SITUATION AND OUTLOOK
3**](#section-i.-situation-and-outlook)

[SUGAR PRODUCTION 3](#sugar-production)

[SUGARCANE PRICES 3](#sugarcane-prices)

[HFCS PRODUCTION 4](#hfcs-production)

[SUGAR AND HFCS CONSUMPTION 4](#sugar-and-hfcs-consumption)

[SUGAR TRADE 5](#sugar-trade)

[HFCS TRADE 6](#hfcs-trade)

[STOCKS 6](#stocks)

[POLICY 6](#policy)

[SECTION II. STATISTICAL TABLES 8](#section-ii.-statistical-tables)

[CENTRIFUGAL SUGAR TABLE 8](#centrifugal-sugar-table)

[SUGAR CANE FOR CENTRIFUGAL 9](#sugar-cane-for-centrifugal)

[SUGAR PRICES 9](#sugar-prices)

[SUGAR TARIFFS 10](#sugar-tariffs)

# SECTION I. SITUATION AND OUTLOOK 

## SUGAR PRODUCTION

The sugar production forecast for MY 2006/07 (October/September) is 5.75
million metric tons (MMT) raw value. The Mexican sugar industry has not
yet set a sugar production estimate for MY 2006/07, however, favorable
weather conditions to date should lead to higher sugar production
compared to MY 2005/06 production. The sugar industry has released
additional data for MY 2005/06, setting the final production figure at
5.60 million metric tons (MMT) raw value, just slightly under the
previous estimate as weather conditions lowered cane yields and delayed
harvest for about two weeks. Data for MY 2004/05 remains unchanged.

Area planted for MY 2006/07 remains unchanged. However, area harvested
and production of cane for MY 2005/06 was revised downward based on
available official information, which takes into account the impact of
adverse weather conditions. Area planted and harvested for MY 2004/05
remains unchanged. On average the yield of sugar per metric ton of cane
in Mexico is 125 Kg. of sugar.

## SUGARCANE PRICES

According to regulations, approximately 57 percent of a set reference
price of standard sugar is paid to growers for their sugarcane. The
reference price of standard sugar for MY 2005/06 was established at
\$5,760 pesos per MT (US\$545.45/MT) in February 2006, same as in MY
2004/05 after the National Association of Sugarcane Producers and the
Chamber for the Sugar and Alcohol Industries agreed that there would be
no change in price because of the excess sugar supplies during 2004/05.
(See Table below) This general formula for determining grower sugarcane
prices had been in place since 1993, and although revoked along with the
old Sugar Law, it was reenacted within the New Sugar Law published in
August 2005 (See policy section). However, the Congress and Executive
branch continue to debate revisions to the new law, leaving the exact
process for determining the reference price uncertain. Currently, the
reference price for MY 2006/07 is being discussed among producers and
the sugar industry. Although the calculation will reference sugar prices
registered between October 2005 and September 2006 other factors may
come into play.

Recently, the president of the National Association of Sugarcane
Producers expressed interest in modifying the mechanisms that determine
the cane price by including the concept of a 'North American sugar
market', where sugar prices in the three NAFTA countries are considered
when determining the reference price. The idea is in anticipation of
prices from the three countries converging to form in essence one sugar
market for North America due to the complete liberalization of sweetener
trade among the NAFTA partners in 2008.

![](media/image2.wmf)

Source: Diario Oficial, SAGARPA Bulletins, SNIIM-Economia

## HFCS PRODUCTION

High fructose corn syrup (HFCS) production for CY 2006 is expected to be
about 450,000 MT dry basis due to an overall increase in usage of HFCS.
This increase was stimulated by the provision of court injunctions
(Amparos), which allowed bottling companies to use domestic and imported
(U.S and Canadian) HFCS without being subject to the 20 percent tax on
HFCS. On March 6, 2006 the WTO announced that it rejected Mexico's
appeal of the WTO's initial ruling that the 20 percent special tax on
beverages made with HFCS was illegal. The new Mexican Congress that took
office on September 1, 2006, has on its working agenda an initiative to
eliminate the special tax on HFCS. It is expected that the tax will be
cancelled by January 2007. (See Policy Section). Although domestic
production is near capacity the expected removal of the 20-percent tax
on beverages made with HFCS if combined with more stability in the
sector could help stimulate increases in capacity over the long term.

The Mexican HFCS industry produces HFCS with domestic and imported U.S.
yellow corn under special duties. The industry representing the HFCS
producers, IDAQUIM, stressed the point that the industry has been using
domestic yellow corn produced under contract and continues to increase
usage of domestically produced yellow corn for HFCS production. Current
contracts supply the Mexican corn milling companies which produce HFCS
with about 40 to 50 percent of their needs for yellow corn.

## SUGAR AND HFCS CONSUMPTION

The forecast for sugar consumption for MY 2006/07 was revised upward to
5.4 MMT raw value. Although increases in HFCS usage are still expected
to displace some sugar consumption, overall demand for sweeteners for MY
2006/07 is likely to allow for continued growth in sugar consumption.
The forecast for human domestic consumption for MY 2005/06 was revised
upward to 5.3 MMT raw value as the increase in usage of HFCS did not
displace as much sugar as the sugar industry was expecting, again due to
strong overall demand for sweeteners. The soft drink industry sugar
consumption estimate for MY 2005/06 was also higher at about 1.3 or 1.4
MMT.

HFCS consumption for CY 2006 is forecast to increase to about 750,000 MT
dry basis due to an increase in demand from the soda-drink bottlers
holding court injunctions, and the expected removal of the 20-percent
tax on HFCS-containing beverages (See Policy Section). The HFCS
consumption estimate for CY 2005 increased to about 450,000 MT to
500,000 due to a larger demand from the soda-drink bottlers.

## SUGAR TRADE

The unexpected need of the U.S. to import more sugar then originally
planned and a surplus of sugar in Mexico due to the record crop in MY
2004/05, led to unique negotiations between the U.S. and Mexico on
sweeteners beginning in 2005. As a result of this unusual confluence of
events, the sugar market went through several changes in trade in MY
2005/06 and will undergo additional changes in 2006/07. For MY 2005/06,
the U.S. granted duty free access to Mexico of 250,000 MT of sugar to
the U.S. market under NAFTA provisions and Mexico granted reciprocal
access of 250,000 of U.S. HFCS.

[]{.mark}

The MY 2005/06 sugar export estimate was revised upward to 680,000 MT
raw value which includes some of the duty free access of sugar to the
U.S. market and other exports under the U.S. global refined sugar TRQ
for entry on a first-come, first-served basis. Mexico has also been
exporting sugar under the NAFTA high-tier tariff schedule. Under NAFTA,
for 2006 the high-tier tariff on raw sugar is 3.02 cents a pound and on
refined sugar it is 3.20 cents a pound. For 2007 this tariff drops to
1.51 cents a pound for raw sugar and 1.60 cents a pound for refined
sugar reaching zero in calendar year 2008. Sugar exports for MY 2006/07
were revised downward due to lower beginning inventories resulting from
higher sugar exports during MY 2005/06. This amount, however, will be
dependent on final sugar production figures and final policy actions
that impact sugar substitution by alternative domestic and imported
HFCS. Trade data for MY 2004/05 remains unchanged.

Although domestic prices for sugar tended to drop during the harvesting
season in MY 2005/06, sugar prices increased substantially through the
summer of 2006 under rumors of limited sugar stocks despite industry
pronouncements that there was enough supply to meet demand. Prices for
standard sugar in January were \$5,948 pesos/MT and for refined \$6,990
(US\$563.79/MT -- US\$662.55/MT); by June prices were \$7,247 and
\$8,215 pesos/MT respectively (US\$636.25/MT -- US\$721.24/MT) and they
continued to rise over the summer. Due to these high prices, several
sugar using industry groups requested that SE allow sugar imports. As a
result, the Mexican government decided to authorize the sugar TRQ as a
way to "end speculation and stabilize sugar prices." Further,
representatives of sugar producers, traders, and consumers met in
October to attempt to agree upon an informal base price for sugar in
order to avoid additional import permits. According to reports,
participating parties agreed that standard sugar prices should not rise
above \$7,400 pesos/MT, and refined sugar will not rise above \$7,900
pesos/MT (standard US\$672.60/MT - refined US\$718.00/MT).

Sugar use under the "other disappearance" category which is mainly the
Mexican re-export program (PITEX) remains at 350,000 MT raw value for MY
2006/07. The PITEX program allows sugar to be sold as raw material for
further processing to Mexican food manufacturers, who buy the sugar from
the Mexican sugar mills at international prices minus import and
transportation costs or, if allowed, through imports. These food
manufacturers must then process the sugar within six months of the date
of purchase and must export the final processed product. Given this
process, the GOM classifies the sugar sold under the PITEX program as
exports. According to the sugar industry, the total sugar used under
PITEX for MY 2005/06 was about 379,000 MT raw value due to
higher-than-expected demand from the industry users. Sugar use under the
"other disappearance" category for MY 2004/05 remains unchanged.

The sugar import forecast for MY 2005/06 was revised upward based on
industry information to 82,000 MT, with the imports going into the PITEX
and *maquila* industries. Sugar import estimates for MY 2006/07 were
revised upward from previous estimates due to unilateral sugar import
tariff-rate quotas (TRQ) of 90,000 MT and 100,000 MT announced by the
government in August 30 and September 14, 2006 (See report MX6073,
MX6079) with the objective of ending speculation and stabilizing sugar
prices. The 90,000 MT TRQ is expected to be used by the PITEX and
*maquila* industries, the other 100,000 MT can be used by other
industries including the soft drink sector. In addition, to comply with
the Mexico-Nicaragua and Mexico-Costa Rica Free Trade Agreements, Mexico
granted additional duty-free access to 26,761 MT of sugar from
Nicaragua, and 50, 845 MT for Costa Rica. Thus the total sugar allowed
to be imported under these collective TRQ's by Mexico is 267,606 MT.
Sugar imported under these quotas is expected to begin to arrive in the
Mexican market by October 2006. Additionally, under the July 2006
agreement between Mexico and the United States, Mexico officially
announced duty free access to sugar from the U.S. under NAFTA in the
amount of 7,258 MT raw value for each of MY 2005/06, and MY 2006/07 as
well as for the first three months of MY 2007/08 that begins on October
2007 (See report MX6077).

*Note: Most of the refined sugar imported into Mexico has been
classified by customs into the HTS 1701.99 category, corresponding to "
other pure sucrose".* *It has also been confirmed that U.S. sugar
exports for Mexico were classified under the same category.*

## HFCS TRADE

Due to the imposition of the 20-percent duty on HFCS-containing soft
drinks and beverages since January 2002, HFCS imports had decreased
significantly until MY 2004/05. Consumption began to increase as some
companies began to use "*Amparos"* or court injunctions exempting them
from the 20-percent tax on HFCS. Then, in MY 2005/06 the U.S. and the
Mexican governments agreed to exchange access of 250,000 MT of Mexican
sugar into the U.S. market for access of the same quantity of U.S. HFCS
to the Mexican market. Therefore, imports of HFCS have increased, in
particular under HTS category 1702.60, which has increased from 116,081
MT for the entire MY 2004/05 to 171,706 MT through May of MY 2005/06.
Imports under HTS category 1702.40 are also expected to increase. Total
imports for both categories are expected to reach 300,000 MT dry basis
for MY 2005/06. HFCS imports for MY 2006/07 are expected to be similar
to those of MY 2005/06 if not slightly higher as it is expected that the
Congress will eliminate the 20-percent duty on HFCS-containing soft
drink products. (See policy section).

## STOCKS

Ending stocks for MY 2006/07 have been revised downward to 1.51 MMT raw
value due to lower beginning stocks resulting from higher sugar exports
during MY 2005/06. However, this stock level could change depending on
the Mexican export strategy as well as final sugar production levels.
Sugar stock levels for MY 2005/06 were revised downward due to larger
sugar exports, mainly to the United States. MY 2004/05 stock levels
remain unchanged.

## POLICY

At this time, the Mexican government and the sugar industry face
unresolved issues pertaining to their domestic and international
policies toward sugar. The new Mexican Congress that began ordinary
sessions on September 1, 2006 and the new government that will be in
place December 1, 2006 will have several challenges including
implementation of NAFTA provisions by 2008, the amendment of the sugar
law, repeal of the 20 percent tax on HFCS, and privatization of sugar
mills.

In anticipation of the NAFTA opening for sweeteners in 2008, the United
States and Mexico have reached an agreement on market access for
sweeteners. That agreement, set forth in an exchange of letters dated
July 27, 2006, provides Mexico duty-free access to the United States for
250,000 metric tons raw value of raw or refined sugar in FY 2007 and at
least 175,000 metric tons raw value of raw or refined sugar for the
first three months of FY 2008 (Oct. 1 through Dec. 31, 2007). Under the
agreement, Mexico will provide reciprocal access for U.S. high fructose
corn syrup (HFCS), including 250,000 metric tons in FY 2007 and at least
175,000 metric tons for the first three months of FY 2008 (Oct. 1
through Dec. 31, 2007). Mexico will also establish, for the first time
under NAFTA, a duty-free quota for U.S. sugar of not less than 7,258
metric tons raw value for each of marketing years 2006, 2007, and 2008.
Mexico had previously withheld the establishment of such a quota under
NAFTA due to the longstanding trade dispute over sugar.

In addition, under the agreement Mexico also committed to eliminating
the 20-percent duty assessed to beverages that use HFCS by January 31,
2007. However, this is an issue that involves legislation from the new
Mexican Congress. President Fox sent on May 2006 an initiative to the
Lower House of the Congress to eliminate this tax to comply with WTO
rulings. It is expected that this issue will be discussed within the
Mexican Income Budget Law, and through this law the tax could be
cancelled by January 2007. However, some domestic pressure is expected
on the GOM and the Congress to somehow continue to limit imports of
HFCS.

Along with international agreements, the Government of Mexico is dealing
with a number of domestic issues, most notable its recently passed Sugar
Law. Although the Fox administration canceled the old sugar legislation
(see report MX5005) in an attempt to establish other mechanisms that
would make the Mexican sugar sector more competitive, other political
forces, including the sugarcane associations, successfully worked
against this idea. The result was the creation of a new Sugar Law that
includes most of the principles the old sugar legislation used to
regulate the sugar sector. This new Sugar Law limits market influence on
prices for sugarcane and leaves the payment for sugarcane as it was,
regulated by federal decrees. The Sugar Law was approved by the Mexican
Congress in June 2005 to take the place of the old legislation revoked
by President Fox. However, the government and the sugar mill industry
did not wholly agree with this decision and unsuccessfully tried to have
the law vetoed before it was officially published. After protracted
negotiations, the Secretariat of Agriculture (SAGARPA), and the
Agricultural Commissions from the Congress signed a political agreement
that committed the Congress to making minor modifications to the Law in
exchange for SAGARPA's withdrawal of opposition to the final passage.
However, the Congress did not amend the Sugar Law as agreed leaving the
sugar industry with an uncertain legal framework. The new Congress will
take up this task.

The new government will have to manage the return of 20 of Mexico's 23
government-owned sugar mills back to private ownership. The government
expropriated 27 mills in September 2001, four of which had to be
returned through court rulings to their previous owners in February
2004. Then in January 2006, the Supreme Court of Justice (SCJ) declared
that the entire expropriation of the nation's sugar mills by the
government in 2001 was unconstitutional, and ordered the Secretariat of
Agriculture (SAGARPA) to return the mills to their original owners. As
of July 2006, SAGARPA has returned three of the four sugar mills that
were expropriated from the Machado Group in September 2001: Central
Progreso and Fomento Azucarero del Golfo mills in the state of Veracruz,
and La Margarita mill in Oaxaca. No other mills have yet to be returned.

The transformation of the sugar industry will be another factor that the
new government has to consider in its overall policies. The Mexican
industry and government officials recognize the need to diversify the
sugar industry. Currently, most of the sugar cane production goes into
the production of sugar. The sugar industry is pushing the government to
develop a bio-ethanol industry as a key part of diversification, and the
Sugar Law already has some provisions towards such diversification.
However, many have pointed out that successful development requires
substantial investment in plants and infrastructure as well as the
participation of Mexico's energy sector. The new Congress has on its
agenda the analysis of the Biofuels Law which includes a series of
actions to produce "cleaner" fuels and to stimulate biofuel production.
Meanwhile, under the Competitiveness Program for the Sugar Industry,
announced by SE, two plants are being built to produce ethanol, one
plant using sugarcane and the other using corn. Also, private companies
are already working on the design of ethanol production plants, seeking
investment and potential markets for the ethanol. Some local governments
are also indicating that they will provide some "supports" to produce
ethanol based on sugarcane. However, since the Sugar Law is still an
uncertain legal framework, there is no certainty about the policy and
pricing of sugarcane for ethanol production purposes. In addition, the
government has yet to establish a comprehensive biofuel policy. More
information about Mexico's policy on Biofuels including ethanol
production can be found in report MX 6049.

# 

# SECTION II. STATISTICAL TABLES

## CENTRIFUGAL SUGAR TABLE

  ---------------- ------------- ---------- ----------- ------------- ---------- ----------- ------------- ---------- -----------
  **MEXICO**                                                                                                          

  **Sugar,                                                                       **(1000                              
  Centrifugal**                                                                  MT)**                                

                   **2005                               **2006                               **2007                   
                   Revised**                            Estimate**                           Forecast**               

                   USDA\         Post\      Post\       USDA\         Post\      Post\       USDA\         Post\      Post\
                   Official      Estimate   Estimate\   Official      Estimate   Estimate\   Official      Estimate   Estimate\
                                            New                                  New                                  New

  Market Year      **10/2004**                          **10/2005**                          **10/2006**              
  Begin                                                                                                               

  Beginning Stocks 1,237         1,237      1,237       2,045         2,045      2,045       1,874         1,806      1,372

  Beet Sugar       0             0          0           0             0          0           0             0          0
  Production                                                                                                          

  Cane Sugar       6,149         6,149      6,149       5,623         5,623      5,604       5,650         5,750      5,750
  Production                                                                                                          

  Total Sugar      6,149         6,149      6,149       5,623         5,623      5,604       5,650         5,750      5,750
  Production                                                                                                          

  Raw Imports      8             8          8           1             1          3           1             1          1

  Refined Imp.(Raw 260           260        260         79            10         79          99            10         359
  Val)                                                                                                                

  Total Imports    268           268        268         80            11         82          100           11         360

  Total Supply     7,654         7,654      7,654       7,748         7,679      7,731       7,624         7,567      7,482

  Raw Exports      9             9          9           150           150        290         50            50         40

  Refined Exp.(Raw 119           119        119         434           386        390         545           280        280
  Val)                                                                                                                

  Total Exports    128           128        128         584           536        680         595           330        320

  Human Dom.       5,199         5,199      5,199       5,040         4,987      5,300       5,141         5,092      5,400
  Consumption                                                                                                         

  Other            282           282        282         250           350        379         350           350        350
  Disappearance                                                                                                       

  Total Disappear  5,481         5,481      5,481       5,290         5,337      5,679       5,391         5,442      5,650

  Ending Stocks    2,045         2,045      2,045       1,874         1,806      1,372       1,638         1,795      1,512

  Total            7,654         7,654      7,654       7,748         7,679      7,731       7,624         7,567      7,482
  Distribution                                                                                                        
  ---------------- ------------- ---------- ----------- ------------- ---------- ----------- ------------- ---------- -----------

## SUGAR CANE FOR CENTRIFUGAL

<table>
<colgroup>
<col style="width: 25%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td><p id="mexico" class="heading">MEXICO</p></td>
<td colspan="2"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="6"><strong>Sugar Cane for Centrifugal</strong></td>
<td colspan="4"><strong>(1000 HA)(1000 MT)</strong></td>
</tr>
<tr class="odd">
<td rowspan="2"></td>
<td colspan="3"><strong>2005 Revised</strong></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="even">
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
</tr>
<tr class="odd">
<td>Market Year Begin</td>
<td colspan="3"><strong>11/2004</strong></td>
<td colspan="3"><strong>11/2005</strong></td>
<td colspan="3"><strong>11/2006</strong></td>
</tr>
<tr class="even">
<td>Area Planted</td>
<td>640</td>
<td>640</td>
<td>640</td>
<td>663</td>
<td>663</td>
<td>663</td>
<td>663</td>
<td>663</td>
<td>663</td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>612</td>
<td>612</td>
<td>612</td>
<td>657</td>
<td>657</td>
<td>635</td>
<td>657</td>
<td>657</td>
<td>657</td>
</tr>
<tr class="even">
<td>Production</td>
<td>50,893</td>
<td>50,893</td>
<td>50,893</td>
<td>48,000</td>
<td>48,000</td>
<td>47,283</td>
<td>50,000</td>
<td>50,000</td>
<td>50,000</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>50,893</td>
<td>50,893</td>
<td>50,893</td>
<td>48,000</td>
<td>48,000</td>
<td>47,283</td>
<td>50,000</td>
<td>50,000</td>
<td>50,000</td>
</tr>
<tr class="even">
<td>Utilization for Sugar</td>
<td>50,893</td>
<td>50,893</td>
<td>50,893</td>
<td>48,000</td>
<td>48,000</td>
<td>47,283</td>
<td>50,000</td>
<td>50,000</td>
<td>50,000</td>
</tr>
<tr class="odd">
<td>Utilization for Alcohol</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Total Utilization</td>
<td>50,893</td>
<td>50,893</td>
<td>50,893</td>
<td>48,000</td>
<td>48,000</td>
<td>47,283</td>
<td>50,000</td>
<td>50,000</td>
<td>50,000</td>
</tr>
</tbody>
</table>

## SUGAR PRICES

+----------+-------+---------+---------+-------+---------+------------+
| *        |       |         |         |       |         |            |
| *AVERAGE |       |         |         |       |         |            |
| SUGAR    |       |         |         |       |         |            |
| PRICES** |       |         |         |       |         |            |
|          |       |         |         |       |         |            |
| **UNITS: |       |         |         |       |         |            |
| 50 KG.   |       |         |         |       |         |            |
| BULK     |       |         |         |       |         |            |
| /PESOS** |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| MONTH    | **    |         | *       | *     |         | **CHANGE   |
|          | STAND |         | *CHANGE | *REFI |         | %**        |
|          | ARD** |         | %**     | NED** |         |            |
+----------+-------+---------+---------+-------+---------+------------+
|          | **2   | *       |         | **2   | *       |            |
|          | 005** | *2006** |         | 005** | *2006** |            |
+----------+-------+---------+---------+-------+---------+------------+
| January  | 3     | 280.40  | (13.10) | 3     | 332.80  | (2.11)     |
|          | 22.70 |         |         | 40.00 |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Febru   | 3     | 275.60  | (11.66) | 3     | 332.75  | (1.98)     |
| ary]{.sm | 12.00 |         |         | 39.50 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Ma      | 3     | 273.00  | (10.78) | 3     | 350.00  | 4.29       |
| rch]{.sm | 06.00 |         |         | 35.60 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Ap      | 3     | 292.50  | (4.41)  | 3     | 355.00  | 4.71       |
| ril]{.sm | 06.00 |         |         | 39.00 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [        | 3     | 326.65  | 7.01    | 3     | 375.60  | 10.86      |
| May]{.sm | 05.25 |         |         | 38.80 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [J       | 3     | 356.00  | 17.06   | 3     | 412.00  | 22.71      |
| une]{.sm | 04.10 |         |         | 35.75 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [J       | 2     | 356.00  | 19.76   | 3     | 415.25  | 23.67      |
| uly]{.sm | 97.25 |         |         | 35.75 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Aug     | 3     | 458.00  | 52.66   | 3     | 459.70  | 38.04      |
| ust]{.sm | 00.00 |         |         | 33.00 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Septem  | 2     | N/A     | N/A     | 3     | 528.50 | 59.78      |
| ber]{.sm | 89.00 |         |         | 30.75 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Octo    | 2     | N/A     | N/A     | 3     | N/A     | N/A        |
| ber]{.sm | 84.10 |         |         | 31.00 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Novem   | 2     | N/A     | N/A     | 3     | N/A     | N/A        |
| ber]{.sm | 83.50 |         |         | 35.60 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| [Decem   | 2     | N/A     | N/A     | 3     | N/A     | N/A        |
| ber]{.sm | 82.50 |         |         | 35.10 |         |            |
| allcaps} |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+
| CIF      |       |         |         |       |         |            |
| Mexico   |       |         |         |       |         |            |
| City     |       |         |         |       |         |            |
+----------+-------+---------+---------+-------+---------+------------+

Source: Servicio Nacional de Informacion de Mercados SNIIM-ECONOMIA

<http://www.economia-sniim.gob.mx/Sniim-an/e_SelAzu.asp>?

2005 Avg. Exchange Rate US\$1.00=\$10.90 pesos

2006 Avg. Exchange Rate Sep 11, 2006 US\$1.00=\$11.02 pesos

 As of first. week of September 2006

## SUGAR TARIFFS

+-----------+----------------------+----------------+----------------+---+
| *         |                      |                |                |   |
| *[Mexican |                      |                |                |   |
| Sugar     |                      |                |                |   |
| Import    |                      |                |                |   |
| Tari      |                      |                |                |   |
| ffs]{.sma |                      |                |                |   |
| llcaps}** |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| **[H.T.S. | **NAFTA TRQ for      | **NAFTA        | **[Specific    |   |
| Tariff \# | 7,258 MT for U.S.    | Tariffs not    | Tariff for     |   |
| Subhead   | Commodities**        | under the      | Third          |   |
| ing]{.sma |                      | TRQ**          | Countries]     |   |
| llcaps}** | **Dollars/Kg **     |                | {.smallcaps}** |   |
|           |                      | **Dollars/Kg   |                |   |
|           | **(09/13/06 TO       | **            | **[Dollars/Kg] |   |
|           | 12/31/07)**          |                | {.smallcaps}** |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2704         | 0.338          |   |
| 701.11.01 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2704         | 0.338          |   |
| 701.11.02 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2704         | 0.338          |   |
| 701.11.03 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.12.01 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.12.02 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.12.03 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.91.01 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.99.01 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.99.02 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 701.99.99 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 1         | 0                    | 0.2880         | 0.36           |   |
| 806.10.01 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+
| 2         | 0                    | 0.2880         | 0.36           |   |
| 106.90.05 |                      |                |                |   |
+-----------+----------------------+----------------+----------------+---+

Notes:

 To have this preferential treatment, the importer must have an import
quota permit issued by SE, imported products must be qualified products
from U.S origin according to NAFTA, and the importer must provide a
written statement from the exporter that certifies that the product has
not benefited from the U.S. Sugar Re-export Program (See report MX0000).

 The sugar importer must have a written statement from the exporter
that certifies that the product has not benefited from the U.S. Sugar
Re-export Program. If the importer has this statement, and is not
importing under the TRQ then the sugar will be subject to duty on the
third column. Otherwise, the product will be subject to the tariff in
column four which is the General Import Tariff Law.

<table style="width:100%;">
<colgroup>
<col style="width: 6%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 6%" />
<col style="width: 0%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 6%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="15"><strong>1995-2006 MONTHLY EXCHANGE RATE
AVERAGES</strong></td>
</tr>
<tr class="even">
<td></td>
<td><strong>Jan</strong></td>
<td><strong>Feb</strong></td>
<td><strong>Mar</strong></td>
<td><strong>Apr</strong></td>
<td><strong>May</strong></td>
<td><strong>Jun</strong></td>
<td><strong>Jul</strong></td>
<td><strong>Aug</strong></td>
<td colspan="2"><strong>Sep</strong></td>
<td><strong>Oct</strong> <sup></sup></td>
<td><strong>Nov</strong></td>
<td><strong>Dec</strong></td>
<td><strong>Avg.</strong></td>
</tr>
<tr class="odd">
<td>1995</td>
<td>5.58</td>
<td>5.66</td>
<td>6.75</td>
<td>6.25</td>
<td>5.98</td>
<td>6.22</td>
<td>6.13</td>
<td>6.20</td>
<td colspan="2">6.31</td>
<td>6.72</td>
<td>7.68</td>
<td>7.67</td>
<td><strong>6.43</strong></td>
</tr>
<tr class="even">
<td>1996</td>
<td>7.50</td>
<td>7.51</td>
<td>7.57</td>
<td>7.47</td>
<td>7.43</td>
<td>7.55</td>
<td>7.62</td>
<td>7.51</td>
<td colspan="2">7.54</td>
<td>7.70</td>
<td>7.91</td>
<td>7.87</td>
<td><strong>7.60</strong></td>
</tr>
<tr class="odd">
<td>1997</td>
<td>7.83</td>
<td>7.79</td>
<td>7.96</td>
<td>7.91</td>
<td>7.91</td>
<td>7.95</td>
<td>7.88</td>
<td>7.78</td>
<td colspan="2">7.78</td>
<td>7.83</td>
<td>8.28</td>
<td>8.13</td>
<td><strong>7.92</strong></td>
</tr>
<tr class="even">
<td>1998</td>
<td>7.83</td>
<td>7.69</td>
<td>8.97</td>
<td>8.09</td>
<td>7.76</td>
<td>9.33</td>
<td>9.75</td>
<td>9.31</td>
<td colspan="2">9.73</td>
<td>10.64</td>
<td>10.53</td>
<td>9.91</td>
<td><strong>9.13</strong></td>
</tr>
<tr class="odd">
<td>1999</td>
<td>9.20</td>
<td>9.05</td>
<td>10.68</td>
<td>8.98</td>
<td>8.50</td>
<td>9.98</td>
<td>9.81</td>
<td>9.84</td>
<td colspan="2">8.89</td>
<td>9.55</td>
<td>10.98</td>
<td>9.91</td>
<td><strong>9.62</strong></td>
</tr>
<tr class="even">
<td>2000</td>
<td>9.48</td>
<td>9.44</td>
<td>9.29</td>
<td>9.38</td>
<td>9.51</td>
<td>9.82</td>
<td>9.44</td>
<td>9.28</td>
<td colspan="2">9.34</td>
<td>9.98</td>
<td>9.51</td>
<td>9.91</td>
<td><strong>9.53</strong></td>
</tr>
<tr class="odd">
<td>2001</td>
<td>9.76</td>
<td>9.70</td>
<td>9.60</td>
<td>9.33</td>
<td>9.14</td>
<td>9.09</td>
<td>9.15</td>
<td>9.12</td>
<td colspan="2">9.40</td>
<td>9.45</td>
<td>9.25</td>
<td>9.16</td>
<td><strong>9.35</strong></td>
</tr>
<tr class="even">
<td>2002</td>
<td>9.16</td>
<td>9.10</td>
<td>9.07</td>
<td>9.14</td>
<td>9.49</td>
<td>9.75</td>
<td>9.79</td>
<td>9.83</td>
<td colspan="2">10.05</td>
<td>10.09</td>
<td>10.19</td>
<td>10.21</td>
<td><strong>9.82</strong></td>
</tr>
<tr class="odd">
<td>2003</td>
<td>10.60</td>
<td>10.93</td>
<td>10.92</td>
<td>10.62</td>
<td>10.25</td>
<td>10.50</td>
<td>10.45</td>
<td>10.76</td>
<td colspan="2">10.93</td>
<td>11.17</td>
<td>11.13</td>
<td>11.26</td>
<td><strong>10.79</strong></td>
</tr>
<tr class="even">
<td>2004</td>
<td>10.93</td>
<td>11.01</td>
<td>11.00</td>
<td>11.26</td>
<td>11.52</td>
<td>11.38</td>
<td>11.47</td>
<td>11.40</td>
<td colspan="2">11.49</td>
<td>11.39</td>
<td>11.38</td>
<td>11.21</td>
<td><strong>11.29</strong></td>
</tr>
<tr class="odd">
<td>2005</td>
<td>11.26</td>
<td>11.14</td>
<td>11.14</td>
<td>11.12</td>
<td>10.98</td>
<td>10.83</td>
<td>10.69</td>
<td>10.68</td>
<td>10.78</td>
<td colspan="2">10.83</td>
<td>10.68</td>
<td>10.63</td>
<td><strong>10.90</strong></td>
</tr>
<tr class="even">
<td>2006</td>
<td>10.56</td>
<td>10.48</td>
<td>10.73</td>
<td>11.03</td>
<td>11.08</td>
<td>11.39</td>
<td>11.00</td>
<td>10.87</td>
<td>10.89</td>
<td colspan="2">11.04</td>
<td><sup>n.a</sup></td>
<td><sup>n.a</sup></td>
<td><sup>n.a</sup></td>
</tr>
<tr class="odd">
<td colspan="15"><p>Source: Mexican Federal Register</p>
<p>Note: Monthly rates are averages of daily exchange rates from the
Banco de Mexico.</p>
<p> As of October 11, 2006</p></td>
</tr>
</tbody>
</table>