Fox wins political points by taking over sugar mills

Mexico's once-powerful sugar industry isn't looking too sweet: Debt has spiraled past $2.5 billion, thousands of unpaid farmers have been protesting in the streets, there is evidence of widespread fraud, and that there's not enough cash to process the 2001-2002 crop.

As a result, some 3.5 million Mexicans face an uncertain future in the world's eighth-largest sugar producer.

This week, though, President Vicente Fox took action, expropriating 27 of the country's 59 heavily indebted sugar mills. It will cost his young administration hundreds of millions of dollars, and may still not save an industry that is withering on the vine.

Nonetheless, the political payoff may be invaluable for Mr. Fox, who is facing growing complaints that he's done little to fight corruption and cronyism, and he has paid scant attention to Mexico's little man.

The expropriation announcement won immediate approval from farmer's unions across the country. "Fox is trying to save the situation for guys who are in the fields," says Eduardo Mendez, a food and agriculture consultant to the Mexican government. "But in the long run, very little can be done to save this industry."

Mexico privatized its cane-based sugar mills in the 1990s, only to watch cheaper corn-based fructose plunge global sugar prices, forcing mill owners here to take heavy losses. The 1994 peso crash caused those debts to mushroom, while a dispute with the US over annual trade quotas left tons of surplus sugar, much of it government-subsidized, piling up in warehouses.

The Fox government said Monday it would spend as much as $300 million to buttress the seized mills, which had not paid thousands of sugar-cane producers in months.

Finance Minister Francisco Gil says that the expropriation will end up costing Mexican taxpayers between $110 million and $330 million, but that the government hopes to recover as much as 95 percent of that money by reselling the mills within 18 months.

He says little, if any, of that money will end up in the pockets of the mill owners, who owe millions in past taxes and social security payments.

"The government cannot keep putting money into this financial black hole," he told reporters.

The long-ruling Institutional Revolutionary Party, or PRI, which Fox toppled from power in last year's elections, had propped up the sugar industry for decades, spending billions annually to maintain political support from its many growers, cutters, and refiners.

But Gil says the Fox administration has uncovered evidence that these government subsidies were being "milked by the owners for their personal interest."

Though officials have declined to name which sugar bosses they are investigating on suspicion of fraud, the country's two largest sugar mills are among those seized. Lawyers for the firms say they will fight the expropriation order, and have denied any fraudulent behavior.

The expropriation came days after Fox delivered his first State of the Union address, in which he responded to complaints he'd done little to fulfill campaign promises to eradicate corruption and make a better life for the country's 98 million people.

"My every energy is directed at bringing about that deep change," he said in his speech, adding that he, too, was frustrated by how long that process was taking.

In another victory for Fox, the move also won widespread support from Mexico's divided Congress, which had previously blocked several of his key policy initiatives. On Tuesday, members of Mexico's three biggest political parties united to call for a full investigation into the dirty dealings of the sugar-mill owners.

And though many Mexicans applauded the expropriation, it harkened back to the multibillion-dollar bailout of the bank system in the 1990s, from which most bank owners and managers emerged unscathed.

This time around, one of Mexico's largest farm unions, which led some 5,000 cane farmers in a march on Mexico City last month, is suggesting Fox hand over control of the failing mills to the cane farmers themselves.

"In our opinion, they should put control of the mills in the hands of the cane growers and cutters," says Alvaro Lopez Rios, president of the Agrarian Congress, a Mexico City-based union. "But if they wipe the slate clean for the thieves who have been running them, then we are going to see more problems."

Industry analysts say the government will more likely portion off parts of the failing mills to others that remain functioning, and offer the rest for private, probably foreign, investment.

Some, they predict, will be shuttered for good, possibly resulting in thousands of permanent job losses for poor cane farmers.