Coke Takes Sugar Punch

Rating: NNNNNmexico city -- if "frijoles" (beans) are Mexican caviar, then Coca-Cola is the champagne of the poor. Poorer Mexicans.

Rating: NNNNN

mexico city — if “frijoles” (beans) are Mexican caviar, then Coca-Cola is the champagne of the poor. Poorer Mexicans quaff inordinate quantities of the stuff. They shell out 80 cents U.S. for a bottle, which they often drain over breakfast (for the caffeine) or as a substitute for poisonous drinking water. But poverty-line consumers received a true Coke jolt on January 1 when the Mexican Congress slapped a surprise 20 per cent surcharge on all “chescos” (short for “refrescos” or soft drinks) made with corn syrup imported from the U.S. Conversion to more expensive Mexican sugar will also up the price of soft drinks now confected with the cheaper sweetener.

This arrangement was the result of last-minute wheeling and dealing in the halls of Congress early this past January 1. After nine hours of frenzied partisan aligning and realigning, legislators jury-rigged a reform of the tax system that President Fox had been strenuously, if ultimately unsuccessfully, pushing during his first year in office.

The Fox plan had intended to shift the tax burden from upper-bracket incomes to consumption, levelling an across-the-board 15 per cent surcharge on all goods and services sold in the country, including food and medicines. Inclusion of the last two items was bitterly opposed by the former ruling Institutional Revolutionary Party (PRI, which controlled Mexico for 71 years) and the left-centre Party of the Democratic Revolution (PRD).

When the sun poked through the Mexico City smog on the first morning of 2002, food and medicine were still untaxed. Instead, an odd-couple combination of the PRD and Fox’s rightist National Action or PAN party had agreed on a 20 per cent surcharge on such luxury items as golf clubs, water skis, big-ticket TVs, caviar, smoked salmon and dressed eels, to name a few — in addition to chescos fashioned from NAFTA-driven corn syrup (“alta fructosa”).

Sugar in Mexico is big, big business. The industry represents by far the largest agricultural work force — 3.5 million employees ranging from the “macheteros” who cut the cane in the “zafra” or harvest to the sugar barons who snapped up government-owned refineries back in the early 90s when they were offered for sale for a pittance by then-president Carlos Salinas to his cronies.

This did not turn out to be the sweet dream the sugar barons had fancied. To insure passage of the North American Free Trade Agreement, U.S. president Bill Clinton cut a last-minute deal with his own sugar industry, severely restricting Mexican exports to 137,000 metric tons a year. Mexico produces about 600,000 tons in domestic surplus annually.

Meanwhile, U.S. corn syrup has been slurping over the border in exponentially increasing quantities, and the much cheaper sweetener has largely displaced local sugar in the soft drink bottling industry.

The shift has cut the sugar bosses out of 400,000 tons in annual sales, driving them into bankruptcy in addition to jamming the storehouses to capacity and depressing the domestic price to its lowest level ever.

The crisis came to a head last summer when thousands of machete-wielding sugar workers camped out in Mexico City, demanding millions in payment for the 2001 zafra. One of the privatized firms, the Mexican Sugar Group, or GAM, which has prominent U.S. investors, owed its workers upwards of $52.5 million Canadian in back wages.

Advised that continuing to subsidize the owners was akin to tossing money into a black hole, Fox abruptly expropriated 27 refineries. He also raised eyebrows by appointing former Coca-Cola execs to administer the sugar mills during the 18-month clean-up period before they’re put up for resale. Among the probable buyers is the Coca-Cola Corporation.

But expropriation did not alter the market forces, and the corn syrup just kept oozing in — 175,000 tons in 2001. Hence the 20 per cent sales tax enacted by the Mexican legislature January 1, explains PRD congressperson and chair of the lower house’s sugar commission Arturo Hervis, who hails from sugar-rich Veracruz state.

“This surcharge will put the industry back to work, pay the workers what’s due them and protect us from U.S. corn syrup dumping. It is a frankly protectionist tax,” Hervis admits, uttering an epithet that is anathema to free-traders.

Indeed, Nobel Prize-winning U.S. neo-liberal guru Gary Becker cursed the new tax as “protectionist, political and prejudicial” during a recent swing through Mexico, and White House trade rep Robert Zoellick reportedly expressed similar sentiments during a January 10 huddle with Foreign Minister Jorge Castaneda.

The new tax also knocks the props out from under U.S. corn syrup exporters like Archer Daniels Midland (ADM) and Corn Products International, which will lose $407 million a year, about 4 per cent of its total business, as Mexican bottlers cancel contracts and shift back to a sugar base. The two companies are also beseeching the White House to blow the whistle on Mexico before the World Trade Organization, the ultimate arbiter of such disputes.

All of this high-stakes razzle-dazzle was lost upon Saturnino Acosta, a Mexico City street sweeper in his 70s, as he sat down to his usual breakfast at the La Blanca cafe in the capital’s old quarter: a tamale and two Cocas “al tiempo” (at room temperature.) “Ay, que rico! (How rich!)” exclaims the elderly man, draining the first Coke. “This has been my breakfast for 60 years. I guess I’m addicted.”

So, it seems, is the whole country.

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