VZCZCXRO6697
PP RUEHCD RUEHGD RUEHHM RUEHHO RUEHJO RUEHMC RUEHNG RUEHNL RUEHPOD
RUEHRD RUEHRS RUEHTM
DE RUEHME #1330/01 0741723
ZNR UUUUU ZZH
P 151723Z MAR 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5826
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHXI/LABOR COLLECTIVE

UNCLAS SECTION 01 OF 03 MEXICO 001330 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR DRL/AWR AND ISCSR, WHA/MEX, WHA/EPSC AND WHA/PPC, 
EB/IFT/OMA, EB/ESC FOR MCMANUS AND IZZO, DOL FOR ILAB, 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN, USDOC FOR 
ITS/TD/ENERGY DIVISION, TREASURY FOR IA (ALICE 
FAIBISHENKO), DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND 
SLADISLAW, USDA/FAS/OGA 
 
E.O. 12958: N/A 
TAGS: ELAB ENRG ECON EPET PINR MX
SUBJECT: MEXICO,S TWO SUGAR CANE PRODUCERS ASSOCIATIONS 
HAVE VERY DIFFERENT VIEWS ON ETHANOL 
 
REF: MEXICO 0130 
 
¶1.  SUMMARY: Embassy personnel recently met with 
representatives of Mexico,s National Union of Sugar Cane 
Producers (UNPCA) and the National Union of Cane Growers 
(UNC) to discuss these two organizations, views on 
increasing Mexican ethanol production.  The cane producers 
are the intermediaries between the unionized sugar workers 
(who cut cane and work in the mills) and the mill 
owners/operators who make up the sugar industry.  Of these 
three segments of sugar production in Mexico, the cane 
producers appear to be the ones who have thought most about 
what the country needs to do to increase ethanol production. 
That said, they have very different views on the near term 
future of ethanol production in Mexico.  According to the 
UNPCA, many of the elements needed to increase sugar cane 
based ethanol production are beginning to fall into place. 
The UNC, however, is much less optimistic about the prospects 
for increased production of sugar cane-based ethanol without 
significant investments and changes in the way sugar is 
produced in Mexico.  END SUMMARY 
 
 
A TALE OF TWO SUGAR CANE PRODUCERS 
---------------------------------- 
 
¶2.  Embassy personnel responsible for energy, agriculture and 
labor recently met with representatives of Mexico,s National 
Union of Sugar Cane Producers (UNPCA) to discuss that 
organization's views on increasing Mexican cane based ethanol 
production.  A short time later post,s Labor Counselor met 
separately with the National Union of Cane Growers (UNC) to 
confer on this same issue.  Although the UNPCA and UNC both 
call themselves &unions8 it would be more accurate to 
describe them as commercial or trade associations.  The cane 
producers are the intermediaries between the unionized sugar 
workers (who cut cane and work in the mills) and the mill 
owners/operators who make up the sugar industry. 
 
¶3.  The main differences between the two organizations are 
their ages, degree of political affiliation and level of 
international contacts.  The UNPCA is the older of the two 
cane producing organizations and is formally a part of the 
National Confederation of Farmers ) CNC.  The CNC is an 
integral part of Mexico,s former ruling party, the 
Institutional Revolutionary Party (PRI). 
Strictly speaking the National Union of Cane Growers )UNC- 
is also closely associated with the PRI but is not part of 
its formal structure.  The UNC was formed in 1973 and 
maintains a high level of international contacts and is a 
formal member of International Sugar Organization and the 
International Federation of Agricultural Producers.  Both the 
UNPCA and the UNC agreed that it was feasible to 
significantly increase sugar cane based ethanol production 
and even agreed on many of the steps required to make 
increased cane based ethanol in Mexico. They differed 
significantly however on how close Mexico was to achieving 
the steps needed to make increased ethanol production a 
reality. 
 
THE GLASS IS MORE THAN HALF FULL 
-------------------------------- 
 
¶4.  In meeting with the National Union of Sugar Cane 
Producers (UNPCA), Embassy personnel were presented with a 
scenario which clearly showed that the organization had given 
great thought to the actions that would be needed to increase 
Mexico,s production of sugar cane based ethanol. They were 
aware that the legal framework needed to support increased 
ethanol production was still pending the approval of a 
national Bio-fuels Law and of implementing legislation for a 
Sugar Law passed in 2006.  The UNPCA acknowledged that the 
current pricing structure for sugar in Mexico would prohibit 
the production of sugar cane based ethanol at an economical 
price (in comparison to sugar for human consumption or the 
world price of petroleum).  The UNPCA representatives also 
seemed aware of the steps needed to achieve greater ethanol 
 
MEXICO 00001330  002 OF 003 
 
 
production such as increasing the amount of land under sugar 
cane cultivation, the need to build plants devoted to 
ethanol, develop a plan to get the ethanol to Mexico,s 
energy producers (petroleum and electricity) and the need to 
deal in some form or other with Mexico,s sugar workers (cane 
cutters and mill workers) union. 
 
¶5.  According to the UNPCA (and the UNC), the current 
structure of Mexico,s sugar industry is completely incapable 
of taking the steps needed for increased ethanol production. 
The semi controlled price of Mexican sugar, which is one of 
the highest in the world, makes it uneconomical to produce 
cane for ethanol as opposed to cane for human consumption. 
Their solution to this was to create a totally new and 
parallel ethanol industry totally independent of Mexico,s 
current sugar industry.  The new ethanol industry would 
expand the planting of sugar cane to new fields which the 
UNPCA says it has already identified in order to avoid 
competing for sugar currently destined for Mexico,s food 
related industries.  It would build new, modern production 
facilities totally dedicated to producing ethanol production. 
Finally, this new industry would work with the sugar workers 
union to establish a new hiring and employment structure that 
is more flexible than the ones that currently exists in 
Mexican sugar mills. 
 
¶6.  In order to finance the establishment of this new ethanol 
industry the UNPCA representatives stated they had been in 
contact with Japanese, European and Brazilian interests who 
were prepared to invest in Mexico.  Despite its close 
affiliation with the Mexico,s PRI political party the UNPCA 
underscored that its membership was composed of cane 
producers associated with parties across the Mexican 
political spectrum and as such the had no concerns that their 
plans for establishing a new ethanol industry would meet any 
political resistance. 
 
¶7.  Interestingly, in response to a direct question about 
working with the GOM in general and Mexico,s Labor 
Secretariat in particular, the UNPCA representatives stated 
 
SIPDIS 
that involving they want no contact with the GOM as that 
would be the surest way to prevent the new industry from ever 
getting off the ground.  That one negative note 
notwithstanding, the UNPCA representatives responded 
optimistically to all the question put to them by Embassy 
personnel and assured us that the establishment of new and 
independent sugar cane based ethanol industry was well on its 
way to becoming a reality. 
 
 
THE GLASS IS REALLY ALMOST EMPTY 
-------------------------------- 
 
¶8.  Over the course of an extended meeting at the offices of 
the National Union of Cane Growers (UNC), post,s Labor 
Counselor received a very different take on the prospects for 
the increased production of sugar cane based ethanol in 
Mexico.  The leadership of the UNC is in close agreement with 
their colleagues in the UNPCA that Mexico will needed to 
create a parallel ethanol industry if it wishes to 
significantly increase the production of this alternative 
fuel.  However, this was probably the only point regarding 
sugar cane based ethanol on which the UNC and UNPCA agreed. 
 
¶9.  In the UNC,s view, the most overarching problem 
preventing an increase in the production of sugar cane based 
ethanol was the overall availability, or more specifically 
the lack thereof, of sugar cane.  The UNPCA saw no real 
problems in meeting the current demand for sugar in Mexico. 
However, the UNC said, Mexico,s current demands for sugar 
and its capacity to meet those demands are almost in prefect 
synchronization with nothing left over to spare. 
 
¶10.  For example, the UNC estimated that in 2007 the total 
production of Mexico,s sugar industry would be about 5.6 
million tons (MT).   The UNC then compared that estimate with 
expected demand which it said would be roughly 5.5 MT with 
nothing left for the production of ethanol.  According to the 
 
MEXICO 00001330  003 OF 003 
 
 
UNC, the pattern production just barely meeting demand will 
almost certainly be repeated in 2008 and 2009.  This problem 
could be solved by increase cultivation but that would not 
address the problem of the comparative cost/benefits. 
 
¶11.  At present one ton of sugar cane will yield 120 kilos of 
sugar with a market price to the producer in Mexico of some 
USD 72.00.  That same ton of sugar cane will yield 80 liters 
of ethanol with a market price to the producer of USD 32.00 
) 40.00. Under those circumstances, the UNC asked 
rhetorically, what producer is going to sell their cane to 
someone interested in producing ethanol.  The UNC speculated 
that under some sort of renewable energy program a system of 
subsidies might make sugar cane based ethanol profitable to 
the producer but that would not be very efficient and it 
would require the approval/participation of the Mexican 
government,s Energy Secretariat, Secretariat of Agriculture, 
the office of the President and the Treasury Secretariat. 
And even then, the UNC added, that assumes that all the other 
factors mentioned by the UNPCA fell into place and that the 
sugar workers union could be persuaded to negotiate flexible 
employment conditions.  In short, the UNC concluded, it is 
possible to increase sugar cane based ethanol in Mexico but 
doing any time soon would require a great deal of luck, 
cooperation and a change of hard economic facts. 
 
COMMENT 
------- 
 
¶12.  After talking with Mexico,s two main sugar cane 
producers it is clear that they have both given a great deal 
of thought to increasing the country,s capacity to produce 
ethanol.  Both producers seem to be in agreement on the steps 
that need to be taken to increase cane based ethanol 
production but they differ markedly on how easy or difficult 
it will be to take those steps. At present it appear that the 
UNC has taken a more realistic view of the difficulties 
involved in the economic production of cane-based ethanol in 
Mexico, but even that organization believes that ultimately 
it can be done. It appears, however, that a great deal of 
work still remains to be done before significant gains can be 
achieved. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA