BBC News Online: Business

Mexico re-nationalises sugar mills

Many sugar-cane growers have gone for months without pay

Some of Mexico's leading sugar producers, including the leading Consorcio Azucarero Escorpion (CAZE) and Grupo Azucarero Mexicano (GAM), could go out of business as a consequence of losing their operating facilities, traders predicted.

The intervention is seen as the most dramatic move on the part of the government since former President Ernesto Zedillo bailed out the country's banks following the 1994 peso devaluation.

But the government insists it merely aims to rescue an industry in crisis.

US import restrictions

Mill owners' debts have ballooned over the last two years as they have geared up production ahead of an envisaged opening of the US markets.

"This was a situation we could not allow to continue," said finance minister Francisco Gil at a news conference.

Free market

Mexico insists that the re-nationalisation is not contradicting the country's free-market philosophy.

Mr Fox, speaking ahead of this week's talks with the US President George W. Bush, said he would request an increase of its imports quota from the current 116,000 tonnes.

For sale

The government wants to sell the privatised mills to either national or foreign investors and will spend $327m to prepare for such a sell-off.

Until then, the mills will be run by a newly created state-owned company.

"I think the government is going to have to sell the mills very quickly," said one trader.

"It doesn't have the money to operate them and they aren't generating profits".

The international food giant Cargill is seen by analysts as a likely buyer.

Privatised

The mills were privatised in the 1980s in a drive to improve efficiency and modernise the way they were run.

Instead, many of them have suffered from bad management and a lack of investment, falling into disrepair and becoming dependent on government subsidies.

"The only recourse the government had to prevent even graver problems in the sector is the one we are using. The alternative would have been to continue to funnel more resources into these failing mills," Mr Gil said.