NEW YORK (Dow Jones)--Florida's sugar industry, already struggling because of leakage in the import quota and sagging domestic demand, faces new challenges from the U.S.-Central American Free Trade Agreement and other trade accords under consideration, industry officials say. The state's cane acreage has declined and sugar companies have been downsizing through layoffs and attrition, threatened by more imports.

Cafta would lower tariffs between the U.S. and Costa Rica, Nicaragua, El Salvador, Guatemala, Honduras and the Dominican Republic.

U.S. Sugar Corp. in Clewiston, Florida, producing 10% of the nation's sugar, has been laying off workers since year 2000. Meanwhile, Sugar Cane Growers Cooperative of Florida in Belle Glade has avoided layoffs, but is automating and reducing staff through transfers and attrition.

U.S. Sugar has had to downsize "because of potentially higher Mexican imports under NAFTA, sugar-filled imports being used for sugar, and future imports under Cafta," said Robert Coker, senior vice president.

"We have a problem with quota-circumvention because of chocolate and jello coming in filled with extra sugar, along with unauthorized sugar syrup imports - all hurting the industry," he said. On the demand side, some of the company's customers, like candy makers in Chicago and Georgia, have left for Mexico, which has cheaper labor and fewer environmental regulations than the U.S., Coker said.

U.S. Sugar has had to trim cane plantings because of marketing allotments under the U.S. Farm Bill, Coker said. Moreover, the company last year returned 20,000 leased acres to the federal government for Everglades restoration.

"We used to produce 900,000 tons of sugar a year and now it's down to 725,000 tons," Coker said.

US Sugar To Close Mill, Concentrate Processing

U.S. Sugar plans to shut its 41-year-old Bryant raw processing mill outside Pahokee, while expanding and automating its Clewiston plant, the company said in November. About 400 jobs have been cut since 2000, and another 300 to 350 jobs will be lost with the Bryant closing when the Clewiston plant is ready in 2007. The mill at Bryant will terminate in 2007.

A new, highly automated plant will be fully operational at the current Clewiston facility site by October 2007, Coker said. "We've already taken down some old buildings, worked on construction plans and installed a brand new boiler," he observed. The plant will be able to handle 38,000 tons of cane daily during the harvest, producing 4,500 short tons of raw sugar.

U.S. Sugar in late February reached a four-year contract with unionized workers of the International Association of Machinist and Aerospace Workers. By 2007, the company may have only 1,600 employees--half of its former, peak payroll.

U.S. Sugar doesn't expect to process foreign sugar coming in under Cafta because the Clewiston plant is 75 miles from port and trucking isn't economical, Coker said.

Florida-Owned Plants Can Process Cafta Sugar

An extra 100,000 to 110,000 tons of foreign sugar could start entering the U.S. next year if Cafta is ratified by Congress this spring, according to industry estimates.

The Sugar Cane Growers Cooperative of Florida, which owns the former Domino sugar refineries at the ports of Baltimore, Md; Chalmette, Louisiana; and Yonkers, New York, is in a position to process additional foreign sugar under Cafta at those facilities, according to Barbara Miedema, a spokeswoman for the cooperative. Like the rest of the industry, however, the coop and its 54 grower members are concerned about Cafta and its expected downward effect on domestic sugar prices.

"We haven't had the layoffs that U.S. Sugar has had, but we're trying to cut costs by automating wherever we can," Miedema said. "For example, computerized equipment was installed on the processing floor, streamlining operations and reducing manpower needs. Positions were vacated through attrition, early retirement or transfers in the company."

Meanwhile, Cafta countries have an economic base the size of New Haven, Connecticut, Coker at U.S. Sugar said. "The U.S. is already supplying 96% of the Cafta region's imports and I doubt the nation (U.S.) will gain much from making it 100%," he observed.

Industry members said that Florida sugar companies are probably the most efficient of all US sugar producers, mainly because they're vertically integrated, both growing and processing their sugar.

"The Florida industry is worried about sugar coming in under new trade agreements and has lost some acreage, partly to urban encroachment, but remains competitive and will survive," said Jose Alvarez, food and resource economics professor at the University of Florida. "The state's sugar industry will be around for a long time."

Florida cane production in fiscal 2005 is put at 13.6 million tons, the lowest since 1997, and was particularly hurt by four hurricanes in 2004. Florida and Louisiana are the nation's top cane states. The U.S. imports over 1.2 million tons of sugar annually.