ZACATEPEC, Mexico, June 4 (Reuters) - Anger is simmering across a lush swathe of Mexico among poor sugar cane farmers who face a major blow from trade talks in Washington on Monday, in an ominous preview of the high-stakes re-negotiation of the NAFTA agreement set to begin in August.
The United States and Mexico have until Monday to modify a 2014 agreement that set quotas and a price floor on Mexican sugar. U.S. sugar refiners say Mexico's exports are subsidized, undercutting their business and that the agreement failed to stop dumping.
A new deal could significantly reduce access to the lucrative U.S. market for some 190,000 Mexican farmers, a fifth of whose sugar last year was sold to U.S. buyers, and risks triggering tit-for-tat tariffs that could hurt U.S. corn.
With 2.4 million people estimated to earn livelihoods from sugar across 15 states in Mexico, the spat may also serve as an example of the political minefield the government will face in a broader trade talks later this year that could affect jobs in the thriving manufacturing sector.
U.S. President Donald Trump triggered the 90-day start to NAFTA re-negotiations last month, following up on his longstanding criticism of the 23-year-old free trade pact between the United States, Mexico and Canada, arguing it is unfair to American workers and must be reworked.
Feeling used by the government, Mexican cane farmers are fuming, further eroding already flagging support for Mexico's ruling Institutional Revolutionary Party, or PRI, ahead of a 2018 presidential vote, just as a leftist nationalist is making inroads into its traditional bastions.
Cane growers have been strong supporters of the PRI and its forefathers since revolutionary hero Emiliano Zapata helped sweep away the hacienda system in the early 20th century, replacing it with small holdings and land collectives.
But the farmers now accuse the government of bowing to U.S. pressure. On Friday the cane growers association, traditionally a staunch PRI ally, published a rare open letter in national newspapers accusing the government of using sugar as a "bargaining chip" in the wider trade negotiations.
"We don't believe anything the PRI says anymore. We just don't," said Narciso Hernandez, a 74-year-old farmer standing beside a field of swaying cane in Zacatepec, a village about 80 miles (130 km) south of the Mexican capital.
Corruption scandals, lackluster economic growth and surging violence have also cratered the popularity of President Enrique Pena Nieto and the once-dominant PRI ahead of elections in four states on Sunday.
The marquee contest is a governor's race in the country's most populous state that has always been governed by the PRI but could be captured by the hand-picked candidate of leftist Andres Manuel Lopez Obrador, the early presidential front-runner who has a strong following among poor Mexicans.
Cane farmers fear loss of income if an impasse leads to tariffs as high as 80 percent on some sugar exports, or a deal leads to a deep cut in the amount of high value refined sugar exported to the United States. Mills pay for cane according to a formula based on the market value of sugar.
Under NAFTA, Mexico and the United States gradually liberalized sugar trade and by 2008 it was tariff-free.
However, since late 2014 the trade has been governed by a so-called suspension agreement that sets minimum prices and export quotas on Mexican producers, after the U.S. threatened to impose stiff antidumping and antisubsidy duties.
U.S. negotiators are seeking to reduce volumes of refined Mexican sugar from 53 percent to as low as 15 percent of the annual export quota, Mexican industry sources say, which would push Mexican producers toward lower-value raw sugar sales.
In the same vein, U.S. industry is also seeking to lower Mexican sugar's polarity, a measure of quality, from 99.5 percent to 99.2 percent.
"All companies want to reach the final consumer because that's where you get the best price. So it's only fair that (Mexican) companies also sell their sugar to final consumers,” said Pedro Ocampo, head of the Zacatepec cane farmer union.
U.S. demand reached some 12 million tonnes of refined sugar last year, and prices for raw sugar average about 6 cents per pound, the highest price anywhere in the world.
Last year, Mexico exported 1.13 million tonnes to the United States, 93 percent of Mexico's sugar exports, according to the economy ministry.
This year, about 870,700 tonnes were expected to be sold to U.S. buyers.
Stemming from a recent case before the World Trade Organization, Mexico could respond to U.S. tariffs with $163 million in sanctions on U.S. fructose exports that currently have unfettered access to the Mexican market.
According to the U.S. Corn Refiners Association, representing manufacturers including Archer Daniels Midland Co and Cargill Inc., about a third of U.S. fructose exports would be affected.
"If we meet our sugar import needs from elsewhere, we don't gain any jobs," said John Bode, head of the association. "But if we lose our corn syrup market in Mexico, that's irreplaceable." (Additional reporting by Chris Prentice in New York, Dave Lawder in Washington and Karl Plume in Chicago; Writing by David Alire Garcia; Editing by Frank Jack Daniel and Mary Milliken)