Cablegate: Subj: Sugar Worker Earn Far Less Than Their Union

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RUEHRD RUEHRS RUEHTM
DE RUEHME #5632/01 3021745
ZNR UUUUU ZZH
P 291745Z OCT 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9360
RUEHC/DEPT OF LABOR WASHDC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHXI/LABOR COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 03 MEXICO 005632

SIPDIS

SIPDIS

DEPT FOR DRL/AWH AND ILCSR, WHA/MEX, USDOL FOR ILAB

E.O. 12958: N/A
TAGS: ELAB EAGR ECON ENGR PGOV PINR MX
SUBJECT: SUBJ: SUGAR WORKER EARN FAR LESS THAN THEIR UNION

REF: (A) MEXICO 5462 B) MEXICO 0278

1. SUMMARY: Mexican sugar is one of the most expensive to
produce in the world; costing on average almost 2 1/2 times
more to produce than its most efficient competitors. A
number of reasons exist for this cost difference but one of
the most frequently cited causes is Mexico,s largest sugar
workers union which is accused of being corrupt and is blamed
for demanding "excessive" wages and benefits for its members.
There is no doubt that this large union, as opposed to its
rank and file workers, is doing very well. However, a closer
look at conditions for the worker shows that they are not
doing as well as their union (or its leaders). Add to this a
complicated federal law which mandates artificially high
prices and a startling lack of investment by mill owners and
the reasons for the high cost of Mexican sugar go far beyond
what could honestly be attributed to any wages or benefits
being paid to the workers or their union. This is the second
of two reports on the current state of affairs within
Mexico,s largest sugar cane workers union, the Workers Union
of the Mexican Sugar Industry (STIASRM).

THE HIGH COST OF MEXICAN SUGAR
------------------------------

2. The cost of producing Mexican sugar is one of the highest
in the world. Brazil, which more or less sets the
international standard for efficient productions cost, can
produce a ton of sugar for approximately USD 15.00 per ton.
That same ton of sugar costs USD 40.00 per ton produce in
Mexico; or more than twice as much. The conventional wisdom
in Mexico has long held that the high cost of sugar was due
to (1) high prices mandated by a federal &Contract Law8
(CL) which artificially raised prices over and above the cost
of normal market factors and (2) the supposedly high wages
paid to the members of the Workers Union of the Mexican Sugar
Industry (STIASRM).

3. Contract Laws (see Ref A) are a type of collective
bargaining agreement negotiated by industry, union and
government representatives. Since CLs are negotiated
arrangements they are established for fixed periods of time
and vary significantly from industry to industry. CLs
establish minimum standards (which can include price floors
for agricultural and/or manufactured products) that both
employers and employees are expected to follow over and above
the permanent guidance contained in Mexico,s Federal Labor
Law. In theory CLs are periodically renegotiated like any
collective bargaining agreement but in practice they rarely
contain any meaningful change.

4. Since taking office in December of 2006, the
administration of Mexican President Felipe Calderon has
steadily worked to modify some of the factors often blamed
for the cost of Mexican sugar. In early October, after nine
months of negotiations, the Calderon government, the mill
owners, cane producers and the unions reached an agreement
that is said to significantly change the CL that the sugar
industry had been operating under without since 1936. As a
part of the discussions to re-negotiate the sugar industry,s
CL, significant give and take was agreed to with regard to
wages and benefits for the sugar cane workers. As a result
of this dual track negotiation, the official GOM position
states that the members of the Sugar Workers Union are no
longer seen as one of the main factors contributing to the
high cost of Mexican sugar.

THE NEW SUGAR BAD GUYS
----------------------

5. The chief culprits now being blamed for Mexico,s high
sugar costs are the various elements of the industry,s
production logistical chain and outdated technology.
According to the GOM's Secretary of Agriculture, the main
reason for the high cost of Mexican sugar are the fees
charged by the individuals and firms that transport or
warehouse sugar. Between them these middlemen reportedly
raise the price of producing Mexican sugar from 5.5 pesos per
kilo (approximately USD 0.51) to 12.00 pesos per kilo
(approximately USD 1.12).

MEXICO 00005632 002 OF 003

6. The other main bad guy according to the current official
line is outdated technology. In some instances sugar mill
plants are operated with 40 years old technology. Blaming
technology is a polite way for the GOM to be politically
correct; thereby allowing it to avoid saying that the mill
owners have done little or nothing to modernize their
industry. Reportedly this under investment or lack of
investment will change as a result of the modifications in
the sugar industry,s new Contract Law (Ref A).

7. None of the above elements should be taken to mean that
the sugar workers and their union are completely blameless.
For example, the new CL does not change the rules under which
sugar workers can allegedly receive as much as three months
of paid vacation per year. The workers have what mill owners
consider a fairly generous retirement plan based on a
collective bargaining agreement negotiated in 1998. The
workers also reportedly get a fifty percent reduction in any
and all sugar they purchase for &personal8 use as well as
subsidized electricity for residential, union office use and
for the schools where their children study. To be fair to
the sugar workers, it must be acknowledged that these last
benefits are not outside the norms that most other organized
unions in Mexico have obtained for their members. That said,
it can also not be denied that these benefits come at a price
that ultimately adds to cost of production.

THE REAL TAKE HOME PAY OF A SUGAR WORKER
----------------------------------------

8. Reftel A outlined some of the good and bad points of
Enrique Ramos Rodriguez, the leader of the STIASRM, Mexico,s
largest sugar union. The STIASRM leader appears to
personally oversee the income from two up-scale hotels
constructed with union funds. In addition to controlling the
income from these hotels the STIASRM leader is also said to
either control or own outright two sports clubs, two sugar
mills, two office building and 15 homes in Mexico City as
well as an undetermined number of warehouses. The Mexican
media have gone into extensive detail on the perks,
privileges and properties of the Secretary General of the
STIASRM, but very little has been said about the real wages
of the average sugar worker.

9. According to most union observers the labor component of
producing Mexican sugar is only four percent of the total
production cost. At the start of the dual track discussions
that produced the new sugar industry CL in early October, the
union had requested a 15 percent wage increase for the
workers but it ultimately accepted a raise of only 4.5
percent. Ramos eventually saw the need to accept a lower
wage for the workers (one of his good points) but he did so
in exchange for a commitment from the mill owners to invest
heavily in new plant and in worker training. According to
the GOM,s Secretary of Agriculture these two steps should
reduce the cost of producing Mexican sugar by as much as 15
percent.

10. These expected productivity improvements are to be
applauded but even after the 4.5 percent wage increase sugar
union workers do not earn particularly high wages. A general
laborer in Mexico,s sugar industry (cane field or mill
worker) earns 76 pesos per day (roughly USD 7.22). The
maximum salary of a highly skilled sugar worker is 232 pesos
per day (roughly USD 21.48). The highest daily wage of a
senior worker employed just below the management level is 375
pesos per day (approximately USD 37.72). These salaries are
all above the Mexican minimum daily wage (about USD 4.47) and
by comparison these amounts earned by skilled sugar workers
are substantial. However, the Mexican minimum wage is a very
poor standard of comparison in terms of the quality of life a
worker earning that amount could afford. The higher skilled
workers are clearly better off than those at the bottom but
these upper limit wages are not earned by the majority of
sugar workers and even if they were a salary that amounts to
under USD 38.00 a day can hardly be called lavish.

COMMENT
-------

MEXICO 00005632 003 OF 003

11. There is no doubt that STIASRM union members are better
off than most agricultural and even some manufacturing
laborers. That said, is it difficult to understand the long
held view that the relatively modest wages cites above could
realistically have been considered the most significant
contributing factor to the high cost of Mexican sugar. The
STIASRM and its leader (especially its leader) clearly
deserve a share of the blame for high Mexican sugar prices
but up until now they have been portrayed as much worse than
they actually were. Now that the union and the workers are
no longer the worst villains of the sugar industry the usual
suspects, i.e. the middlemen, have moved more toward front
and center. Interestingly, the mill owners and came
producers have not seriously been singled out of a portion of
the blame. These two private sector elements, and not the
workers or their union, are the main beneficiaries of the
price floors mandated by the Contract Law. In all
probability, union wage and benefit demands were calculated
with an eye on the guaranteed profits of the sugar
industry,s private sector but such a negotiating tactic
could be justified, from their perspective, as simply asking
for what the market would allow.

Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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