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Examining Mexico’s Protein Consumption, Import Trends

U.S. meat exports to Mexico grew steadily over the past few years, boosted by NAFTA and by Mexico’s growing meat consumption. The composition of those exports, however, has changed dramatically with robust growth for poultry and pork and a precipitous decline in demand for beef. US-Meat-Poultry-Exports-to-Mexico

Mexico is the largest volume market for U.S. pork and poultry and the second-largest market for U.S. beef exports (including variety meat). Since 2008, Mexico has favored less expensive poultry and pork over beef as increases in both imports and domestic production boosted poultry and pork consumption. Not surprisingly, the surge in exports of U.S. poultry to Mexico is strongly correlated to sharp reductions in exports to Russia and China – markets that erected barriers to U.S. poultry. Mexico’s per capita poultry consumption has increased by about 3 kg since 2006, and pork consumption has grown by 2.4 kg.

Since 2006, beef’s market share has fallen and consumption has declined by nearly 2 kg. Lower beef imports were not offset by higher domestic production, as Mexico exported more of its feeder cattle to the U.S. and more beef to the U.S. and Japan. While the U.S. is the dominant supplier of Mexico’s imported meat (with market share near 90 percent for beef and pork and 97 percent for poultry), Mexico still produces most of its meat. Imports account for only 12 percent of Mexico’s beef consumption, 21 percent of poultry consumption, and 38 percent of pork consumption. US-Exports-Mexico-Share

U.S. pork and pork variety meat exports to Mexico increased by an average of 18 percent per year over the past five years, reaching 600,949 mt in 2012. Exports were sluggish in the first quarter of this year (-16 percent) due to relatively cheap domestic pork prices caused by a sharp increase (estimated at +15.6 percent) in Mexico’s domestic hog slaughter. But exports rebounded with a 17 percent increase in the second quarter, finishing the first half just 1 percent behind last year’s record pace at 290,801 mt.

USMEF expects exports to Mexico to remain strong through the remainder of 2013, ending the year very close to last year’s record volume. PIERs data shows U.S. exports to Mexico were up 20 percent in July, pushing the January-July total up 3.5 percent from a year ago. Strong buying from Mexico helped propel ham prices above 90 cents per pound in July – a 20 percent increase over last year. But as ham prices remain at around 86 cents (+8 percent from last year), we expect some moderation in the recent buying trend by Mexico. For the fourth quarter, one wildcard is the impact of porcine epidemic diarrhea (PED) virus on U.S. pork production, as this could further increase ham prices and limit export growth to Mexico. US-Quarterly-Pork-VM-Exports-Mexico

U.S. poultry exports to Mexico increased by an average of 14 percent per year over the past five years, reaching 746,927 mt in 2012. Through the first half of 2013 exports were up 21 percent to 424,209 mt. Exports were up 8 percent in the first quarter and 34 percent in the second quarter, likely gaining momentum due to the avian influenza (AI) situation in Mexico and tight domestic supplies of poultry and eggs. New AI outbreaks, particularly in February, affected broiler parent breeders, with reports of Bachoco – Mexico’s largest chicken producer – losing nearly one million birds. Mexico’s overall production has recently rebounded, and the Mexican Poultry Association estimates that 2013 production will increase 1 to 2 percent over last year, still below the 1994-2012 annual growth rate of 4.5 percent. One potential threat to U.S. poultry exports is the anti-dumping duties that Mexico postponed due to AI, but could impose in the future. Another potential factor is approval of Brazilian poultry imports (and temporary elimination of import duties) to help alleviate the tight supply situation. So far Brazil is not reporting any exports to Mexico but this is a dynamic worth watching.

U.S. beef and variety meat exports to Mexico peaked in 2008 at 396,065 mt, but have since declined to 192,989 mt in 2012. Through the first half of 2013 exports were down another 14 percent (to 89,380 mt), but showed signs of improvement in the second quarter, increasing by 1 percent after a 27 percent decline in the first quarter. Recent increases in U.S. beef prices and expansion of exports to other markets has meant smaller exports to Mexico. But Mexico remains a leading market for U.S. beef and beef variety meat and Mexican consumers maintain a strong preference for beef, when the price is right. USQuarterlyPoultryExportsMexico

Mexico’s beef consumption will remain under pressure in the near-term, with tight cattle and beef supplies in North America (including Mexico) translating into high consumer prices. One potential change on the market access front: now that Mexico is a part of the Trans-Pacific Partnership (TPP), Australia and New Zealand will eventually benefit from a reduction in Mexico’s import duties and could become more significant competitors in the Mexican market. Currently imports from Australia and New Zealand carry duties of 20 percent on chilled beef and 25 percent on frozen beef, which has helped keep their share of Mexico’s imported beef market at less than 2 percent.

While there is some recent evidence that exports of U.S. beef to Mexico may be bottoming out, the fundamental drivers responsible for the dramatic change in the composition of U.S. meat exports to this important market remain. Provided there are no significant changes in market access for U.S. meat products in Russia, China and Mexico, and the peso does not weaken significantly, it seems likely that exports of U.S. poultry and pork to Mexico will continue their upward trends in 2014.

Mexico’s meat and livestock exports
Through May, Mexico’s beef exports were down 13.6 percent to 55,840 mt, as growth to the U.S. (44,547 mt, +21 percent) and Japan (10,256 mt, +18 percent) did not fully offset the absence of exports to Russia (17,047 mt last year, down to zero in 2013) due to the beta agonist ban. Mexico has become a formidable competitor on the beef export front, supplying a range of cuts to the U.S., including middle meats as well as cuts to fit the Hispanic market. Through its economic partnership agreement (EPA) with Japan, Mexico’s exports benefit from a lower duty on volumes within a TRQ (2013 TRQ volume is 12,000 mt and will increase to 13,500 mt in 2014). Duties on exports within the TRQ are 30.8 percent, compared to 38.5 percent charged on out-of-quota imports and imports from other major suppliers. Chile also has an EPA, but exports very little beef. USQBeefVMExportsMexico

Mexico’s pork exports were up 13 percent to 32,375 mt through May, with Japan up 30 percent (26,042 mt) and lower exports to the U.S. and Korea. Mexican pork exports have benefited from the EPA with Japan and the ability to ship value-added and/or labor-intensive products, such as jowl filets. Mexico’s exports are still subject to Japan’s gate price but duties are 2.2 percent (for exports within its 86,000 mt TRQ) instead of the 4.3 percent paid by most suppliers (Chile has similar benefits under its EPA).

Mexico is also pursuing access to China for both pork and beef. Pork plant approvals are being sought but product is not yet being exported. Market access discussions are not as advanced on the beef side, but China’s booming imports have attracted strong interest from all beef suppliers.

Mexico’s feeder cattle exports to the U.S. peaked in 2012 at 1.47 million head, driven by drought conditions in Mexico, a weaker peso and high U.S. feeder cattle prices. These exports, however, were an unsustainable herd reduction, exceeding 20 percent of Mexico’s cattle herd and including an even larger percent of heifers and the calf crop. This year U.S. imports of Mexican feeder cattle are down 45 percent to 549,414 head through Aug 13, which accounts for a large share of the total drop in U.S. feedlot placements.