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Mexico - Livestock and Products Annual 2010

by 5m Editor
5 October 2010, at 12:00am

While Mexican cattle inventories for 2011 are expected to decline in 2011, swine production is expected to increase slightly, write Zaida San Juan and Daniel R. Williams II in the latest GAIN report from the USDA Foreign Agricultural Service.

Report Highlights

Mexican red meat consumption is forecast to increase in 2011 as the economy and consumer purchasing power recover. A lower cattle export level will result in higher domestic meat supplies and stable domestic beef prices. US beef exports to Mexico will continue increasing, principally toward the end of 2010, supported by the elimination of duties on imported US beef. Removal of feet from carcasses and retaliatory duties on bone-in hams are two new challenges for US exporters; however, the United States will continue to be the principal source of imports.

Executive Summary

In 2011, total swine production is expected to increase slightly. The increase will occur due to higher hog prices and stronger pork demand. Ending inventories are expected to increase for both 2011 and 2010. Mexico’s imports of hogs are forecast to increase in 2011, reaching 12,000 head. Pork production for 2011 is forecast to recover (2.0 per cent) after no increase for 2010. Growth in pork consumption is forecast to increase 1.3 per cent in 2011 after a slight decrease (-0.2 per cent) in 2010 due to lower than expected demand recovery. Mexico’s pork exports are forecast to grow 6.3 per cent in 2011 compared to 2010.

Swine production for 2011 is forecast to increase one per cent, higher than 2010. Higher swine prices, stronger consumer purchasing power and a recovery of consumer confidence after the H1N1 influenza outbreak will stimulate production.

Furthermore, the Mexican swine sector could benefit from the efforts of the government of Mexico (GOM) to obtain market access in China. If obtained, the Mexican swine sector will need to increase production, continue with integration and reduce production costs and losses. Although only the most efficient firms will export, medium-sized farmers are aware that there could be more domestic opportunities to sell pork, but they also must improve their competitiveness.

Due to the past economic crisis and H1N1 outbreak, both of which negatively affected the pork sector, sow beginning inventories are currently limited and data previously reported for 2010 were revised down slightly; thus, the slaughter level for 2011 will be comparable to 2010.

Total beginning inventories are forecast to increase 4.4 per cent for 2011, mainly due to a lower-than-expected slaughter level for 2010. However, slaughter is forecast to increase one per cent in 2011 as a result of pork demand and consumption recovery after the H1N1 outbreak.

Pork production for 2011 is expected to increase two per cent over 2010. Furthermore, industry sources believe this 2011 production will be slightly higher than 2009’s. For 2010, a year in which a decrease of approximately one per cent (1.161 million metric tons; MMT) is now expected according to official data, the decrease is minimal thanks to a successful GOM and industry promotional campaign and lower pork prices.

Consumption

Pork consumption is forecast to increase more than one per cent in 2011. However, the increase is tied to price and will depend on retailers’ pricing strategies. Some retailers are selling pork at higher prices, claiming they are merely passing on higher domestic prices as well as the cost of retaliatory duties on imported US pork.

Even though the economy and gross family income have recovered somewhat, pork consumption will increase at a rate lower than that of beef, mostly due to higher prices and a substitution effect by consumers who see poultry as a cheaper and ‘healthier’ protein. In addition, growth in pork per-capita consumption is constrained due to consumers’ perception of pork as an unhealthy meat product.

Mexico’s meat processors will continue to use imported US pork variety meats as well as bone-in cuts because domestic production is not sufficient to meet their demands. Despite the retaliatory duties imposed on US bone-in pork, an analysis conducted by some meat processors has shown that the duties will only slightly affect the cost of production, and they do not expect a large amount of substitution for US boneless pork cuts.

Trade

In 2011, Mexico is forecast to increase imports of hogs by 20 per cent; however it will only reach 15 per cent of the 2008 level. For 2010, an increase is expected of 43 per cent, supported by the imports of purebred breeding animals for repopulating the Mexican herd. Hog exports will remain at zero.

Pork exports are expected to increase 6.5 per cent in 2011 but if Mexico signs a veterinary health protocol with China, the percentage could be considerably higher.

In 2010, pork exports are expected to recover 14.3 per cent following lifting of numerous foreign bans due to H1N1 outbreak; exports will be supported by value-added pork exports to Japan. However, the level will remain lower than in 2008.

Despite the retaliatory duties imposed on US bone-in pork cuts, imports are expected to continue but it is possible that more bone-in pork could be sourced from Canada.

In addition, according to NOM-030, pork carcasses with feet will no longer be permitted to enter Mexico. This is a new interpretation of NOM-030.

Policy

Beef import duties eliminated
As of August 11, 2010, Mexico canceled the compensatory duties imposed on US beef cuts as a result of an anti-dumping investigation in 2000. Even though the Mexican Government announced that these duties would terminate on April 29, 2010, the duties were not effectively canceled until 11 August 2010, according to the official notice published in the Diario Oficial (DOF) (Federal Register). Thus, duties paid between 29 April and 11 August 2010 will not be refunded.

Retaliatory duties on US pork exports
On 18 August 2010, the Secretariat of Economy published in the DOF a list of additional products facing retaliatory duties, which included swine products. This is due to the United States’ failure to comply with the trucking clause of the North American Free Trade Agreement (NAFTA).

The following swine products were added to the product list:

Section Description Import Tariff
0203.12.01 Hams (hocks), shoulders and cuts thereof, with bone. Chilled 5%
0203.22.01 Hams (hocks), shoulders and cuts thereof, with bone. Frozen 5%
1602.49.01 Cooked pork rind in pieces (pellets). 20%

According to industry sources, these duties will increase production costs for value-added products. Imports of US bone-in hams will continue because bone-in ham prices will not be as high as imported boneless pork legs. In addition, the duties could also slightly affect the Mexican rendering industry, because the Mexican rendering industry sources products from TIF establishments which debone imported bone-in hams.

Brazil Free Trade Agreement
The Mexican and Brazilian presidents have stated their intention to sign a free trade agreement. However, the Mexican livestock sector opposes a free trade agreement (FTA) between Mexico and Brazil that would include livestock products. The Mexican livestock sector’s leaders believe they will be unable to compete against Brazil due to dependence on imported feed grains and shortages of commercial credit in Mexico.

NOM-051
The Secretariat of Economy published on 5 April 2010, a new version of Mexican regulation NOM-051-SCFI/SSA1-2010, ‘General labeling and sanitary specifications for pre-packaged foods and non-alcoholic beverages’. (Spanish: Norma Oficial Mexicana NOM-051-SCFI-1994 Especificaciones generales de etiquetado para alimentos y bebidas no alcohólicas preenvasados) or NOM-051.
The new NOM-051 includes new requirements for labelling pre-packaged foods and non-alcoholic beverages. All pre-packaged food products and non-alcoholic beverages for sell directly to consumers are required to comply with NOM-051 (including imported pork and beef meat). Thus, it is important that all US companies exporting to Mexico be aware of these changes and make appropriate modifications to the labels of its products. The new regulation is effective on 1 January 2011.
The most important changes to NOM-051 can be found in GAIN Report MX0505 Mexico Revises Food Labeling Regulations.

Trusted Importer Program and inspection of combos
The Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA) continues developing a plan of modernizing import inspection procedures. As part of this plan, the trusted importer program (UCON) has been implemented. Via this program, import inspection will occur at the TIF establishment where the imported meat is to be processed. According to the National Service of Health, Food Safety, and Food Quality (SENASICA), the UCON program may reduce import inspections at the border by 48 per cent, since that is the volume of meat imported by TIF facilities (additional information about UCON can be found in GAIN Report MX0506 Mexico Announces Reliable Importer Program for Meat and Poultry).
The next step of the plan involves procedures for import inspections for meat shipped in combo bins. A combo bin is a bulk-palletised, octagonal cardboard container used to pack meat and meat products for shipping at a low cost. SENASICA officially advised the border inspection points that the combo import inspection procedures was postponed indefinitely pending publication in the DOF (Federal Register). This publication will contain a new sampling procedure for import inspections, which SENASICA is currently drafting, and may implement in 2011.
It is possible that these new procedures may be similar to the Canadian or US import inspections for combo bins. SENASICA has stated that the plan is part of an effort to harmonize import procedures with those of its NAFTA partners, and it will not seek to reduce the volume of meat trade in combo bins.

GOM reviewing regulations
As part of a transparent national plan, SENASICA is examining every interpretation of its regulations. For example, SENASICA has changed its interpretation of NOM-030-ZOO-1995 with respect to imported hog carcasses with feet. As of September 2010, SENASICA has informed trading partners that hog carcasses will only gain entry into Mexico when the feet have been removed.

Livestock Forward Contract Purchases
The Mexican Government (GOM) is promoting forward contracting between cow-calf operators and feeders, and is developing draft guidelines to be used with all forward contracts. This program will be coordinated by SAGARPA's paying agency, Support and Services for Agricultural Trading (ASERCA), and the National Confederation of Cattlemen Organizations (CNOG). The purpose of this program is to assist cow-calf operators and feeders with a tool to establish a forward price for calves.

Guidelines for the sale and distribution of food and drink at primary schools
On June 10, 2010, the Health Secretariat (SALUD) and Educational Secretariat (SEP) sent to the Federal Council for Regulatory Reform (COFEMER) draft proposed guidelines for the sale and distribution of food and drink at primary schools. The objective of the guidelines is to regulate the preparation, distribution and sale of healthy foods and drinks in primary schools and is aimed at reducing obesity and chronic diseases.
These guidelines sparked controversy within the food industry, including among meat and dairy processors. As of 22 July 2010, COFEMER had received 860 comments on the draft from industry sectors, government entities and the public. Some comments are against and others are supportive of the proposed guidelines. COFEMER published on 22 July 2010, its preliminary resolution and suggested SALUD and SEP consider comments submitted to COFEMER regarding these proposed guidelines.
The Mexican Meat Council (COMECARNE) and the Coordinator of the Industrial Council (CCE) are negotiating changes with representatives of the Presidency and the Secretariat of Economy (SE). COMECARNE believes working with these government offices will result in more success than directly negotiating changes with SALUD and SEP. The proposed guidelines, if implemented as proposed, could exert a profound economic impact on the meat sector.
COMECARNE’s members import US meat raw materials to produce sausages, hams and other ready-to-eat products, which are sold in schools or used to prepare sandwiches and other products eaten by children at schools. The meat industry has sought changes to the proposed guidelines to ensure meat products are not demonised, thereby resulting in a loss of consumer confidence in processed meat products. The lack of specifics in the guidelines has created uncertainty for the meat industry. For this reason, COMECARNE has created a working group of technical experts to develop a counter-proposal to be presented to SALUD and SEP.
The guidelines were to be implemented at the beginning of the current school year. However, implementation has been postponed until January 2011.

Movement of Animal certificates
As of 25 June 2010, SENASICA began issuing electronic certificates for the movement of animals within Mexico. The electronic certificate replaces the printed certificate which certifies an animal may move between areas within Mexico which have different disease status under Mexican regulations.

Marketing

Red meat, including pork and beef, continues to be purchased by consumers in traditional butcher shops. However, since more and more women are entering the workforce, consumers were increasing purchases of value-added products before the economic crisis, especially cuts and prepared dishes at supermarkets. For 2010, as the economy grows again, it is expected consumers will increase demand for value-added products.

The US Meat Export Federation (USMEF), a non-profit, industry-sponsored trade organization dedicated to increasing exports of US red meat and meat products in all foreign markets, is active in Mexico. USMEF’s Mexico office has promoted the increase of meat consumption in various large retailers and food service exhibitions.

Further Reading

- You can view the full report by clicking here.

October 2010