Report Highlights

Because of higher prices, and marginal economic performance, the rate of growth in meat consumption that Mexico has experienced lately is expected to decelerate. Though pork prices have fallen considerably this past year, pork consumption remains basically the same as the past two years. Many middle income and lower income consumers are opting to switch to poultry products as their protein source in the face of rapidly increasing meat prices. Live cattle exports to the United States continue to climb, as do dairy cattle imports from the United States.

Executive Summary

Live Hogs & Pork: Post’s 2008 forecast figures for swine and pork have been revised slightly from the previous report (MX7066). Total imports are expected to be down considerably, domestic slaughter will remain consistent with past years, and ending inventories have been revised slightly downward. Mexico’s imports of U.S. hogs are forecast to reach 150,000 head in 2008, lower than the previous estimate of 175,000 head, though still slightly higher than the 2007 end of year estimate of 125,000. Pork production is forecast to increase in 2008 by roughly eight percent. Consumption is expected to increase by three percent, and imports are expected to decline by nearly 10 percent. Mexico’s pork exports are forecast to continue growing in 2008 as exporters take advantage of the Japan-Mexico free trade agreement and other opportunities in Asia.

Production

The 2008 pork meat production forecast remains at 1.25 MMT, which is about eight percent higher than the 2007 estimate. Although many producers have been impacted by higher feed costs, hog numbers are expected to continue growing in 2008. During CY 2007, improved productivity from larger vertically integrated operations brought swine inventories up from the previous year. Small backyard hog production is still a significant factor in the overall picture, as about one-third of Mexico’s pork production comes from farms with less than 20 animals.

Smaller commercial enterprises (200 to 500 sows) account for more than 25 percent of total Mexican production. These producers are substantially impacted by rising corn prices and are the most vocal in pushing the Mexican government for assistance and restrictions on U.S. imports. The larger and more technically advanced producers (over 500 sows) represent over 40 percent of total production.

The grain price rally in the fall of 2006 led pork producers throughout North America, and the world, to opt to slaughter their inventory at the beginning of CY 2007, rather than pay the high cost of maintaining inventory levels. This slaughter rate was exacerbated in Mexico by government subsidies paid to pork producers for slaughtering. As a result, pork meat prices fell considerably this year, in Mexico and throughout the world. In fact, in Mexico, January 2007 prices were nearly 24 percent lower than December 2006 prices. This decline was not part of a natural price cycle resulting from high pork meat demand during the November and December holidays. Prices in Mexico have been, on average, 30 percent lower for the first seven month of CY 2007 than they were during the first seven months of CY 2006.

What the Mexican hog industry is facing is part of a larger global trend towards vertical integration and industry consolidation. Higher grain prices over the past year have forced many smaller and less efficient pork producers out of the market, leaving opportunities for larger operations to gain market share. In fact, the more sophisticated and well capitalized segment of the Mexican hog industry is performing rather well. Mexican hog production and slaughter rates are forecast to increase slightly in 2008 as lower prices and higher quality pork and pork products will stimulate demand.

Consumption

Mexico’s pork consumption is expected to increase slightly, by roughly three percent, in 2008. Though pork consumption may be buoyed by low prices relative to other protein sources, consumer perception of pork meat remains the binding constraint to greater consumption growth. Many Mexican consumers believe that pork meat is unhealthy and unsanitary. Though this myth has been eroded somewhat in recent years, the perception persists for many middle and lower income consumers. The wider availability of pork cuts and pork products (hams, sausages, etc) in Mexico’s growing retail industry has helped to drive up consumption. Additionally, government support programs for the slaughter and processing of hogs in federally inspected slaughterhouses (TIF) have spurred an increase in consumption of pork meat and processed meat such as hams.

Mexico’s sausage companies continue to use imported U.S. pork variety meats because of their attractive prices and high quality. Furthermore, only a limited supply of pork meat is available from federally inspected slaughter facilities (TIF) in Mexico, thus forcing the processing industry to reply upon imported pork meat. Domestically produced sausages containing imported ingredients, as well as imported sausage, continue to find market niches in Mexico, particularly among mid and upper-income consumers.

Trade

Mexico remains a strong market for U.S. pork variety meats, lard, and greases. However, due to the domestic supply situation, pork imports for 2008 are forecast at 380,000 MT CWE, which is nearly 10 percent lower than the 2007 estimate. Given Mexico’s population growth and relatively low per capita consumption, demand for U.S. hogs and pork products is expected to increase in the coming years.

Through December 2007, total U.S. hog exports to Mexico for CY 2007 were 125,000 head, 36 percent lower than imports for the same period in CY 2006. Post anticipates a 20 percent in increase in U.S. hog exports to Mexico in 2008.

Mexico’s pork exports are forecast to increase by nearly 15 percent in 2008 to 80,000 MT. These exports demonstrate the ability of the well capitalized and sophisticated pork producers in Mexico to identify and serve global market demands, despite the structural reforms and economic hardships that are impacting smaller producers in Mexico. Most of these exports will be sent to Asian markets, and will command a premium for quality.

Policy

Over the past year the Mexican pork industry has been very vocal in its complaints about the imports of pork and pork products from the United States. Mexican pork producer associations claim that U.S. pork is sold in Mexico below the cost of production, and has severely damaged the domestic industry. A number of investigations have found that no such dumping has taken place, and that the Mexican pork industry does not have a factually supportable argument. However, the Mexican pork producers have spent considerable time and energy appealing to both the Mexican and U.S. governments for aid and assistance. The U.S. Government, and U.S. pork industry, have taken their repeated requests for assistance seriously, and have offered technical assistance on more than one occasion. However, the Mexican pork industry has rejected these offers, stating only that they desire to manage the trade by imposing protectionist policies.

Until this past fall the Mexican pork industry has been rather unsuccessful in convincing the Mexican government to champion its cause. However, on November 22, 2007, the Mexican pork industry successfully lobbied the lower house of Congress to adopt a non-binding resolution demanding that the Administration of President Felipe Calderon implement measure to restrict imports of U.S. pork. The resolution called on the Administration to:

1. Self-initiate a WTO safeguard proceeding against U.S. pork and pork products;
2. Use a constitutional provision that authorizes the President to enact unilateral restrictions on imported products in the event of an emergency;
3. Thoroughly monitor and inspect all pork and pork product imports at the border; and
4. Reject imports of any pork more than 30 days past the date of slaughter.

The Mexican government rejected Congress’s call for a safeguard, citing the fact that such an action would be inconsistent with Mexican international trade obligations. However, the Calderon Administration did offer to implement the following policy initiatives, which favor the Mexican pork industry:

1. Establish mechanisms so that pork originating in CSF-free regions, or farms certified as free of CSF, can be slaughtered and processed, without incurring sanitary risks, in GOM approved plants;
2. Initiate an audit of U.S. plants authorized to export to Mexico, with the intent of delisting those establishments that merely store meat and reship pork products to Mexico;
3. Analyze the possibility of establishing a requirement permitting entrance of pork only from accredited processing plants, and limiting intermediate agents who do not have the infrastructure for storage, regardless of whether the originating plant is USDA certified; and
4. Reduce the number of ports of entry for pork products.

In the months leading up to this letter to Congress, the GOM was already passively restricting U.S. pork access by refusing to recognize new export-eligible plants. Since the declaration to Congress the GOM has taken active steps to restrict access for U.S. pork. On December 10, 2007, the GOM closed 10 of the 18 ports of entry that had previously been authorized to accept pork and pork products.

As a result of these trade restricting actions, the U.S. and Mexican governments agreed to form a working group under the Consultative Committee on Agriculture (CCA). The objective of this group is to address livestock and meat product issues that impact both countries.

Marketing

Pork in the retail sector tends to be purchased by consumers in traditional Mexican markets where most butcher shops are located. However, consumers are increasingly buying meat products and special cuts at supermarkets that cater to consumers from the higher socioeconomic classes. Additionally, discount warehouse stores are making shopping at supermarkets more accessible to average consumers.

U.S. livestock, beef and pork exporters, new to the Mexican market, are also encouraged to contact the following trade organizations for further market information.

Further Reading

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March 2008