5 October 2007

8 minute read

Report Highlights:

Though no substantial changes were made to Mexico’s import restriction on bovine products in the last year, total bovine product imports are expected to increase slightly to 380,000 tons in CY 2008. CY 2008 ending cattle inventories are expected to remain basically the same as CY 2007. The larger, and better capitalized, hog operations in Mexico continue to become more vertically integrated, and thus are realizing additional efficiencies due to their greater scale and scope. Hog production and slaughter are forecast to increase slightly in CY 2008 as the low price and improving quality of pork products continues to stimulate demand.

Executive Summary

CY 2008 ending cattle inventories are expected to remain basically even with those of CY 2007 and CY 2006. Domestic beef cattle production for CY 2008 is expected to increase modestly by nearly two percent. The domestic beef cattle industry is aided by government slaughtering subsidies of $110 pesos per head at federally inspected TIF plants, which equates to roughly fifty percent of the cost of slaughtering cattle. Domestic beef consumption is expected to increase only very slightly to 2.53 MMT over the revised CY 2007 of 2.515 MMT. This less than one percent increase may be an early indicator of how higher food prices are starting to influence the purchasing patterns of Mexico’s burgeoning middle class. Mexico is expected to continue importing grain-fed beef to meet demand from the tourist and restaurant sectors as well as growing demand from supermarkets, particularly in urban areas. Total beef imports are expected to increase in CY 2008 by 1.3 percent.

Production

Cattle production for CY 2008 is forecast to increase by 1.8 percent from the previous year’s estimate due to improved moisture conditions from rainfall in Mexico’s cattle producing regions in the north. Sufficient rainfall this year and last year has also allowed for prairie grass to grow abundantly, leading to higher fertility levels and a larger calf crop. However, feedlot placements have declined because of higher feed costs caused by the corn crisis of late 2006. Cattle inventories are expected to increase very slightly in the northern regions of Mexico, as well as the central and southern areas, as production costs continue to rise. Competitively priced and rising imports of beef, tight credit, and low profitability have discouraged investment in the cattle and beef sectors.

Most of the cattle raised in Mexico continue to be grass-fed. Regardless of the improved economic conditions, many cattlemen and feedlot operators still cannot afford imported feedstuffs and generally reformulate their feed rations with lower priced grains and fodder. Modernization and implementation of state of the art technology is also very limited. The government of Mexico continues to recommend that cattlemen introduce improved herd management practices, such as electric fences, artificial insemination, and new varieties of grasses to increase rangeland productivity.

Mexico has 288 TIF (federally inspected) slaughter plants, of which 38 are currently accredited by USDA/FSIS to export beef to the United States. There are also a large number of “municipal” slaughter plants that fall outside of the federal inspection system. Rather than constructing new TIF plants, the Secretariat of Agriculture, Livestock and Rural Development (SAGARPA) reports that some non-TIF plants, particularly sausage and packing plants, are rebuilding facilities to convert into TIF plants. Their main interest is to export products to the U.S. and other markets.

Consumption

Beef consumption is expected to increase by roughly one percent in CY 2007, and less than .6 percent in CY 2008. This growth in consumption significantly lags both the population and economic growth rates in Mexico. Though 2006-2007 year-over-year beef meat prices have been relatively stable, the stagnant consumption rate may be an early indication that Mexico’s burgeoning middle class is beginning to struggle with generally higher food prices, and thus may be scaling back consumption of certain luxury food goods, such red meats, in favor of less expensive protein sources such as poultry and pork. The growth in demand that is taking place is driven mostly by the middle and upper classes in larger cities where there is more disposable income. Total domestic consumption for CY 2006 has been revised slightly upward from our previous estimate based on official data.

Trade

Slaughter cattle imports in CY 2007 are still prohibited due to BSE concerns. However, because of a recent OIE classification of the U.S. as a minimal BSE risk country, there may be opportunities in the future for the USDA and the GOM to discuss increased access for U.S. slaughter cattle. Trade sources estimate that total beef imports from the U.S. will include 90 percent boxed beef and 10 percent beef carcasses in CY 2008. Most of this beef will be rounds and chucks (70 percent) and high quality cuts (30 percent). The U.S. will continue to export high levels of beef to Mexico because of competitive prices and quality, but beef will continue to face stiff competition from poultry, and pork. The United States is the leading exporter of beef to Mexico, with approximately 85 percent of the import market. U.S. beef cuts continue to be particularly popular with the higher income classes, and the tourist sector, and imports of round and chuck cuts by domestic supermarkets continue to increase. Post forecasts that in CY 2008 beef imports will grow to 380,000 MT, a 1.3 percent increase over the previous year’s estimate. Beef imports for CY 2006 have been revised slightly upward from our previous estimate reflecting official data.

In October of 2006 APHIS and SAGARPA finalized negotiations to allow for U.S. exports of dairy cattle to Mexico. Despite the positive reaction from both U.S. and Mexican industries, the import requirements proved overly cumbersome, and Mexico imported no more than 787 dairy cows from the U.S. in 2006. However, the industry is beginning to adjust to the new regulations, and U.S. exports of dairy cattle are starting to increase. Imports of live cattle for 2008 are expected to fall by five percent to 95,000 head. Ongoing restrictions on imports of live cattle from the United States and Canada due to BSE concerns opened the door for Australia, Nicaragua, and New Zealand, which are now the primary suppliers. Cattle imports are comprised of limited numbers of slaughter cattle from Central American countries along with dairy cattle from Australia and New Zealand.

Cattle exports to the U.S. for CY 2008 are forecast to decline by 8.3 percent from the previous year’s revised figure. This decline is due to the fact that Mexico is working to gain self sufficiency in satisfying the domestic demand by reducing exports, raising the calf crop, and increasing slaughter rates.

Policy

Under the PROGAN support program, the Secretariat of Agriculture provides funding for herd and genetic improvements, provided that cattle producers meet certain criteria relating to animal health standards, management practices, and herd composition. Under this program a rancher applies to SAGARPA to be a part of a multi-year program that is designed to improve that rancher’s pastureland. SAGARPA grants the rancher a subsidy of $300- $500 pesos per year per head of cattle, and with these funds the rancher is to enhance the quality of his own pastureland. The end result of this improved pastureland is a higher quality herd, and more viable beef sector. However, because of cumbersome regulations and administrative delays the program was not used very widely by the ranching sector in Mexico.

Mexico has taken significant steps to re-open its market to bovine products following the discovery of a single case of BSE in Washington State on December 24, 2003. Below is a listing of approved and prohibited products. Prohibited products:
Live cattle (except for dairy cattle)
Boneless and bone-in meat from cattle 30 months of age or older
Bovine offal and viscera other than those currently authorized
Products derived from non-protein-free tallow
Gelatin and collagen prepared from bone
Ruminant meal
Ground beef

Permitted products:
Dairy Cattle
Tallow (human consumption)
Blood (human consumption)
Breeding bulls
Bone-in meat from cattle under 30 months of age
Boneless beef from cattle under 30 months of age
Marinated boneless beef from cattle under 30 months of age
Beef based preparations, beef/pork based preparations, beef/sheep based preparations and
beef/pork/poultry based preparations
Veal boneless or bone-in
Hearts, kidneys, tongue and lips from cattle under 30 months of age
Diaphragm and trimmings from cattle under 30 months of age
Tripe from cattle under 30 months of age
Meat, carcasses, viscera, and heads from sheep under 12 months of age
Meat, carcasses, and viscera from goats under 12 months of age
Liver
Milk
Dairy products
Semen
Embryos
Protein-free tallow not fit for animal consumption
Dicalcium phosphate (DCP)
Skins and hides
Gelatin and collagen obtained from hides and skins
Pet Food (see MX4040 for more details)
Sausage made from beef and pork with or without cheese
Live sheep for immediate slaughter

Marketing

The importation of breeding cattle and animal genetic products into Mexico is normally performed directly by cattle growers, medium and large dairy owners, distributors, and government institutions. In some cases, Mexican cattle buyers receive financial assistance from government-funded programs to purchase animals of high quality genetics. Participation in major national and state livestock shows may provide opportunities for sales of U.S. livestock genetics to Mexican livestock producers.

The U.S. Meat Federation’s marketing promotion campaigns continue to open niche markets for U.S. red meats in the hotel and restaurant trade. There is both short and long term potential for increased meat sales, fueled by the increase in population, a growing economy, and a burgeoning preference among middle and high income Mexicans for more select cuts of beef. The rapid growth in supermarket chain stores, fast food restaurants and the tourist sector all present opportunities for market growth.

Further Reading

- You can view the full report, including tables, by clicking here.

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