Clay Eastwood, manager of International Marketing

by Clay Eastwood, Manager of International Marketing

Monthly Market Highlight

Amid recent trade tensions with the U.S. and Mexico, the Mexican market remains U.S. pork’s top market by volume through September 2018. In response to the U.S. Section 232 steel and aluminium tariffs, Mexico increased duties on most U.S. pork from zero to 20 percent in June. Nonetheless, Mexico exhibits a strong demand for U.S. hams and in 2017 set a volume record for pork and pork variety meat exports for the sixth consecutive year at over 1.7 billion pounds (up 10 percent year-over-year). In 2017, U.S. pork export value reached $1.51 billion (up 12 percent), the second-highest on record behind 2014 levels ($1.56 billion). Mexico’s per capita pork consumption has grown by nearly one-third over the last ten years and now sits at just over 39 pounds. As of 2017, the U.S. held 86 percent market share of total pork and pork variety meat imports in Mexico, followed by Canada (13 percent), and Chile (<1 percent). However, the U.S. has undoubtedly lost market share in 2018 as a result of retaliatory tariffs imposed on U.S. pork. Trade in U.S. agricultural products to Mexico rapidly expanded as a result of the North American Free Trade Agreement (NAFTA) implemented in 1994. The U.S. Mexico Canada Agreement (USMCA) replaces NAFTA and signifies continued positive trading partnerships with U.S. pork’s closest geographical markets. There is optimism for ratification of the USMCA and continued focus on removing retaliatory duties on U.S. pork. Top imported U.S. pork and pork variety meats to the country include hams, picnics, Boston butts, jowls, trimmings, fat, brisket bones, bone-in loins, skin, stomachs, tongues, snouts, feet, and ears. The National Pork Board, along with the U.S. Meat Export Federation (USMEF), remains focused on building and reinforcing long-term purchasing loyalty thereby defending market share and further positioning the U.S. as a reliable supplier of safe, high-quality pork that consistently meets buyers’ expectations.

Expansion of U.S. pork exports to Mexico over time.
Source: USMEF
Imports of animal proteins to Mexico.
Source: OECD

Overview of Mexico

Mexico is situated in the southern portion of North America and is surrounded to the south and west by the Pacific Ocean and the Gulf of Mexico in the east. Mexico’s diverse landscape of mountains, deserts, and jungles covers over 770,000 square miles and has a population nearing 130 million. Mexico is the fifth largest country in the Americas and is the most populous Spanish-speaking country in the world. Mexico is comprised of 31 states with Mexico City, its most populous city, as the nation’s capital. In 2017, the U.S. exported $18.6 billion worth of agricultural products to Mexico, ranking 3rd among U.S. agricultural export markets and up 47 percent from $12.7 billion in 2007.

According to the USDA, in 2017, U.S. agricultural exports to Mexico totaled $18.6 billion, making it the 3rd largest market.
Source: USDA

Animal Protein Consumption

Poultry consumption dominates per capita protein consumption in the Mexican diet. Following poultry, other proteins drop considerably with fish, pork, and beef consumption ranking similarly followed by very little consumption of sheep meat. Per capita consumption of poultry has steadily increased over the last ten years, and pork consumption has seen a slight increase over time, whereas fish and beef have remained constant. The versatility of pork lends itself to a wide variety of Mexican cuisines, and as such, U.S. pork has an opportunity to deliver high-quality protein as a competitor to poultry.

Animal protein consumption continues to increase.
Source: OECD

Domestic Industry

Mexico’s most widely consumed animal protein also ranks highest among domestic animal protein production. Poultry production largely dominates domestic animal protein production followed by fish, pork, and beef. Domestic self-sufficiency for Mexico’s pork production is approximately 58 percent. Historically, the lack of infrastructure, animal disease, and reliance on grain imports has hindered increased production. However, the pork sector has seen expansion and vertical integration in recent years with commercial company investment. Domestic production is supported by an increasing demand for animal protein, improved genetics, and increased biosecurity.

Mexico’s domestic protein production has changed in the last 10 years.
Source: OECD

Retail Sector

The retail environment in Mexico is increasingly competitive due to the variety of retail options, fast expansion plans, and emerging trends. With the implementation of multichannel strategies and more demanding consumers, retailers are faced with an increased need to improve their customer service in order to maintain their competitive edge. This competitive retail environment encourages retailers to have different schedules and remain open for longer periods with an expectation that large retailers are open on Sunday’s and holidays. Thirty-five percent of the population is considered to be living in extreme poverty, and an additional eleven percent of the population relies on the minimum wage, making shopping at the informal markets a very attractive alternative to ensure affordable access to products. Western-style supermarkets are also gaining wider acceptance in both high-end and low-end retail formats.

Top retailers include Bodega Aurrera (owned by Walmart), Walmart, Soriana, Chedraui, and Comercial Mexicana. Walmart de Mexico y Centroamerica has been leading the retail market in Mexico for several years. Walmart has continued expanding (79 new outlets were opened in 2017), opening new stores in several different formats. Walmart’s main store formats include Superama (medium size supermarkets), Walmart Supercenters (hypermarkets), and Sam’s Club (warehouse clubs). As of 2017, all three business formats had internet retailing as well. Sam’s Club and Superama are known to target the high and middle-high income segments, whereas Walmart Supercenter’s target the middle-income segment. Usually, lower-income consumers are not familiar with e-commerce and do not have internet access; therefore, Bodega Aurrera, the Walmart outlet that targets lower-income consumers, has no plans to enter the e-commerce subsector.

Looking Ahead

In 2017, Mexico remained the second largest consumer market in Latin America behind Brazil. Consumer expenditure per capita totaled $6,248 in 2017, and this expenditure is expected to grow by 1.8 percent in 2018. Consumers are becoming more knowledgeable about the products they buy and are looking for high-quality protein products at a reasonable price. Pork exports to Mexico have continued to rise even as tariffs and trade tensions have challenged the market. In September 2018, U.S. pork and pork variety meat exports to Mexico reached 1.3 billion pounds (up 1 percent) year-to-date. The newly revised U.S. Mexico Canada Agreement (USMCA) set to replace NAFTA brings optimism for a restored and unrestricted trading partnership with U.S. pork’s largest volume market and second-leading value market.