Executive Summary

Swine meat production for 2009 is forecast to remain at the same level as both in 2008 and 2007. Although the economic crisis is expected to lower pork consumption, the reduction of pork imports for 2009 is expected to be moderate because the processing industry will continue importing cheaper raw material that allows them to produce cheaper processed meat.

Mexico's imports of US hogs are forecast to reach 75,000 head in 2009, slightly lower than in 2008, due to increased cost of crossing for higher exchange rate and larger distances.

Domestic slaughter figures for 2009 were revised down from the previous estimate and are now expected to remain almost at the same level for 2008. In addition, total hog ending inventories for 2009 will registered 8.2 million head (7.3 per cent lower than the revised 2008 figure) as a consequence of producers ceasing activities.

Production

Swine production estimates were adjusted according to Mexican official data for the past three years. For all years, production was revised lower from the previous estimate. Year-on- year, these new estimates show a slight reduction in production from 2007 to 2008, and almost the same level of production for 2008 and 2009.

Beginning stocks were revised downward for both 2009 and 2008 due to a number of factors. First, import estimates have been revised lower due to both a lack of border inspection points and a higher peso-dollar exchange rate. Second, higher-than-expected animal slaughter for 2009 is now expected as a consequence of producers liquidated their inventories. In addition, the Mexican pork industry is in the process of integrating. Because of higher grain prices and overall production costs starting in 2007, many small producers have withdrawn from the sector making mid-sized and large producers a greater portion of the industry. With this increased market share, competition has developed among the larger producers, making them more efficient not only seeking innovation in products, packaging, and services, but lowering losses.

Pork meat production previous estimated for 2009, 2008 and 2007 were reviewed according to Mexican official data reflecting adjusted production decision made by producer due to lower domestic consumption. In order to better weather changes in prices and consumption, Mexican pork producers are looking for increased financing options, particularly in dealing with feed costs which represent about 50 per cent of total production costs.

Consumption

The pork consumption estimates for 2009, 2008 and 2007 were revised downward to align with official data. Year-to-year comparisons now show consumption for 2009 4.6 per cent lower than the level registered in 2008 as a result of the economic crisis that is forcing consumers to select other protein sources. Despite the new lower numbers, an increase of 3.6 per cent was registered for 2008 compared with 2007.

Trade

The pork import estimate for 2009 was revised downward, reflecting the high cost of transport to cross at authorized inspection points, and the relatively high cost of U.S. pork due to the change in the exchange rate. However, in spite of the fact of these constraints, the domestic supply of pork is not sufficient and the processing industry will continue importing cheaper raw material that allows them to produce cheaper processed meat. Import estimates for 2007 and 2008 pork were revised to reflect official data.

The 2009 pork export forecast has been revised upward. The pork producers are working hard to increase their exportation to new foreign markets, primarily, Russia and China, and they are taking the advantage of the peso devaluation to increase market share. The Japanese market is extremely demanding, but pays higher prices, so the Mexican pork producers need to be more efficient to meet the growing demand. Another important project is to continue opening new markets for Mexican pork meat exportation, such as Russia and China. According to the Pork Industry data the cost of transforming the industry to produce that which the foreign markets demand is about 800 million pesos (US$57 million dollars) for building new slaughterhouses and to expand current installations that fully meet international standards for breeding, slaughtering, refrigeration and export packaging.

Export estimates for 2008 and 2007 were revised upward reflecting official data.

Policy

The SAGARPA budget has approved funds for various livestock and livestock industry activities for 2009. The main objectives are to subsidise slaughter in federal inspected establishments (TIF) of each head of beef and pork in order to promote the sacrifice in perfect health conditions; subsidise feed grains at competitive prices, and provide subsidies to livestock producers that work under GOM recognized contracts, in order to help the producer obtain a greater level of income.

Specific budgetary outlays for the livestock sector are given in the full report.

A number of other policy issues have affected trade in livestock and products between the US and Mexico.

In November 2008, SAGARPA began to approve new US establishment to export red meat to Mexico, the outstanding requests from USDA/FSIS dated as far back as May 2007. The initial approvals installed export authority for 109 new US establishments producing a variety of red meat and poultry products.

In addition, the GOM's enforcement of the official regulation NOM-030-Z00-1995 'Specifications and Procedures for the Inspection of Imported Meat, Carcasses, Viscera and Offal at Animal Health Inspection Points' and the Animal Health law led to SAGARPA revoking the eligibility to export product to Mexico for 30 US establishments due to multiple port of entry violations. All plants, wishing to export to Mexico, have had their eligibility re-instated after USDA provided proof that the required corrective actions were taken in the establishments.

The Animal Health area of SAGARPA announced on January 29, 2008 that the importation of frozen meat and frozen meat products in 'combos' would be prohibited. In addition, on 12 February 2009, SAGARPA announced that new inspection procedures for products shipped in 'combos' would be in place as of April 20, 2009. These new procedures are part of a plan to modernisation and harmonization international procedures with NAFTA partners.

In December 2008, Mexico requested consultations though the World Trade Organization to discuss US Country of Origin Labeling regulations (also known as COOL legislation) that require US retailers to label meat products with the country of origin. Mexican beef producers are concerned that the regulation could have a negative affect on Mexican cattle exports to the United States.

On 30 January 2009, the Diario Oficial (Federal Register) declared that the States of Chiapas, Oaxaca and Tabasco are free of classical swine fever (CSF), with which the entire country of Mexico is officially free of CSF. The disease has limited the ability of Mexico to export not only live hogs, but also for products to foreign markets. Despite SAGARPA declaration of Mexico as free of CSF, the US continues to work with Mexico to provide US recognition of this status.

Further Reading

-

You can view the full report by clicking here.