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USDA GAIN: Dairy and Products


02 November 2012

USDA GAIN: Mexico Dairy and Products Annual 2012USDA GAIN: Mexico Dairy and Products Annual 2012

High input prices are continuing to hurt Mexico’s dairy industry production even though it appears as if the Mexican drought could be broken. Post has revised its production and consumption estimates higher in order to convert from 1000 liters to 1000 metric tons (MT). Mexico is expected to remain a dairy deficit country and will likely import a higher volume and value of dairy products from the U.S. and other suppliers as consumers trend to purchasing added-value dairy products.
USDA Gain Report - Dairy and Products

Dairy, Milk, Fluid

Production:

The Post MY2013 (January to December) fluid milk production forecast is 11.309 million metric tons (MMT). This is modestly lower from the new Post MY2012 estimate as the sector continues dealing with higher international grain prices and the perceived low domestic milk price paid to producers. Thus, producers are decreasing their herds and sending milk cows to slaughter for meatas it is more profitable than milk production.

Kiloliters vs. Metric Tons differences now clarified

Estimates and forecasts in the New Post columns for MY2011 through 2013 are expressed in 1000 MT values. Post mistakenly reported production figures in 1000 liters and not in 1000 MT values in prior reports.

Grain Prices Hitting Milk Producers Forcing Consolidation and Exiting of Smaller Producers

Private sources indicate that by the end of 2012 the total number of milk producers could drop to 150,000 due to the above mentioned factor. Although small and medium-sized producers are exiting the industry or reducing herd sizes, more productive milk cows at large, vertically integrated farms will manage to support MY2013 production at levels similar to MY2012 production. This is being accomplished with better herd genetics and improved production practices. The Post fluid milk production estimate for MY2012 is revised upward from the USDA estimate (10.813 million liters) to 10.828 million liters (11.153 MMT) to reflect official data from Mexico’s Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA). The Post fluid milk production estimate for MY2011 was revised downward from the USDA/Official estimate at 10.743 million liters to 10.724 million liters (11.046 MMT) due to availability of final official data from SAGARPA.

Grazing Lands Begin Recovery and Assist Producers? Maybe. Other Factors at Play.

Despite the increased production costs for milk production —high feed and energy prices—during 2012, SAGARPA revised upward its official forecast for 2012 from 10.813 million litters to 10.828 million liters (11.153 MMT). SAGARPA believes that grazing lands and forage production are starting to recover after having been devastated by the partial year 2012 and 2011 drought and that this will push production higher. Indications for the North American Drought Monitor reinforce this belief and suggest that Mexico is recovering from and should be able to increase forage supplies (see data for September 2012, January 2012, July 2011, and January 2011 for a brief time-series view of the drought). However, dairy producers do not agree with this positive scenario. Producer organizations claim that the number of better-yielding cows sent to slaughter is still increasing and that dairy product imports are discouraging prices for fluid milk from increasing.

Traditionally, most cattle- and dairymen complement animal feed rations with hay and alfalfa supplements. As previously reported, analysis indicates that 70 percent of the milk production cost is linked to animal feed. SAGARPA also indicates that 2011 forage and alfalfa production volume were 46.2 and 28.2 million metric tons (MMT) and were valued at 17 billion and 13 billion pesos; respectively. These were the 8th and 10th most important commercial agricultural crops by value to Mexico during 2011. In 2010 forage and alfalfa production volume were 46 and 29.1 MMT and were valued at 16.7 billion and 11 billion pesos; respectively. Neither crop was in the top 10 in 2010.

Milk Cow Numbers

There is no change to the number of milk cows for MY2011 from USDA’s estimate. The Post MY2012 estimate of milk cows was revised slightly lower from the USDA estimate due to increased costs for animal feed which pushed producers to decrease herd sizes. The number of milk cows for MY2013 is forecast 1 percent lower than the MY2012 figures, as herds continue to be reduced.

Consumption:

The Post MY2013, total fluid milk consumption forecast (domestic and factory use) is forecast at 11.341 MMT; slightly higher than the new Post MY2012 estimate. The Post MY2012 and MY2011total fluid milk consumption estimates were revised upward from the USDA estimate due to the availability official Mexican data and the conversion from 1000 liters to 1000 MT.

Mexico’s Changing Population Demographics Influencing Dairy Products Consumption

For MY2012 and MY2013 it is important to note the trade-offs between fluid domestic consumption and factory use. As previously reported, consumers continue switching to other prepared and processed dairy products such as yoghurts and other preparations that offer attractive prices, a full range of flavors, a longer shelf life, and, the most important factor: the perceived benefits of consuming products that contribute to the population’s health.

Fluid milk continues to be one of the strongest pillars of dairy consumption. The appearance of new products — diverse categories of specialty dairy products for infants, youth, and elder consumers— are on the upswing. The development of these market niches can be categorized by household incomes and has contributed to a drop in per capita fluid milk consumption. Despite the eventual transition to more specific consumption patterns, with important participation from elder consumers, Mexico will witness a young and active population that demands more and varied dairy products provided that they retain their purchasing power.

The increased consumption of added value dairy products such as pasteurized milk, sweetened milk, yoghurts, cheeses as well as of ultra high temperature (UHT) milk is a trend expected to occur in the short to medium term. Dairy products such as lactose free, light, low-fat and flavored milk, formulas, etc., continue gaining domestic market share. Thus more fluid milk is also going to processing and production. To cope with the demand of different groups with specific needs the industry is investing in scientific and market research for the development and improvement of such products.

As previously reported, industry sources report that per capita dairy product (milk, cheese, yogurt, etc.) consumption is estimated at 140 kilograms (63.5 pounds). Also, the same sources report that Mexico shows a per capita consumption of 139.5 liters per year of fluid milk or 385 milliliters per day which is far below the WHO recommendations of at least 500 milliliters per day.

Looking for a Healthy and Long Life

LICONSA recently announced that in compliance with the Government of Mexico efforts of to stop and reduce the prevailing high rates of those who are overweight or obese, more specifically in the infant population, it has reduced the amount of dairy fat in products that it supplies to the lowest-income sectors of the population through the Social Supply Programs. LICONSA eliminated 50 percent of the fat content in its fluid milk and powdered milk products while maintaining the nutritional contents equal to its whole milk products.

Prices:

On October 9, 2011, LICONSA announced a 0.60 pesos (U.S. $0.04) per liter increase to the price paid to producers in order to benefit small and medium-sized producers for a final price of 5.60 pesos (USD $0.42) per liter. This agreement was applied form the beginning of 2012. On the consumer price side, LICONSA announced that the price of milk distributed to low-income households was increased 0.50 pesos (U.S. $0.03) per liter for a final price of 4.50 (USD $0.33). Most recently, SAGARPA and LICONSA agreed to maintain prices —paid to producers and for consumers— at least for the remaining period of 2012.

Trade:

Mexico remains a milk production deficit nation and will continue to be an attractive market for U.S. dairy and dairy product exporters. As such, the United States will continue to be the primary supplier of milk to Mexico.

The Post fluid milk import forecast for MY2013 is 43,000 MT; this figure is a stronger increase from the past few years, but still much lower than historical levels. This, as well, is due to the removal of cattle from the dairy herd and the inability to keep pace with growing consumption. The Post MY2012 and MY2011 fluid milk import estimates remain unchanged from the USDA estimates at 39,000 and 38,000 MT; respectively.

The Post MY2013 fluid milk export forecast is expected to decrease slightly to 11,000 MT from Post’s new MY2012 estimate of 14,000 MT. This is due mainly to the fact that Mexico remains in a supply deficit. Figures for MY2012 were revised upward from USDA data as the country shipped more milk to Venezuela and Guatemala than previously anticipated. MY2011 exports remain unchanged and reflect official data.

Stocks:

No stocks are held due to the lack of refrigeration or storage space among producers and end-users. As such, end-users utilize just-in-time delivery for those products which enter value-added processes.

Dairy, Cheese

Production:

The Post MY2013 total cheese production forecast for MY2013 is 270,000 MT. This is flat from the past several years. The sustained production levels reflect the trend of consumers switching to other dairy products prepared by the processing industry or to the growth in imported cheeses. The Post MY2012 and MY2011 estimate were kept unchanged from the USDA estimate to reflect available private data.

Consumption:

The Post MY2013 total cheese consumption forecast shows marginal increases over the USDA MY2012 estimate due to a slight increase in consumption of aged cheeses among high-middle and high-income consumers. Moreover, low and lower-middle income consumers continue demanding fresh cheese products. MY2012 consumption was revised slightly upward compared to the USDA estimate reflecting the recent industry data that suggests cheeses are an increasingly important component of the diet of more middle-income consumers. The Post MY2011 consumption estimate is unchanged from the USDA estimate.

Trade:

The Post MY2013 cheese import forecast is slightly up due to sustained demand of aged and specialty chesses spurred by Mexico’s economic recovery. The Post import estimate for MY2011 and MY2012remains unchanged from the USDA/Official estimate reflecting latest official trade data.

The Post MY2013 cheese export forecast is 4,000 MT; lower than the USDA MY2012 estimate. The Post MY2012 export estimate was revised lower than the USDA estimate from 5,000 to 4,000 MT due to low dairy product prices in the international market. The Post export estimate for MY2011 remains unchanged from the USDA estimate.

As previously reported, on October 21, 2011, Mexico lifted retaliatory duties applied to four HTS codes for cheese (see 2010 GAIN report MX1076 Mexico Eliminates Trucking Retaliation Tariffs). Although the retaliatory tariff duties made cheeses from the four HTS codes more expensive, middle and high-income consumers continued demanding them during MY2011.

Dairy, Butter

Production:

The Post MY2013 butter production forecast is 2.6 percent lower to 185,000 MT from the MY2012 estimate as strong demand from the processing industry for the preparation of other products is expected to compete for the availability of fluid milk for butter production. The Post MY2012 and MY2011 estimate for butter production is unchanged from the USDA estimate.

Consumption:

The new Post MY2013 butter and butterfat consumption forecast is at similar levels from the MY2012 USDA estimate as use by the bakery and confectionary sectors is expected to be maintained. During MY2013, the baking, confectionary and food processing industries use of butter and butterfat is expected to be maintained, but with the slight shortfall in domestic production, will likely be met with imports. The Post estimates for MY2012 and MY2011 are unchanged from USDA estimates.

Trade:

The Post MY2013 import of butter and butterfat is forecast at 45,000 MT due to a sustained demand from the bakery and confectionary sectors and limited domestic production. The Post MY2012 and MY2011 import estimates are unchanged from the USDA estimates.

As in MY2012, New Zealand will continue to be the principal supplier of butterfat to Mexico for MY2013. The United States, however, is forecast to maintain its market share.

Dairy, Milk, Nonfat Dry

Production:

The production of Non-fat Dry Milk (NFDM) for MY2013 is forecast slightly up from the revised post MY2012 estimate. The new Post production estimate for MY2012 was revised slightly downward from the official USDA estimate due to limited availability of fluid milk due to the demand from the industry for the preparation of other added-value dairy products. MY2011 figures were kept unchanged from official USDA figures.

Dry Season Less Milk. Wet Season More Milk. What To Do About It?

Traditionally, NFDM in Mexico is more expensive than whole milk powder (WMP) and is produced, in more substantial volumes, only when there is seasonal overproduction of fluid milk. As reported, Mexico’s milk powder production may be able to marginally increase once a new plant in the state of Jalisco is fully operational and capable of managing seasonal surpluses that occur during rainy seasons.

Investment Required and Possible Opportunity?

During the last decade, the import of NFDM along with whole milk powder represented almost 20 percent of overall domestic dairy consumption. This trend is not likely to change in the short term and imports will continue to cover processing plants demand for raw materials. This is due to the infrastructure established for processing this product into reconstituted milk from powdered milk. Currently, the lack of investment to adjust the industrial infrastructure to operate with fluid milk is a major concern. Recently, the state of Jalisco inaugurated a milk powder production plant capable of managing seasonal surpluses that occur during rainy seasons. The plant is not fully operational, yet.

Consumption:

The Post NFDM MY2013 consumption forecast is 223,000 MT as demand from the industry for production of other added-value products continues. The Post consumption estimate for MY2012 was revised slightly downward since portions of the domestic fluid production went to cover the demand of other added-value dairy products. The Post consumption estimate for MY2011 is unchanged from the USDA estimate.

As previously reported, industry sources report that the principal consumers of NFDM are dairy processors who reconstitute the material and sell it as pasteurized or UHT milk. Also, the confectionary industry continues using small quantities of NFDM in their processes.

Trade:

The Post MY2013 import forecast for NFDM is set at 210,000 MT similar to the official USDA estimate for MY2012 in light of limited production and sustained demand from the dairy processing industry. MY2012 imports are estimated to remain at levels estimated by USDA due to sustained demand from the processing industry who reconstitute NFDM into pasteurized and UHT products. The MY2011 estimate is unchanged from the USDA estimate and reflects industry data.

Stocks:

LICONSA used to be the largest owner of milk powder stocks. Due to implementation of the Acquisition of Domestic Milk Program, LICONSA switched to purchasing domestic fluid milk and has reduced its consumption of NFDM and its need to maintain stocks.

Dairy, Dry Whole Milk Powder

Production:

The Post MY2013 dry whole milk powder (WMP) production forecast is at the same level as the official MY2012 USDA estimate. This is due to the availability of fluid milk, thus, keeping demand stable for dry WMP production. The Post estimates for MY2012 and MY2011 total dry WMP production figures are unchanged from the USDA estimates.

Consumption:

Dry WMP consumption for MY2013 is unchanged from the MY2012 USDA official estimate as consumer purchasing power recovery is allowing middle and high-income consumers to buy processed and added-values dairy products instead of products made with WPM. However, the use of WPM is still a prevailing practice among low-income urban households that lack refrigeration and therefore limit purchases of fresh milk products. Low-income consumers are the traditional market covered by LICONSA and rehydrated milk made from WMP. The Post MY2012 and MY2011 consumption estimate were kept unchanged from the USDA estimates.

Trade:

The new Post MY2013 import estimate is forecast at 20,000 MT as the demand for WMP from low-income consumers has remained stable. For MY2012, the import figures were kept unchanged as a result of the LICONSA’s continued purchase of domestic fluid milk. MY2011 figures remain unchanged.

While being a net importer, Mexico’s exports of WPM during MY2012 and MY2011 were small and stable. This trend is not likely to change in MY2013 and forecast exports to remain stable.

Dairy, Milk, Fluid
Dairy, Butter
Dairy, Cheese
Dairy, Dry Whole Milk Powder
Dairy, Milk, Nonfat Dry

Policy:

General Tariffs

Currently, all U.S. dairy products enter Mexico duty-free.

Unpasteurized Milk Zoosanitary Requirements

The United States has historically been able to export unpasteurized liquid milk to Mexico for pasteurization and further processing. In 2012, Mexico adjusted its zoosanitary requirements for this product and effectively eliminated U.S. access. The United States and Mexico continue negotiating for amended requirements that will allow trade of this product to resume.

Domestic Support

In early September, the agreement for the operation of the “Mechanism to Administer the Loses in relation to the Price/Cost of Milk” was signed between the Dairy Sector and SAGARPA. This program is intended to support small and medium milk producers to cope with fluctuations in the market that could reduce or eliminate possible profits.

ONPROLAC

The dairy sector promoted the creation of the National Organism for the Regulation of Dairy Products (ONPROLAC). The current objective of this body is to elevate the standards of the Mexican Norms (NMX) that milk producing companies use in order to market milk. Mexican Norms, as opposed to Mexican Official Norms (NOMs), are not obligatory.

This body aims to improve the overall domestic market for dairy products while promoting quality standards. Their goal is to convert the dairy sector into a more competitive market environment that offers high quality products for final consumers.

Marketing:

In 2011, Mexico became the first U.S. $1 billion market for U.S. dairy and related product exports. NFDM, cheese, and whey accounted for the bulk of the export value of U.S. products and amounted to approximately $392 million, $173 million, and $46 million; respectively. The United States exported $814 million of dairy products to Mexico from January to August 2012. This compares to $740 million during the same period of 2011 and if the trend continues, could suggest that the United States could export up to $1.2 billion in 2012, a new record.

The Mexican dairy industry continues investing in publicity and promotion for added-value dairy products. The U.S. Dairy Export Council (USDEC) is active in promoting the U.S. dairy industry in Mexico, as well. USDEC organizes buying missions for potential Mexican importers/distributors to visit U.S. suppliers and develops sales opportunities for U.S. dairy products. In addition the two Foreign Agricultural Service (FAS) Agricultural Trade Offices (ATOs) located in Mexico City and Monterrey, are dynamically promoting U.S. dairy exports as well.

In 2010, the total dairy products (UHT and pasteurized fluid milk, cheese, yoghurt, cream, chilled dairy snacks/ice cream treats, and condensed/evaporated milk) market size was estimated at U.S. $9.65 billion. The industry is considered highly fragmented with a large number of small-scale artisanal producers that distribute products locally or regionally. Private industry sources indicate that four companies constitute about 60 percent of the total dairy market (comprising fluid milk and added-value product processing) in Mexico. These four firms are Lala, Alpura, Sello Rojo, and Pasteurizadora de Chihuahua.

November 2012

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