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USDA GAIN: Dairy and Products


21 May 2012

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

Post Mexico City has lowered its marketing year (MY) 2012 forecast and MY2011 estimate for Mexican dairy production. Better genetics and management are helping improve yields over last year’s levels in spite of the record drought which is forcing consolidation and overall herd reductions. Production does not meet demand and Mexico will continue importing dairy products, principally from the United States. In 2011, Mexico became the first $1 billion market for U.S. dairy and related products.
USDA Gain Report - Dairy and Products

Commodities:

Dairy, Milk, Fluid

Production:

The Post MY2012 (January to December) fluid milk production forecast was revised slightly downward to 10.967 million metric tons (MMT) from USDA’s Official forecast of 11.140 MMT as harsh conditions — an exceptional long-term drought — continue affecting the dairy sector, despite government financial support for small and medium-sized producers. Private sources indicate that the total number of milk producers has gone from 200,000 in 2008 to 160,000 today due to higher production costs. Recent analysis indicates that 70 percent of the milk production cost is linked to animal feed. An additional and important factor driving down the number of producers is the perceived low domestic milk price.

The Post fluid milk production estimate for MY2011 is revised downward slightly from the USDA estimate to reflect official data from Mexico’s Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA). As previously reported, this decrease is due to increased production costs and adverse weather conditions. Milk production costs increased due to high feed and energy prices. Also, the lack of moisture across almost all of Mexico through MY2011 caused a reduction in forage supplies thereby constraining production among small and medium-sized producers. The Post fluid milk production estimate for MY2010 remains unchanged from the USDA/Official estimate.

Starting in late MY2011 and during the first quarter of MY2012, small and medium-sized producers have been sending milking cows, which are at the end of their productive cycle, to slaughter as opposed to rendering facilities. Highly productive cows are being sold to larger vertically integrated farms; most of these farms are associated with large processing companies. Although small and medium-sized producers are exiting the industry or reducing herd sizes, more productive milk cows at large, vertically integrated farms will support MY2012 production at levels similar to MY2011 production. The sustained milk production level is due to better herd genetics and improved production practices.

There is no change to the number of milk cows for MY2010 from USDA’s estimate. The Post MY2011 estimate of milk cows was revised slightly lower from the USDA estimate due to the increased cost of animal feed and slower than anticipated economic recovery which pushed producers to decrease herd size. The number of milk cows for MY2012 is forecast lower than the USDA forecast, as well.

Consumption:

The Post MY2012, total fluid milk consumption forecast (domestic and factory use) was revised downward to 10.996 MMT in comparison to the USDA forecast of 11.169 MMT. The Post MY2011 total fluid milk consumption was revised downward slightly from the USDA estimate due to official data. There is no change to the MY2010 consumption estimate.

It is important to note the trade-offs between fluid domestic consumption and factory use. Fluid domestic consumption decreased noticeably from USDA forecasts and estimates as consumers are switching to other prepared and processed dairy products such as yogurts and other preparations that offer attractive prices, a full range of flavors, and a longer shelf life. Private sources estimate that financial constraints among the low to middle income population sectors and the slowdown in population growth have contributed to the drop in fluid milk consumption.

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.

Consumption levels are correlated with the continued recovery of consumer purchasing power as well as changing demographics (e.g., aging of the population). The trend is for the increased consumption of added value dairy products such as yoghurts, cheeses as well as of ultra high temperature (UHT) milk. Dairy products such as lactose free, light, low-fat and flavored milk, formulas, etc., are gaining domestic market share and demanding more fluid milk for processing and production.

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. 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).

LICONSA’s price paid to dairy producers is used as a domestic reference price as many small and medium producers supply milk to LICONSA. During President Calderon’s administration LICONSA has purchased more than 3.0 billion liters of milk from Mexican milk producers. This figure represents 70 percent of the amount sold to the low income level population. The remaining 30 percent is imported to be reconstituted or used in the production of added-value products.

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 fluid milk to Mexico.

The Post fluid milk import forecast for MY2012 remains unchanged from the USDA forecast at 39,000 MT. The Post MY2011 fluid milk import estimate is revised downward from the USDA/Official estimate due to higher prices resulting from currency exchange rates and the increase in consumption of other processed dairy products. The Post MY2010 fluid milk import estimate remains unchanged from the USDA estimate.

The Post MY2012 fluid milk export forecast remains unchanged from the USDA forecast at 10,000 MT. This is due to the relatively attractive price of Mexican fluid milk and the perceived cumbersome registration process for new companies to be certified as eligible to export. Figures for MY2011 and MY2010 remain unchanged and reflect official data.

Stocks:

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

Commodities:

Dairy, Cheese

Production:

The Post MY2012 total cheese production forecast remains unchanged from the USDA forecast even though there is a slight decrease in fluid milk production. The Post MY2011 estimate was revised upward slightly to 270,000 MT from the USDA estimate to reflect available recent private data. The production increase reflects the trend of consumers switching to other dairy products prepared by the processing industry such as cheeses and the increased availability of imported and domestic raw materials for cheese production. The Post estimate for MY2010 cheese production remains unchanged at 264,000 MT.

Consumption:

The Post MY2012 total cheese consumption forecast shows marginal increases over the USDA forecast due to greater demand from low and lower-middle income consumers of fresh cheese. Additionally, the consumption of aged cheese among high-middle and high-income consumers is expected to be greater than the USDA estimate for MY2011. This reflects the most recent industry data that indicates a change in consumption patterns in favor of prepared breakfast and lunch foods that contain some cheese component. The Post MY2010 consumption estimate is unchanged from the USDA estimate.

Trade:

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 highincome consumers continued demanding them during MY2011.

Private sources from the dairy sector indicate that during 2011, 620,000 MT of dairy products entered Mexico. Sources estimate that 14 percent of this volume included specialty cheeses.

The Post MY2012 import forecast remains unchanged from the USDA forecast. The year over year increase is spurred by Mexico’s economic recovery. The Post MY2011 import estimate is a slight increase from USDA’s estimate. The Post import estimate for MY2010 remains unchanged from the USDA/Official estimate.

Not a significant exporter, the Post MY2012 cheese export forecast is revised lower than the USDA forecast. The Post MY2011 export estimate also was revised lower than the USDA estimate due to low dairy product prices in the international market which did not draw significant demand response from Mexico. The MY2011 estimate reflects official data, as well. The Post export estimate for MY2010 remains unchanged from the USDA estimate.

Commodities:

Dairy, Butter

Production:

The Post MY2012 butter production forecast is maintained at 185,000 MT. This forecast is unchanged from the USDA forecast due to slightly lower fluid milk production. The Post MY2011 estimate for butter production remains unchanged since, historically, the production stems from the availability of fluid milk as well as improved processor profits resulting from higher international butterfat prices. Production for MY2010 remains unchanged from the USDA estimate.

Consumption

The Post MY2012 butter and butterfat consumption forecast is a 2.3 percent increase from the USDA forecast as use by the bakery and confectionary sectors is expected to be stronger than previously anticipated. During MY2011, the baking, confectionary and food processing industries depended on domestic production, but the new demand will likely be met with imports. The Post estimate for MY2010 remains unchanged from the USDA estimate.

Trade:

The Post MY2012 import forecast is raised to 35,000 MT from the USDA forecast of 30,000 MT due to a combination of limited domestic production and sustained demand from the bakery and confectionary sectors. The Post MY2011 estimate is revised downward the USDA estimate to reflect official data and is explained by the reduced butterfat import needs of the baking and confectionary sector as these sectors substituted for domestic raw materials. The Post MY2010 import estimate remains unchanged from the USDA estimate.

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

Commodities:

Dairy, Milk, Nonfat Dry

Production

The Post MY2012 production forecast for Non-fat Dry Milk (NFDM) is unchanged from the USDA forecast due to lower fluid milk production. The Post production estimate for MY2011 and MY2010 were kept unchanged, as well.

As previously reported, NFDM is more expensive than whole milk powder (WMP) and is produced, in more substantial volumes, only when there is seasonal overproduction of fluid milk. Sources have reported that 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. (See Dry Whole Milk Powder Production section, below, for additional information).

Consumption:

The Post NFDM MY2012 consumption forecast of 203,000 MT is higher than the USDA forecast of 183,000 MT due to the sustained demand from the industry for production of added-value products. In light of the reduced availability of fluid milk, imports will help meet the sustained demand. The Post consumption estimate for MY2011 is revised upwards to 207,000 MT from the USDA estimate of 193,000 MT as consumer’s preferences for added-value products is growing. The Post consumption estimate for MY2010 is unchanged from the USDA estimate.

Sources report that the principal consumers of NFDM are dairy processors who reconstitute the material and sell it as pasteurized or Ultra-high-temperature (UHT) milk. Some, as well, sell NFDM to the confectionary industry.

Trade:

The Post MY2012 import forecast for NFDM has been revised upward from the USDA forecast as domestic production is not sufficient to meet domestic demand. The Post import estimate for MY2011 was revised upward to reflect official data. The MY2010 estimate is unchanged from the USDA estimate.

As previously reported, during December 2010, the Secretariat of Economy (SE) announced TRQs for milk powder (and dairy blends) for 2011. (See 2010 GAIN reports MX0095 & MX0096). It is expected that 70 percent of NFDM imports will be rehydrated into fluid milk, UHT milk, and other added-value products such as chesses, yogurts, and ice cream formulations. The remaining 30 percent is used by the bakery sector. Sources report that these industries prefer NFDM as it is easier to use in the preparation of a number of products.

Stocks:

LICONSA used to be the largest owner of milk powder stocks. Due to industry pressure, however, LICONSA switched to purchasing domestic fluid milk and has reduced its consumption of NFDM and its need to maintain stocks.

Commodities

Dairy, Dry Whole Milk Powder

Production

The Post MY2012 dry whole milk powder (WMP) production forecast is unchanged from the USDA forecast and remains the same as the MY2011 estimate. This is due to reduced fluid milk availability. The Post estimate for MY2011 and MY2010 total dry WMP production figures are unchanged from the USDA estimates. As previously reported, LICONSA continues purchasing domestic fluid milk, thus, lowering demand for dry WMP production. As previously stated, the production of WMP depends on the availability of fluid milk, especially, the seasonal surplus of fluid milk.

Consumption:

Dry WMP consumption for MY2012 is unchanged from the USDA forecast as consumer purchasing power recovery is allowing middle and high-income consumers to buy processed and added-values dairy products instead of products with WPM. The Post MY2011 estimate was revised upward slightly from the USDA estimate as middle and high-income consumers had not started to migrate to other products as anticipated. Low-income consumers are the traditional market covered by LICONSA and rehydrated milk made from WMP. The Post MY2010 consumption estimate remains unchanged from USDA estimate.

Trade:

The Post MY2012 import estimate remains unchanged from the USDA forecast of 25,000 MT. Although LICONSA has been switching to buying and supplying fluid milk, the demand for dairy products from low-income consumers led to slightly higher imports for dry WMP and resulted in a slight increase in the Post MY2011 estimate from the USDA estimate. MY2010 figures remain unchanged.

Commodities:

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

Policy:

General Tariffs
Currently, all U.S. dairy product exports enter Mexico duty-free.

NOM-155-SCFI-2012 & NOM-183-SCFI-2012
On May 3, 2012 the Secretariat of Economy (SE) published in Mexico’s Federal Register (Diario Oficial) the Mexican Official Norms NOM-155-SCFI “Milk-Denomination, physical-chemical specifications, commercial information and testing methods” and NOM-183-SCFI-2012 “Dairy formula and combined dairy formula-Denomination, physical-chemical specifications, commercial information and testing methods”. These NOMs replace NOM-155-SCFI-2003, and encompass milk, dairy formulas, and combined dairy formulas in an effort to eliminate possible consumer confusion. The National Chamber of Milk Industries (CANILEC) has expressed dissatisfaction with this revised regulation as they perceive this modification is unnecessary and over-regulates the industry and will affect self-service stores that produce and sell their own brands. This, in turn, could affect the entire industry and increase production costs.

Marketing:
It is worth noting that Mexico became the first U.S. $1 billion market for U.S. dairy and related product exports in 2011. Total U.S. dairy product exports were approximately $1.2 billion. NFDM, cheese, and whey accounted for the bulk of the export values and amounted to approximately $600 million, $200 million, and $130 million, respectively. Through the first 3 months of 2012, year over year export values are considerably higher than last year and suggest promising opportunities for U.S. dairy products throughout the year. The United States exported $313 million of dairy products in the first 3 months of 2012 compared to $240 million for the first 3 months of 2011.

The Mexican dairy industry is beginning to invest in publicity and promotion for added-value dairy products. These products, according to industry sources, require lower levels of raw material for their preparation and are more affordable. As such, industry members believe marginal promotion efforts could spur consumption of these products.

In 2010, the total dairy products (UHT and pasteurized fluid milk, cheese, yoghurt, cream, chilled dairy snacks, 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 artisan producers that distribute products locally or regionally. Fluid milk and added-value product processing is dominated by two brands; Lala and Alpura.

The U.S. Dairy Export Council (USDEC) is active in promoting the U.S. dairy industry in Mexico. In addition, the Foreign Agricultural Service (FAS) Agricultural Trade Offices (ATOs) promote U.S. dairy exports, as well. The ATOs and USDEC develop promotion and sales opportunities for U.S. dairy products in the Mexican market. USDEC, as well, organizes buying missions for potential Mexican importers/distributors to visit U.S. suppliers.

May 2012

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