Mexico’s Pork Industry on the Rise

Global Meat Consumption

Global food systems are changing, largely driven by shifts in meat intake. With a growing global middle class and the diversification of purchasing habits, worldwide consumption of meat is increasing. Between 1964 and 2015, global meat consumption grew from 24 to 41 kilograms per capita. More people around the world are now able to afford such products, with consumption concentrated in industrialized nations, which are responsible for 37 percent of global meat intake. In the past few decades, developing regions such as North Africa and Latin America led this expansion in consumption, with increases of five to six percent annually. Mexico’s domestic consumption of meat, and specifically pork, is rapidly surging as consumers look for a leaner and cheaper substitute to beef.

Mexican Pork Plagued by Disease

Historical disadvantages such as processing issues, hog disease challenges, a lack of production infrastructure, and a reliance on US grain imports have all contributed to Mexico’s production struggles. The industry was once led by small-scale producers with little regulation, but now more production has shifted to larger scale, more modern facilities to meet increasing global and domestic demand. Processing facility regulations and sanitary measures have become more of a focus because Mexico wishes to increase pork exports, and products must comply with international market standards. Exports to the US, for example, need to meet sanitary and food safety regulations set by the US just as the products would if they were being produced and sold within the country. Mexico is now ramping up its production and slaughter facilities in response to foreign markets demanding more of the country’s pork products. Japan dominates the list, importing around 75 percent of Mexico’s pork exports.

Swine disease is another factor affecting Mexico’s pork industry. The presence of Porcine Epidemic Diarrhea (PED) in 2014 resulted in high pig mortality, affecting 16 Mexico production states and driving up hog prices. The virus affects swine of all ages, and can quickly spread throughout a herd. While the disease does not pose a threat to humans by contact or ingestion of meat, it can be spread in production facilities by people who have come in contact with the virus on clothing, shoes, or vehicles. Enhanced biosecurity measures such as thorough cleaning, segregation of infected animals, and disinfection of facilities are helping Mexico combat this deadly swine disease.

In addition to PED, Mexico’s pork industry also suffered another ailment known as Classical Swine Fever (CSF). This highly contagious and often fatal disease can wreak havoc on the swine industry because movement of livestock is restricted for quarantine purposes and infected animals must be separated from herds for treatment. The presence of this disease inhibited Mexico’s exports and the movement of pigs between different production states. However, thanks to increased biosecurity and industry regulations, all of Mexico’s states are presently declared CSF-free. Production and exports are expected to grow.

Feed Grain Dependence

The need to import grain from the US to feed livestock has put Mexico at a competitive disadvantage. The country produces far less corn and fewer soybeans than the neighboring US, and these crops are large components of hog feed. In 2017, the US produced around 370.9 million and 119.5 million tonnes of corn and soybeans, respectively. Corn production in Mexico reached only 26.5 million tonnes, and soybeans just 480,000 tonnes. However, the USDA expects Mexico to increase production of both crops, lessening the country’s reliance on foreign grain imports.

Supply Can’t Keep up With Demand

Mexico’s pork production has been increasing and the USDA again expects year-over-year growth, but supply still falls short of domestic demand. The country has historically imported approximately 40-50 percent of consumed product. Domestic demand grew at an average rate of 3.9 percent per year from 2006-2017, and this year analysts expect consumption to continue growing. Large increases in pork consumption have been attributed to urbanization, an expanding middle class, and a variety of product options. Cheaper prices, higher quality meats, and the convenience of packaged foods also attract more pork consumers.

Pork Trade Relations

As Mexico continues to import large quantities of processed pork to meet domestic demand, it’s also importing live swine at higher rates. Genetic improvement programs are becoming increasingly important for the pork industry as top producers look for ways to develop better genetic lines for swine. This is in response to production challenges aimed at improving productivity, meat quality, and swine growth and temperament. Research has shown that selecting the top pigs for breeding results in an estimated annual profit of almost $2 per market hog. Implementing genetic improvement programs can result in a return on investment (ROI) ratio of 118 to three in 15 years. Improving production through better swine genetics will undoubtedly boost Mexico’s pork output.

Thirty two percent of all pork coming out of the US currently heads to Mexico, ranking Mexico as the number one recipient by volume of US pork exports. Renegotiation of the North American Free Trade Agreement (NAFTA) could potentially strain this trade relationship. Duty-free market access between the US, Mexico, and Canada favors the US pork industry, but production is ramping up in Mexico. The US could see a decrease in pork exports to its southern neighbor. If NAFTA relations are strained further, Mexico could shift some import volume elsewhere to feed its growing appetite for pork.

Pork trade will likely change in the coming years, especially with Mexico recently being declared free of CSF. Exports to the US have reopened with the United States Department of Agriculture Animal and Plant Health Inspection Service (USDA APHIS) deeming all pork producing states clear of the disease in January 2018. Shipments to Asia, mainly Japan and South Korea, are also expected to increase as output grows and Mexico exports more product. Exports to Asia include chilled meat and specialty processed products such as pork patties and kebabs fulfilling particular consumer preferences. Although Mexico currently focuses on meeting substantial domestic demand, the country could profit from diversifying its export markets as well.

Future Outlook

The most recent USDA Global Agriculture Information Network (GAIN) report shows a positive outlook for Mexico’s pork industry. Better infrastructure and recently-eradicated disease will help drive up 2018 production to an estimated 1.3 million tonnes, with expected year-on-year increases. Domestic consumption is forecast at 2.3 million tonnes, driven by product affordability, the convenience of processed products, and the use of pork in traditional Mexican dishes like tacos and cochinita pibil.

Mexican pork imports are forecasted to increase nine percent from last year, or 1.2 million tonnes, in order to satisfy domestic demand in 2018. The USDA also expects exports to increase as all pork-producing states in Mexico are now CSF free. In 2018, exports are forecast at 180,000 tonnes with approximately 75 percent of volume making its way to Japan, which remains the top market for Mexican pork. Mexico’s pork could find its way to China as well. Recent Chinese retaliatory trade actions against the US include pork tariffs, and Mexico could expand its export market by supplying some of China’s huge pork demand. Markets in Asia and the US show promise for the future of Mexico’s pork exports as global demand steadily increases.

Conclusion

Although Mexico’s pork industry continues to rely on imports to satisfy growing domestic demand, the sector has made huge strides in addressing its historical disadvantages. Production is ramping up on the nationwide eradication of CSF, accompanied by improved facilities with increased biosecurity measures. Global pork demand will undoubtedly continue to increase, and Mexico’s industry can address the appetites of foreign markets in Asia and the US seeking higher quality and leaner specialty meat products. If Mexico continues increasing production at this rate, the country will become a force to be reckoned with in global swine trade. Gro Intelligence can provide subscribers with the data necessary to analyze Mexican pork industry trends and their implications for US and world markets.