Mexico. Dairy and Products Annual. Oct 2014 Nov. 11, 2014
The Mexican dairy sector will again increase production in 2015. Milk, cheese, and most dairy products consumption continue to rise. In 2014, Liconsa, Mexico’s producer/consumer support intensified its program to source more product domestically, cutting expectations for dry whole milk powder consumption and imports. Market opportunities open in Mexico for U.S. exporters as traditional suppliers shift focus to other destinations.
The Post MY2015 (January to December) fluid milk production forecast is 11.71 MMT, up slightly from 2014, based upon expectations for relatively low feed and forage prices, domestic herd recovery, continued implementation of better production practices among vertically integrated producers, and improved genetics from better yielding milk cows. The Post fluid milk production estimates for MY2014 and MY2013 are kept unchanged to reflect official data.
As previously reported, the availability of grain at attractive prices, water availability for use in confinement establishments, and pasture availability has allowed producers to again consider expanding production. Currently, milk production in Mexico occurs in two scenarios, the northern and central areas host mainly high-end technology and integrated producers while southern Mexico bases milk production on cattle grazing in pasture lands that does not count on further processing and distribution channels. Nevertheless, both will continue benefiting from recovered water reservoirs and water tables in key producing areas. This situation has alleviated grazing pasture scarcity and quality issues. LICONSA’s1 increased price paid to producers undoubtedly has contributed to higher production levels in 2014. It is expected that these factors will have a similar impact in 2015.
The Post MY2015 total fluid milk consumption forecast (domestic and factory use) is 11.74 MMT, up slightly on 2014, based on anticipated production levels. The industry forecasts sustained consumption of added-value products for middle and upper income consumers with sustained support from LICONSA for lower income consumers. The Post MY2014 and MY2013 total fluid milk consumption estimate are unchanged based on official Mexican production data.
Industry contacts indicate that total consumption of fluid milk is comprised of both fresh and Ultra High Temperature (UHT) milk. Northern Mexico consumes mostly fresh milk, mirroring the U.S. pattern, while UHT milk is widely consumed in the central region of Mexico. Given the lack of proper means to maintain drinkable fluid milk, consumers in southern Mexico prefer the consumption of powdered milk and UHT, keeping fresh milk consumption in check.
Fresh pasteurized milk consumption accounts for about 56 percent of fluid milk disappearance while 44 percent is UHT milk. Due to energy/refrigeration costs, many retail establishments do not have large dairy cases for fluid milk and keep short supplies on hand with new product delivered several times per week. As such, it is often easier to work with UHT milk as it can be delivered and placed in retail aisles without the added cost of refrigeration.
The dairy industry continues responding to increased demand for specialized products, such as lactose-free, high-calcium, and even reduced fat fluid milk products. Consequently, specialized dairy products continue gaining domestic market share and greater volumes of fluid milk are being directed to processing use.
Consumers, also, are switching to other prepared and processed dairy products such as probiotic and drinkable yogurts. Moreover, flavored milk and Greek yogurt are gaining share among mid-upper-income sector consumers. Fluid dairy preparations offering attractive prices, a full range of flavors, a longer shelf life, and nutritional and functional benefits have been the driving factors that support the consumption of these products.
LICONSA announced a 0.6 pesos (U.S. $0.04) per liter increase in the price paid to producers for a final purchase price of 6.20 pesos (USD $0.47) per liter in the second quarter of 2013. This agreement entered into force in the second half of 2013 and as of the start of the second half of 2014 there has not been any change. On the consumer price side, LICONSA announced that the price of milk distributed to low-income households would be raised 0.5 pesos (U.S. $0.03) per liter for a final price of 4.50 pesos (U.S. $0.33). LICONSA has maintained this price during 2014 and is not expected to make substantial changes. According to official information from LICONSA, the daily distribution of fluid milk accounts for 3.1 million liters in 1,949 municipalities across the country under the provisions of 33 Social Supply Programs. This represents 10.2 percent of domestic production.
The Post MY2015 import forecast is 41,000 MT, lower than the USDA official estimate for MY2014, based on the potential for increasing domestic production, per the medium to longer-term goal of the current administration. This program seeks to grow the importance of domestic production relative to imports. The Post MY2014 and MY2013 fluid milk import estimate is maintained unchanged from the USDA estimate.
The Post MY2015 fluid milk export forecast is now slightly higher than a year ago at 13,000 MT as an increase in production will allow milk exports to rebound to previous levels. In recent years, the United States, Guatemala, Venezuela and Belize were the main markets for Mexican exports. This is expected to continue in MY2015. Post’s MY2014 and MY2013 export estimate were kept unchanged.
The U.S. remains the dominant supplier of dairy products to the Mexico market, capturing 75% market share representing a volume of around 480,000 MT. In 2013, the U.S. dairy products exported to Mexico with the most growth were: Cheeses (+35%), Whey protein (+21%), Yogurt (+81%), Butter (+78%), Evaporated milk (+13%) and Ice Cream (+3%).
The Mexican food industry has been growing rapidly and has been the primary market demand driver contributing to this growth in U.S. exports. Mexico continues to be one of the largest destinations for imported dairy products, the U.S. being its largest supplier. The strong investment in the processed food and retail sectors has led to a constant growth in demand for dairy products, such as dairy ingredients, fluid milk, cheese, yogurt, and frozen dairy desserts among others.
The new fiscal reform that taxes high calorie content products (including ice cream, condensed milk, and novelties) might affect some dairy products, both domestic and imported. Also it’s important to highlight that starting in June 2015 there will be a new front-of-pack labeling requirement for packaged consumer foods. The front-of-pack labeling should include nutritional information about sugar, sodium, fats, and caloric content per portion.
In Mexico, amongst Lala and Alpura, the top producers of fluid milk and dairy products, there is competition to launch more innovative products and with more specific segmentation to gain market share. Also, consumers are more conscious of what they buy and eat and they are willing to pay more for better quality dairy products. In 2014, yogurt and lactose-free milk are the two fastest growing categories.
Spreadable processed cheese had the fastest growth in 2013 with 18% in retail volume terms; the most popular being cream cheese. Soft cheese remains the most popular kind of cheese in Mexico, such as Oaxaca, Panela and Fresco. There is increased consumption of aged cheeses (gourmet cheese) which are mostly imported. From January to July 2014 the U.S. exported 46,415 MT of cheese products to Mexico.
The milk category includes fluid milk for drinking, both pasteurized and UHT. The U.S. exported 18,466 MT of fresh fluid milk during the period of January- July 2014. Mexicans consume on average 365 mL of milk daily or 132 liters yearly with much opportunity to grow. Mexico is the 8th country in global consumption of milk and other dairy products after China, U.S., India, and Brazil.
Greek yogurt kept gaining popularity in Mexico during 2014 and the top dairy brands launched their Greek yogurt in the main Mexican retail sectors. Also busy lifestyles and the health and wellness trend moved sales of on-the-go yogurts, particularly drinkable yogurt. Drinking yogurt had the fastest growth in 2013, with 7% in retail volume terms. Danone de México has remained the leader in yogurt followed by Sigma Alimentos.
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.
The Post MY2015 total cheese production forecast is up slightly to 280,000 MT, reflecting increased availability of fluid milk and stable demand for aged and fresh cheeses and cheese products. The Post MY2014 and MY2013 cheese production estimates remain unchanged.
The Post MY2015 total cheese consumption forecast is marginally increased to 369,000 MT, as demand for aged cheeses is expected to remain fairly strong among high-middle and high-income consumers. Moreover, low and lower-middle income consumers will maintain their demand for fresh cheese products. The MY2014 and MY2013 consumption estimates were kept unchanged according to private sources, given the lack of official data.
The Post MY2015 cheese import forecast is expected to be flat at 95,000 MT, as fluid milk availability will allow for increased domestic production and substitute for additional imports. Post’s MY2014 and MY2013 import estimates were kept unchanged.
The Post MY2015 forecast cheese export is 6,000 MT, up from the previous year, as Mexican cheese manufacturers are enticed to expand into foreign markets, supported by increased fluid milk production. Post’s MY2014 and MY2013 export estimate are unchanged reflecting the latest official data.
The Post MY2015 butter production forecast is expected to increase around 3 percent compared to MY2014, to 195,000 MT, owing to the availability of fluid milk and sustained demand from consumers for specialized products. The Post MY2014 and MY2013 estimates were kept unchanged based on industry data.
The new Post butter and butterfat consumption forecast for MY2015 is expected to increase marginally compared to MY2014, to 242,000 MT, based on stable demand for domestic and imported product by the bakery and confectionary sectors. The Post estimate for MY2014 and MY2013 were kept unchanged.
Available year to date data does not suggest stronger import volumes over the pace of the preceding year. Therefore, the Post MY2015 import forecast for butter (HTS 040510) and butterfat (HTS 040590) is 55,000 MT, which is flat compared to the official MY2014 USDA estimate. Despite an increase in domestic production, sustained demand from the bakery and confectionary sectors, especially in the latter part of this year, will keep imports on pace with the previous year. This trend is expected to continue next year.The Post MY2014 and MY2013 import estimates were kept unchanged.
Mexican butter and butterfat exports are beginning to emerge in trade data, albeit from a small base. The volume for MY2015 is forecast higher compared to MY2014.
It is forecast that New Zealand will continue being the principal supplier of butter and butterfat to Mexico. However, during the second half of 2014, New Zealand diversified its dairy products to other markets in light of more attractive prices. Traditionally, New Zealand has been a dairy products supplier to Mexico and butter has been one of the star products. When U.S. prices are attractive, imports from the United States can rebound. This happened recently when New Zealand prices skyrocketed given an increased demand in China for New Zealand dairy products. Given that China and Russia are big players in the import market, New Zealand increased its exports to those countries. Therefore, the United States is gaining market share into the Mexican market, with this trend expected to continue in 2015.
Dairy, Nonfat Dry Milk
The Post MY2015 production forecast for Non-fat Dry Milk (NFDM) is 55,000 MT, unchanged from MY2014. As previously reported, NFDM is manufactured in substantial volumes only when production of fluid milk allows it, specifically during Mexico’s rainy season. Even with expected increases in fluid milk production next year, sustained demand by other dairy subsectors limits NFDM production growth. Post’s MY2014 and MY2013 NFDM production estimates are unchanged and based on official information from SAGARPA.
The Post NFDM MY2015 consumption forecast is set at 270,000 MT, marginally higher than the MY2014 USDA official estimate, given the sustained demand from the processing industry for the preparation of added-value products. The Post consumption estimate for MY2014 and MY2013 is unchanged.
As previously reported, industry sources state that the principal consumers of NFDM are dairy processors who reconstitute the material and sell it as pasteurized or UHT milk or for the preparation of other dairy products such as yogurts and probiotic beverages. Also, the confectionary industry continues using small quantities of NFDM in their processes.
The Post MY2015 import forecast for NFDM is slightly higher at 215,000 MT, as despite higher supply, domestic NFDM producers will have to compete with other processors, keeping domestic production flat and imports will the fill gap. The MY2014 and MY2013 import estimates are unchanged.
No exports are forecast for MY2015. Also, no exports were recorded in MY2014 or MY2013.
Dairy, Dry Whole Milk Powder
The Post MY2015 dry WMP production forecast is 153,000 MT, a 2 percent increase compared to MY2014. Although increased fluid milk production could allow a larger production increase, the dry WMP subsector will need to keep competing for this supply with others in the processing industry to produce added-value products. In addition, demand is expected to remain relatively low. The MY2014 and MY2013 estimates are unchanged.
The dry WMP consumption forecast for MY2015 is set at 160,000 MT. This is significantly below USDA’s current MY2014 estimate, due to the Government of Mexico (GOM) project to enlarge LICONSA’s coverage under its social supply of milk program. The Post MY2014 was revised significantly down from the USDA official 167,000 MT due to LICONSA’s intensifying purchases of domestic milk rather than imported dry WMP. Historically, LICONSA purchased NFDM and WMP to be reconstituted and distributed under its social program. The Post MY2013 estimate is kept unchanged.
Available year to date data does not suggest stronger import volumes over the pace of the preceding year. This trend is expected to continue. Thus, the Post MY2015 import forecast is set at 11,000 MT, the same as Post’s new MY2014 estimate. Post revised its MY2014 import estimate significantly downward. This is due to the fact that LICONSA continues purchasing domestic milk rather than importing dry WMP. Year to date data does not suggest stronger import volumes to date from New Zealand, Mexico’s usual supplier, who is now busy covering other Asian markets. Thus, the United States may be able to grow its export volumes further into Mexico. MY2013 import estimates were unchanged.
Post’s MY2015 export forecast of WMP is a stable 4,000 MT, as year to date data does not suggest stronger volumes over the pace of the preceding year. MY2014 exports are revised downward, given stable production and lower than previously expected imports. Post’s MY2013 export estimate is unchanged.
Currently, all U.S. dairy products enter Mexico duty-free.
The Mexican Government has proposed new food product labeling requirements. This is reportedly due to Mexico’s high incidence of adults and children being overweight or obese. The Mexican dairy sector is monitoring the proposal but has not highlighted any specific concerns as many industry players are uncertain about the scope of the Mexican government proposal.
The United States enjoys broad access to the Mexican market, but U.S. exports of unpasteurized milk to Mexico have been disrupted since May 2012. The milk was being exported for pasteurization in Mexico during seasonal shortfalls or periods of tight Mexican supply for processing use. The United States and Mexico are continuing to negotiate the language and review the criteria by which trade in this product can resume