Mexico. Poultry and Products Annual. Aug 2014 Aug. 28, 2014
Minor disease issues continue to affect the Mexican poultry industry. Despite these issues, due to ongoing investments in biosecurity measures, production of broiler meat and eggs are expected to increase modestly next year. Consumption of these products, including turkey meat are forecast to continue rising, as poultry products retain their price advantage over other animal proteins.
Poultry, Meat, Broiler
Mexican commercial broiler meat production for 2015 is forecast at 3.01 million metric tons (MMT) as the sector’s ongoing consolidation, along with improved biosecurity measures, has enabled the industry to overcome the challenges of the 2012 and 2013 Highly Pathogenic Avian Influenza (HPAI) outbreaks that occurred across the country. In addition to biosecurity measures, producers continue to invest in climate-controlled houses, feed mills, poultry litter processing, mature hen focused slaughter houses, and bio-digestors. A key contributing factor to this production level is the full recovery of inventory at major progenitor houses that supply the broilers farms.
The 2012 and 2013 HPAI incidents forced the sector to modernize and implement contingency insurance to increase certainty for producers. This work is pushing production back towards historic levels. Post’s 2014 broiler meat production estimate is nevertheless revised downward to 3.0 MMT, due to ongoing minor AI outbreaks in certain contained areas. The above mentioned industry efforts, however, were largely successful at avoiding the more serious AI incidents of the type seen in 2012. Post’s 2013 broiler production estimate remains unchanged.
Poultry Sector Vigilant to HPAI. Eager To Fight Any New Avian Influenza Outbreak
As previously reported, National Poultry Union (UNA) sources continue emphasizing that the joint UNA and National Service of Health, Food Safety, and Food Quality (SENASICA) efforts to combat HPAI have been effective in diminishing the aftereffects of the 2012 HPAI outbreak. UNA and industry members acknowledge, however, that the broiler sector is not immune to potential new avian influenza (AI) outbreaks.
Feed and Biosecurity Remain the Main Causes for Rising Production Costs
Despite the recent trend of low international grain prices caused by expectations of increased world production of soybeans and corn, feed remains the greatest component of poultry production costs. Feed represents 69-71 percent of the total cost of production of poultry and eggs. In broiler meat nearly 92 percent of the cost is direct (mainly feed and chicks) while 8 percent is indirect cost. Also, the poultry sector attributes additional increased costs to strengthened biosecurity requirements. Federal fiscal reform implementation at the beginning of 2014 has led to increasing energy prices (butane and gasoline) and additional taxes. The expectation for growing production costs over the medium term will continue to result in rising consumer prices for poultry, as demand is strongly inelastic in Mexico.
UNA and the Secretariat of Agriculture, Livestock, Rural Development, Fishery and Food (SAGARPA) recently launched a contingency fund, initially valued at U.S. $2.24 million, to manage potential emergencies in the poultry sector. It is likely that this contingency fund will help offset higher biosecurity-related production costs and provide insurance in the case of new AI or other disease outbreaks.
Jalisco, Veracruz and La Laguna Area Remain Production Leaders
Official data from the Mexican Government shows little change in where broiler production is occurring. The data for 2014 reveals that the states of Jalisco, followed by Veracruz and the “La Laguna” region (northeastern part of the state of Durango and the southwestern part of the state of Coahuila) continue to maintain their positions as the leading broiler areas. In 2012 and 2013, several of the leading producing states (Jalisco, Aguascalientes, Guanajuato, and Puebla) were affected by HPAI outbreaks but the “La Laguna” region did not report any occurrences.
Seeking More Protein, Consumers Choose Broiler Meat
The Post 2015 broiler meat consumption forecast is 3.73 MMT, as it continues to be consumer’s preferred option among other higher priced sources of protein. As previously reported, private sources indicate that consumption growth is recovering and per capita consumption levels appear on the upswing. Although broiler meat prices will not be as low as in the past, it continues to be the most affordable source of protein, especially given increasing beef and pork prices. Post 2014 consumption estimate was revised downward to 3.69 MMT, due to higher broiler meat prices and the 2013 AI-related production decrease. Post’s 2013 consumption estimate is unchanged.
Despite the coverage of the HPAI outbreak and the related safety and poultry quality concerns, consumers continue seeking economically priced animal protein options for their diet, such as chicken leg quarters (CLQs) and processed chicken products.
Poultry Meat Per Capita Consumption On the Upswing
Post is forecasting sustained per capita consumption growth, albeit at a smaller rate, in 2015. This is due to the fact that poultry meat continues to be the more affordable source of animal protein versus beef and pork. Even though there is no official per capita consumption estimate for 2014, UNA reports a relatively small increase from the previous year’s consumption at 25.5 kg. UNA reports that per capita consumption increased from 15.83 kg in 1994 to 25.1 kg. by 2013.
Consumption growth continues to be possible as more consumers are exposed to more broiler meat options, despite higher prices. Dark meat remains a staple food in most low-income household whereas high-value cuts and added-value processed products are consumed by middle and upper income households. Although not necessarily broilers, markets around the country continue selling live birds.
Historically, the demand for broiler meat has been price inelastic and this pattern is not expected to change in the mid- to long-term. For the first seven months of 2013, broiler prices showed greater increases than in prior years, but for the second half of 2013, prices softened as supplies (domestic and imported) arrived to meet demand.
For the first half of 2014, broiler prices have averaged 32.14 pesos per kilogram (U.S.1.10 per lb.). CLQ’s prices have averaged 33.52 pesos per kilogram (U.S. 1.15 per lb.) UNA indicated that this price increase is due to the aftereffects of the AI outbreak in progenitors that consequently reduced the amount of chicks intended for broiler production.
Although HPAI did not directly affect broiler operations in 2013, the price changes during the first months of 2013 were attributed to the HPAI outbreaks at progenitor establishments in Guanajuato.
During 2013, broiler prices averaged 29.25 pesos per kilogram (U.S. $0.99 per lb.) while CLQ’s averaged 31.78 pesos per kilogram (U.S. $1.07 per lb.). During 2013, prices for pork and beef increased, and as such, demand for poultry meat remained strong. Pork prices averaged 34.87 pesos per kilogram (U.S. $1.18 per lb.) and beef prices averaged 47.36 pesos per kilogram (non-fine cuts at U.S. $1.60 per lb.) for calendar year 2013.
Mexico’s Main International Poultry Supplier Is the United States But Where Is Brazil?
United States exports of poultry and poultry products, including broiler and turkey meat, eggs, and hatching eggs, etc. exceeded U.S. $1.1 billion in 2012, exceeded U.S. $1.3 billion in 2013 and as of June 2014 accounts U.S. $700 million. In all likelihood, given increased prices and volumes of imported products, numbers in 2015 should surpass those of 2014.
During the first 5 months of 2014, approximately 98 percent of Mexico´s chicken and turkey imports originated from the United States. Chile and Canada continued supplying product as well. Although Mexico recently announced the opening of a tariff rate quota (TRQ) for chicken, turkey, and mechanically deboned meat for all trading partners with whom Mexico does not have an existing free trade agreement (FTA), Post does not foresee Brazil becoming a major competitor for the United States in the near-term. It will be interesting, however, to monitor developments in the market given the TRQ opening and the recent acquisition of top companies in the poultry sector in Mexico by an important Brazilian company. In the near-term, the expectation is that Brazilian exports will target the whole chicken and frozen chicken breast market, not the chicken leg quarters (CLQ’s) market covered by the U.S.
Broiler Meat for Processors and Retail Establishments
The Post 2015 broiler meat import forecast is set at 725,000 MT as demand for mechanically separated/deboned poultry meat from meat processors remains strong. Also, fast food establishments continue expanding and introducing innovative products to cover consumer demand for poultry meat. As poultry prices have remained competitive with regard to pork and beef, consumers are continuing to demand poultry products. Domestic production, although recovering, has not been able to meet supply. In addition, the Government of Mexico (GOM) continues to hold antidumping duties on U.S. CLQs in abeyance.
The 2014 Post import estimate is unchanged at 695,000 MT, based largely on expectations for domestic production that are slightly reduced from the previous estimate. Import estimates for 2013 were also left unchanged and are based on official data.
The Post 2015 export forecast is unchanged at 5,000 MT—the same as the 2014 export estimate. The 2013 export figure was left unchanged to reflect official figures.
International Markets’ Doors Still Shut for Mexican Exports
Numerous export destinations closed their doors to Mexican poultry after the mid-2012 HPAI outbreak in the state of Jalisco. Moreover, the January/February 2013 HPAI outbreaks in the states of Jalisco, Aguascalientes and Guanajuato worked against Mexico gaining international market access in new locations. Mexico’s current exports are generally limited to processed products that have received thermal treatment such as food preparations (e.g., chicken hot dogs) and egg products. Mexico has not completed the necessary requirements for equivalency in poultry slaughter nor does it have U.S. recognition as disease free for exotic Newcastle disease (END) or avian influenza (AI). These recognitions would afford it greater access to the United States and allow the processing industry the ability to use Mexican origin and Mexican slaughtered broilers.
Single Window for Trade On Its Way To Meet Expectations
Because 6 out of every 10 kilograms of animal protein consumed in Mexico are either poultry meat or eggs, the sector is of critical importance within the agro-food sector and within the Mexican government.
Mexico implemented the “New Single Window for Trade” (VUCEM by its Spanish acronym) at all border crossing points in early October 2013. The system allows brokers to electronically file documentation that accompanies cargo shipments of any and all products and was specifically intended to streamline the Customs clearance process. Trade sources report, however, that the electronic system requires more time than the previous paper system and still suffers from occasional glitches. Mexican authorities are working on improving efficiencies and are looking for ways to expedite document and product reviews. Also, they are offering informative seminars towards the complete designed to generate full implementation of the system and its acceptance by Mexican users. Acceptance of the system is gradually increasing.
Anti Dumping Investigation into Imports of U.S. CLQs
As previously reported, Mexico has chosen not to impose any duties on imported U.S. CLQs. On July 21, 2014, the GOM through the Secretariat of Economy (SE) announced the suspension of the AD Resolution Panel due to the withdrawal of a panel member. At this point, the AD process is on hold and no date for resumption is known.
On August 6, 2012, the GOM through SE announced the final resolution for the AD case on the import of U.S. CLQs and the compensatory duty levels for these imported products. However, in light of the 2012 AI outbreak in Mexico and the resulting increase in poultry and egg prices, SE determined that the compensatory duties would not be imposed until the supply and demand situation stabilized.
Mexico Authorizes Duty-Free Quota Of Poultry Meat Under Its WTO Commitments
On July 31, 2014, SE announced in the Mexican Federal Register (Diario Oficial) a duty-free import quota of 300,000 MT fresh, chilled or frozen broiler, turkey meat, and mechanically separated meat under HTS codes: 0207.13.01, 0207.14.01, 0207.26.01, 0207.26.99, 0207.27.01, and 0207.27.99 for calendar year 2014. Under NAFTA, U.S. products enter duty-free and are not subject to the TRQ.
Previously, on May 15, 2013, SE announced in the Mexican Federal Register (Diario Oficial) a duty-free import quota of 300,000 MT fresh, chilled or frozen broiler meat under HTS codes: 0207.11.01, 0207.12.01, 0207.13.03, 0207.13.99, 0207.14.04, and 0207.14.99. In February 28, 2014, SE officially announced that the original duty-free expiration date from February 28, 2014 was extended to December 31, 2015.
Under NAFTA, U.S. products enter duty-free and are not subject to the TRQ.
Mexico Recovering from HPAI Outbreaks.
Recently, the private sector has invested in AI pre-contingency measures intended to avoid the reoccurrence of outbreaks in progenitor farms. One aspect of this work is relocating farms out of the affected 2012-2013 AI outbreak areas that host most broiler farms.
As of early 2014, 700 million doses of HPAI vaccine have been issued. The SAGARPA Palo Alto Biosecurity Lab recently confirmed another H7N3 HPAI outbreak in Oaxaca. As a result, 7 breeding farms in the area were also given permission to vaccinate and SENASICA set up a preventive quarantine in the area that will be lifted upon the eradication of the virus.
In August 2013 another HPAI outbreak made the headlines when zoo-sanitary and animal health authorities from the GOM notified the World Organization for Animal Health (OIE) about the resurfacing of an AI outbreak in the state of Jalisco. This situation is reportedly under control.
Market Segments Offer Different Opportunities. Know Your Buyers Wants and Needs
In recent years, the Mexican market for poultry meat and eggs has experienced significant changes that have made an impact on what and how poultry products are imported from the United States. The recent HPAI outbreak and the consolidation of Mexican poultry production have shifted the potential opportunities from bulk business to dealing with individual companies needing U.S. product as a raw material for further processing.
Poultry (broiler and turkey) as a commodity marketed in Mexico is a mature sector with small profit margins that is dominated by local players controlling over 70 percent of the market. In foodservice, due to logistics challenges, the quality control requirements, and the overall preference for fresh products, exporters will face a difficult road, too. Not surprisingly, U.S. market share in the foodservice sector is less than 10 percent. The situation for retail is very similar. Imports, again, represent around 10 percent of the overall retail poultry meat supply. U.S. cuts had been used as a loss leader to generate store traffic; with retailers sometimes discounting prices over 50 percent so that the products were even cheaper than beans and tortillas. This practice is now changing, too.
As entry into the poultry commodity sector can be difficult for the aforementioned areas, the opportunities now rest with the meat processing sector. In the meat processing sector, both the international and Mexican industry players have concentrated their efforts in a coordinated way. Companies are seeking to expand the share of the added-value market, which, in Mexico accounts for only 3 to 4 percent of total chicken meat consumption. (Note: By comparison, this number is around 50 percent in the United States).
Demand for CLQs, mechanically separated poultry (MSP), chicken breast trimmings, whole chickens and turkey thighs and drumsticks to be processed in Mexican plants using Mexican labor advantages is growing. This opportunity is also being targeted with educational efforts and industry coordination. As such, the meat processing industry is seeking to make new, innovative, healthy, ready-to-eat products, which in turn represent more opportunities for U.S. origin poultry raw materials. Additionally, price-sensitivity is reduced by the added-value process, since meat is combined with food ingredients and other fillers.
With eggs, the market opportunities are different. U.S. egg imports are being sought to help stabilize supply and prices. Nevertheless, U.S. eggs may have some cache as in some regions like northern Mexico. U.S. eggs are recognized as high quality products. U.S. eggs have the opportunity to be positioned in said markets as a niche product. Moreover, processed egg products are also being seen as a high quality and readily accessible product for food manufacturers relying on the convenience, affordability, and consistent quality of U.S. supplied materials.
Upcoming Trade Shows and Promotional Opportunities
Marketing and promotional activities are very common in Mexico as the country is considered a strategic market by the U.S. poultry industry. U.S. suppliers and exporters can access information and assistance useful for approaching the Mexican market through two Agricultural Trade Offices (located in Mexico City and Monterrey) and by local offices of the USA Poultry and Egg Export Council (USAPEEC). U.S. exporters should seek to meet with potential Mexican partners in the retail, foodservice and food processing industries by participating in shows like Expo Carnes (late winter or early spring 2015 in Monterrey), ANTAD (2015 in Guadalajara) ABASTUR (September 2014 in Mexico City) and other conferences, seminars, and industry-related events.
Poultry, Meat, Turkey
Post’s 2015 commercial turkey meat production forecast is 10,000 MT. This represents marginal growth over Post’s 2014 revised production estimate given that producers have little incentive to expand production and have actually contracted since 2012. Post’s 2013 production estimate of 10,000 MT remains unchanged.
As previously reported, producers find the production system for breeding, growing, slaughtering, and further processing extremely challenging with little incentive to increase production, as products compete with imports and producers have only a seasonal period when their products are consumed as whole turkeys. However, a few producers are investing in the repopulation of breeder farms in an effort to slowly bring back turkey production to better levels, and consequently, generate better income.
In Mexico, the growing period for gobblers and hens remains 15 and 13 weeks, respectively. During the first 5 weeks, jakes and jennies are kept in temperature and light controlled houses. After this period, turkeys are taken to outdoor pens until desired weights are reached. Gobblers are slaughtered at an average weight of 12 kilograms while hens are slaughtered at an average weight of 9 kilograms.
Industry sources report that approximately 60 percent of turkeys are sold raw for processing while the remainder is produced for more intensive manufacturing, cutting, and smoking.
New Consumption Patterns To Break Traditional Mexican Seasonal Consumption Patterns?
As previously stated, the domestic consumption of whole or smoked turkey continues to be seasonal, so imports of mechanically separated/deboned turkey meat, either chilled or frozen, to prepare deli meats and related products is anticipated to continue growing. Consumers appear to prefer some of these products, which are considered to be healthier and lower in fat content than other deli meats. Whole turkey is still consumed on a seasonal basis or in regional festivities.
The Post 2015 import forecast is 167,000 MT, which is marginally higher than the Post 2014 revised estimate of 166,000 MT. The 2015 forecast is based on sustained demand from domestic processors who cannot source ample supplies (e.g., mechanically separated meat and turkey legs) from domestic production. Import estimates for 2014 were adjusted upwards based on current trade trends and slightly lower domestic production. For 2013, import figures were revised upward to reflect updated official data.
The Post new 2015 export forecast is 1,000 MT which has been stable for the past several years. The United States is the largest export destination for these products, most of which are based on turkey meat imported from the U.S. and processed into added value products under HTS 1602.31. Post’s 2014 and 2013 Mexican turkey meat export estimates are unchanged.
The Post 2015 Mexican table egg production forecast is 2.6 MMT. Sources report that despite the occurrence of small AI outbreaks in specific areas, Mexico is producing 108 million boxes (containing 360 eggs) on an annual basis. Moreover, UNA believes that the domestic flock is fully recovered after AI incidents and thus, so is the production of eggs. Eighty percent is sold in bulk while the remaining 20 percent is packaged for retail consumption.
Egg producers continue struggling with implementation of appropriate biosecurity measures. Sources suggest that manure management and facility access are two areas receiving special attention.
Even though there is no significant difference in nutritional content, brown eggs are historically more expensive than white eggs due to the perception that they are of better quality and higher protein content.
UNA Reports That Egg Production Is Fully Recovered
UNA’s preliminary estimate for 2014 egg production is 2,559,537 MT, 2 percent greater than the 2013 final production figure of 2,509,350 MT. This is due to the ongoing successful Mexican industry efforts to repopulate farms. The early 2014 UNA expectation that future egg product growth will be about 2 percent per year now appears to be correct. UNA stated that, provided the non-occurrence of any new AI outbreak, 2015 egg production will show the same growth pattern as 2014, given that Mexico is considered a mature market.
According to the National Service of Market Information (SE/SNIIM) egg prices are more stable, ranging between 23 and 24 pesos per kilogram for most urban centers and have been stable since the last quarter of 2013. Although now stable, egg prices are not expected to return to the lower levels seen prior to the AI outbreak. Egg prices climbed sharply at the beginning of 2013 as Mexico struggled with HPAI outbreaks at progenitor establishments around the country.
In 2011, per capita annual egg consumption was 22.4 kilograms (approximately 330 eggs) per person. Per capita consumption reportedly dropped in 2012 to about 20.8 kg as the HPAI outbreak led to higher egg prices and even product scarcity. In 2013, however, there was some recovery for prices and supplies as per capita annual egg consumption grew to 21.7 kilograms. Preliminary figures indicate that 2014 per capita consumption will increase marginally to 21.9 kilograms. For 2015, it is expected that per capita consumption will return to 2011 levels. Stable prices and the full recovery of layer bird numbers, however, will play a key role in this achievement.
Post forecasts that imports of both table eggs and egg products should remain strong through the remainders of 2014 and 2015 as high income earners and processors continue demanding high-quality U.S. eggs, at least until domestic production is able to meet their demand. According to UNA data, Mexico imported 45,254 MT of table eggs and11,044 MT of liquid and dry egg products in 2013. As of May 2014, data shows that Mexico has imported 25,099 MT of both table eggs and egg products. Mexican firms have been importing U.S. eggs to help meet Mexican demand for table eggs as well as eggs for breaking/processing use.
Export Markets for Eggs is Still Limited
Mexican egg exports decreased due to supply limitations and the closure of foreign markets. As of today, Mexican egg and egg product exports are only permitted if they are pathogen free or have received a thermal process.
U.S. Authorities and Certifications for Eggs and Related Items Update
Post continues working to explain to Mexican authorities the differences in regulatory authority and the certification ability of U.S. government agencies with oversight for eggs, egg food products, and processed eggs. Hatching eggs are under the authority of the Animal and Plant Health Inspection Service (APHIS), processed egg products like egg whites, yolks, and albumin under the authority of the Food Safety and Inspection Service (FSIS), table eggs under the authority of the Agricultural Marketing Service (AMS), and egg food products like hard boiled eggs or frozen egg omelets under the authority of the U.S. Food and Drug Administration but certified for Mexico by AMS. More recently, adding food preparations (including egg or egg products) into the list of products that are overseen either by FSIS or AMS