USDA GAIN: Dairy and Products
21 May 2012
USDA 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.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.
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