Mexico beef industry expanding – but is this good for business?
As the world's sixth largest producer of beef (behind Brazil and Argentina in Latin America), Mexico produced 1.9 millions tons of beef carcass weight in 2017 and represented 2.6% of global production, according to Rabobank. So far this year, beef production was on the rise in volume terms, up 2.6% in Q1 compared to last year, and set to increase further if drought conditions continued, according to Rabobank's Beef Quarterly Q2 2018 report.
“Mexico is currently going through an expansion, meaning beef cow retention is growing since 2016, which has lead to more heads available for slaughter,” said Andrick Payen, food and agribusiness analyst for Mexico at RaboResearch.
Payen told FoodNavigator-LATAM drought conditions had also contributed to earlier slaughter and therefore increased production rates in the country.
In the long-run, he said this would be negative for the market because of reduced overall cattle numbers but in the short-run it could reduce domestic prices and increase consumption.
Strong but 'price sensitive' domestic market
Every year, Mexico exports just 15% of its beef production, primarily to the US but also markets like Japan, Canada, South Korea and Hong Kong and the rest is consumed domestically.
However, Payen said domestic beef consumption had been in decline in recent years, “mainly driven by beef prices increasing rapidly”. The majority of beef consumed in the country, he said, was lower value cuts as most consumers were priced out of eating any higher value cuts available.
“However, given a current expansion in beef production, beef consumption has begun to slowly increase but remains sensitive to price increases and competition from other proteins,” he said.
Prices had, in part, increased due to input cost increases like feed, Payen said, and would continue to rise over the coming months if drought conditions persisted and cattle carcasses sold for less.
Export decline...
A decline in exports, however, could potentially tip the balance, he suggested. In Q1 this year, beef exports to the US were down 16% on the previous year and total global exports of Mexican beef were predicted to drop from 305,000 tonnes (carcass-weight equivalent - cwe) to 298,000 tonnes cwe this year, according to Rabobank's report.
Payen said exports to the US were down because US beef prices were“declining rapidly” as this market also expanded, so the desire to import Mexican beef that was considered discount or “lower quality” was not as strong.
Given the importance of the US market for Mexico – in 2017, the US imported 87% of its beef exports – he said Mexico would have to try and find another market to sell its beef into if declines persisted. Should that not happen, due to market conditions like prices, he said beef would end up staying in the domestic market which would increase availability and in turn reduce domestic prices.
More to be done
However, beyond trying to improve domestic consumption and target new export markets, Payen said for Mexico to secure strong future growth in its beef category more had to be done at supply chain level.
He said that whilst Mexico was currently in the process of introducing a grading system for its beef quality and “important advances” in industry had already been made, including federally-inspected slaughter houses gaining zoo sanitary recognition abroad and overall production intensifying, industry continued to “face some challenges”.
The most important one, he said, was at cow-calf level with insemination rates low. This, Payen said, prevented the domestic market from increasing cattle availability which, in turn, constrained the amount of cattle being produced.
