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October 24, 2019

EU Picking Up Dairy Market Share in Mexico

 |  By: Fran Howard

The United States has been losing dairy market share in Mexico, in part due to a revamp of the  EU-Mexico Global Agreement. Even so, the U.S. dairy industry will continue to be the top supplier of products to Mexico going forward, and Mexico will continue to be dependent on significant volumes of imported dairy products to meet consumer demand, according to Monica Ganley, principal at Quarterra, an agricultural consulting firm in Buenos Aires, Argentina, and an analyst for the Daily Dairy Report. Last year, the United States exported about $1.4 billion worth of dairy products to Mexico, making the country the top market for U.S. dairy exports in 2018. 

“Although a strong trading relationship clearly persists between the United States and Mexico, trade conflicts and shifting global dynamics have created some destabilizing forces,” says Ganley. “While the United States will continue to enjoy significant advantages in supplying its southern neighbor, pressure from alternative suppliers will continue to mount.”

At the same time the U.S. dairy industry faces more competition in Mexico, demand for overall dairy imports in Mexico is slipping, due to both the county’s economic situation coupled with expansion in local milk production. “Anemic manufacturing activity and stagnant output is weighing on demand for dairy products,” Ganley says. “And this has weakened the Mexican peso, making imports relatively more expensive for Mexican consumers.” In the first half of this year, Mexico’s economy barely escaped a technical recession. Since then, economists have downgraded their forecasts for Mexico’s GDT growth to less than 0.5%.

Skim milk powder (SMP) and nonfat dry milk (NDM) combined is Mexico’s top dairy import category, and imports of SMP/NDM through August are 1.7% below the prior year in volume terms. Historically, SMP/NDM combined have accounted for about half of all dairy products shipped from the United States to Mexico. “The United States is unquestionably Mexico’s key supplier of these products, aided by preferential tariff treatment and logistical proximity,” says Ganley.

Last year, Mexico imported just over 360,000 metric tons of SMP, and 96.7% of those imports came from the United States. But U.S. market share of those imports has slipped in 2019. Through August, the U.S. share of Mexico’s 2019 imports of SMP/NDM declined to 89.4%, says Ganley. “European countries have been picking up the balance,” she notes. “In particular Spain, which hadn’t sent any powder to Mexico since 2017, now boasts a 4.3% market share.” Poland and the United Kingdom have also attained share of the total market, with 2.4% and 1.5%, respectively, she adds.

“Trade between the European Union and Mexico is likely being bolstered by an update to the prevailing trade agreement between the two entities,” Ganley says. “This is in sharp contrast to the trade relationship between the United States and Mexico, which seems to be more contentious than ever.”

The decline in Mexico’s cheese imports has been even more severe than the drop in SMP/NDM imports, but the United States has managed to retain cheese market share in Mexico. During the first eight months of this year, Mexico imported about 76,900 metric tons of cheese, down 10.1% compared to the same period last year. Mexico’s cheese imports from the United States were down only 0.5% percentage points, from 78.3% for full-year 2018 to 77.8% through the first eight months 2019, according to Ganley. The EU share of Mexico’s cheese imports also remained steady at about 11%, she adds.

“At the same time Mexico’s dairy imports are declining, milk production in Mexico has reached record levels,” Ganley says. “Even though volume increases have slowed in recent months, year-to-date milk production through September is 2% ahead of the comparable period last year, with particularly strong growth coming from Jalisco, Mexico’s top milk-producing state.”

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