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April 27, 2017

Mexican Export Market Now At Risk

 |  By: Bloomberg News

Even as the Trump administration jousts with Canada over its latest trade dispute, it might want to keep a closer eye on Mexico, America’s No. 1 one dairy importer. Its southern neighbor, which figures prominently in the U.S. government’s crime and immigration rhetoric, spent almost twice as much money as Canada did on U.S. dairy in 2016. That’s $1.2 billion.

Now it appears Mexico is looking for new trading partners.

In the first two months of 2017, Mexico increased its imports of skim milk powder from the European Union by 122 percent over last year, according to the EU Milk Market Observatory (as first reported by the Irish Farm Journal). Mexico has also been exploring talks with dairy powerhouse New Zealand. That country’s trade minister visited Mexico City in February to discuss a potential trade deal. 

Why the moves by Mexico? In a word: Trump.

“Mexico is looking to make sure they have market alternatives because of the rhetoric from the U.S. on renegotiating NAFTA,” said D. Scott Brown, who teaches agricultural and applied economics at the University of Missouri, referring to the North American Free Trade Agreement. “This may be an opportunity to find other places for skim milk powder.” Rabobank also reported that tensions between the U.S. and Mexico are the reason for Mexico’s changing dairy purchasing strategy.

The U.S. Dairy Export Council (USDEC), led by former Secretary of Agriculture Tom Vilsack, is stressing the importance of U.S. dairy to Mexico. “We all have an opportunity and a responsibility to maintain and strengthen relationships with those that we work with in Mexico, to reassure them that we’re going to continue to be open for business,” he said at the Dairy Forum in late January. “The relationships at the ground level, at the grass-roots level, can oftentimes overcome any stormy seas that might be created by comments coming from Washington.”

But the surge in imports from the EU could signal a changing dairy landscape.

“We’re still seeing strong exports from the U.S.,” Laine noted, “but it does make people nervous, makes the markets nervous, even though there’s no policy changes yet.”

And it’s not just the NAFTA talk. Demanding that Mexico pay for a border wall and taking a hard line on immigration likely have an impact, too. “It’s probably some combination,” Laine said. “I think some of the rhetoric early on, that’s what shook up the markets initially. Concerns around NAFTA and trade are what’s keeping the markets worried.”