mexico
September 11, 2019

Mexico’s Slowing Economy Not Good for U.S. Dairy Exports

 |  By: Fran Howard

In the first half of this year, the United States’ largest foreign market for dairy products, Mexico, barely escaped a full-blown recession, defined as two consecutive quarters of negative growth. Along with several other major world economies, Mexico’s economy continues to struggle. In early September, the central bank of Mexico said the country’s economy still faces headwinds.

In the first quarter of this year, gross domestic product (GDP) in Mexico, Latin America’s second-largest economy, declined 0.2%, compared to the same quarter in 2018, but second-quarter GDP grew slightly, up 0.1%, from second-quarter 2018. 

Despite being positive, second-quarter GDP growth in Mexico was a notable downshift from Mexico’s second-quarter 2018 GDP growth of 2% and average second-quarter growth of 2.7% recorded from 2011 to 2018, according to Sarina Sharp, analyst with the Daily Dairy Report. 

“The first-quarter contraction marks the first year-over-year decline in more than a decade, and an economic softening in Mexico bodes ill for U.S. dairy exports,” Sharp says. Last year, she notes that Mexico purchased nearly twice the volume of dairy products than China bought. China is the United States’ second-ranked foreign buyer of dairy products. 

“Not only does Mexico hold the top slot overall in terms of dairy product purchases, but Mexico is also the largest foreign market for most individual categories of U.S. dairy exports including cheese and curd, condensed and evaporated milk, milk powders, fluid milk and cream, yogurt, butter and milkfat, and ice cream,” Sharp says.
Softening consumer demand in Mexico appears to be having an impact on the country’s dairy imports. According to Global Trade Atlas data, in the first half of this year, Mexico imported 57.2% less cheese than it did in the first half of last year, and 17.3% less nonfat dry milk (NDM) and whole milk powder (WMP) combined. However, she adds that U.S. trade data suggest that the milk powder deficit could be smaller, with year-to-date U.S. NDM exports to Mexico only 3.6% below the prior year. 

Economic downturns tend to hit low-income families the hardest, along with their buying power. According to the World Bank, nearly 43.6% of Mexicans lived in poverty as of 2016, the latest figures available, down from 46.1% in 2010. However, the overall number of people living in poverty in Mexico has increased by 1.52 million people, from 54.07 million in 2010 to 55.59 million in 2016.

“In addition to softer consumer demand in Mexico, much of the drop in Mexico’s NDM/SMP imports has been due to the collapse in shipments to Venezuela,” Sharp says. Combined, SMP and WMP exports from Mexico to Venezuela sank to less than 2 million pounds for the first six months of 2019.

“The decline in Mexico’s milk powder exports to Venezuela was a stark decline from the 199 million pounds Mexico sent to Venezuela in the January through June period last year—roughly half the volume of U.S. NDM exports to Mexico in the same period in 2018,” Sharp notes. “Even if the Mexican economy were to shake off its current soft patch, exports of U.S. and Mexican milk powders to Venezuela would likely remain depressed until diplomatic ties improve.”

Other major economies that flirted with recession in the first half of 2019 include Germany, the United Kingdom, Italy, Brazil, Argentina, Singapore, Russia, and South Korea, another important market for U.S. dairy products.
 

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