November 1, 2017

Will U.S. Keep Market Dominance in Mexico?

 |  By: Mike Opperman

The U.S. and Mexico remain significant trading partners. In 2016, the U.S. sent $1.2 billion worth of dairy products south of the border. That makes Mexico Customer No. 1 to the U.S., and the U.S. Supplier No. 1 to Mexico. But how long will it stay that way?

Mexico is becoming more self sufficient. According to a USDA GAIN report, domestic production continues to grow thanks to more and better cows. Cow numbers continue to go up, and Mexico continues to import better genetics primarily from the U.S. However, herd sizes are still small, with more than 75% of dairy farms with less than 30 cows. But 30% of the milk comes from herds 300 or larger. 

But there is still a long ways to go. While milk quantity grows, producers still struggle with milk quality. That includes on the farm and at the plant. Getting cold, quality milk from the farm to the processing facility can be an issue, especially if the processing facility is not local, according to the GAIN report. 

Moving toward supply diversity. While the U.S. is by far the number one supplier of dairy products to Mexico, there are signs that the dominant market share is dwindling. 

  • Uncertainty over the renegotiation of the North American Free Trade Agreement (NAFTA) has caused Mexico to identify other potential sources. However, cost and ease of transport puts the U.S. in a strong position. 
  • Market share for U.S. cheese dropped from 73% in 2015 to 68% in 2016, due primarily to more imports from the EU. According to the GAIN report, renegotiation of the EU-Mexico free trade agrement will allow the EU market share to grow. It's important to note that Mexico remains in a battle with the EU over geographical indicators on cheese, and the Mexican government continues to battle those cheese name associations. 
  • While total imports of skim milk powder (SMP) from the U.S. grew by 16% from January to July 2016, market share dropped from 92% to 85%. That was replaced by imports from Spain and Canada, which grew significantly over that time period. 

For a look at the full GAIN report, click here