March 2, 2020
Mexican poultry's steady boom – with trade interrupted & resumed
A world-leading importer fast-growing poultry market takes a trade war stumble as it unseats Japan as the world's top poultry meat importer.
By Eric J. Brooks
An eFeedLink Hot Topic
Though often overshadowed by Japan, China or Saudi Arabia, Mexico is a dynamic, world-leading poultry consumer, importer and producer. With poultry meat demand growing 3% annually, Mexico is the world's sixth-largest chicken consumer and seventh-largest poultry meat-producing nation.
Consuming over 35kg per person chicken and 1.4kg of turkey meat, poultry accounts for over 60% of Mexican meat consumption. This is far higher than the poultry consumption of developing nations with similar incomes per capita and comparable to that of developed nations. At the same time, a large expanding population, scarce arable land and trade flows made Mexico the US poultry's most important export market and the world's second-largest chicken importer –and it is currently overtaking Japan as the world's top poultry meat buyer.
To all this can be added a world-leading 23.2kg of per capita egg consumption, the highest in the world. After Mexico (358 eggs/year), only Japan (329), Ukraine (305) and China (300) eat a comparably large volume of eggs in 2019. Reflecting Mexican culture's exceptionally high dependence on eggs as a protein source, it also makes Mexico the world's fourth-largest egg producer behind only China, India and the United States, who all have much larger populations.
But what really keynotes Mexican poultry is its long history of steady, consistent growth –with one recent interruption. On average, from 2000 through 2020 inclusive, production grew by 3.0% and consumption by 3.5%, with import growth of 7.2% bridging the resulting supply-demand gap. Due to the NAFTA trade deal signed in the mid-1990s, imported chicken is 80% to 90% sourced from neighboring America. It is used almost exclusively by food processors and in some cases, fast food restaurants while domestically grown chicken meat dominates supermarket shelves.
Ever since the NAFTA was signed twenty-six years ago, there has been a tendency for chicken meat imports to rise faster than production. From a tenth of consumption in the mid-1990s, imports as a proportion of consumption grew to 19.5% by 2015, where it leveled out for a few years, before rising to a USDA estimated 20.4% of consumption this year. In 2019 87% of chicken meat imports came from the United States followed by 12% from Brazil and 1% from other nations –but these long-term trends were interrupted by trade war politics.
On one hand, from 2005 through 2020 inclusive, chicken consumption growth was remarkably steady through booms and recessions, rising by slightly over 3% throughout this time.
On the other hand, a steady deceleration in 7.6% to 8.6% annual import growth from 2005 through 2015 got a lot worse after 2015, expanding by 3.5% annually over the last five years. With imports falling short of consumption needs, domestic chicken production picked up to fill the supply gap.
From steady 2.5% annual growth in the decade prior to 2015, domestic chicken meat output has grown by slightly over 3% annually ever since. This year will see an extension of the trend, as domestic chicken meat output is projected to rise by 3.1%, from 3.60 million tonnes in 2019 to a USDA projected 3.71 million tonnes this year –except that domestic output is no longer bridging a growing gap between imports and consumption. The latter grew by 3% in both 2018 and 2019 and will expand 4% in 2020, as the new trade deal leads coincides with an economic recovery, leading to strong consumption growth.
The post-2015 deceleration in import growth was initially caused by economics; and later by politics: An oil-exporting nation, the post-2014 oil price crash squeezed Mexican incomes at a time when both domestic production and imports were booming. As domestic demand falling short of supply, import growth fell from 9.4% in 2015 to 0.1% in 2016.
Thereafter, a strong anticipated rebound in import volumes did not happen. Imports grew by only 1.6% in 2017 and 2.0% in 2018, with most of the increase coming from inflows of Brazilian chicken. This was due to America's trade war against Mexico from 2017 through 2019, which saw Mexico slap high import duties on US chicken in retaliation for America's protectionist actions.
Whenever possible, cheaper Brazilian chicken was substituted in place of US chicken, which thanks to import duties suddenly became 25% to 40% more expensive than before. As a result, after growing by 184,000 tonnes or 30% from 2012 through 2015, chicken import volumes only rose 29,000 tonnes or 3.7% from 2015 through 2018 inclusive.
Last year, NAFTA was re-negotiated into the recently passed USMCA, with aggressive US-dominated import growth resuming in H2 2019. As a result, chicken imports grew by 7.3% in 2019, to 880,000 tonnes from 820,000 in 2019, with 713,900 tonnes coming from the United States. With the economy continuing to expand and friendly trade relations restored, import volumes are projected to grow another 6.8% this year, totaling 940,000 tonnes, of which approximately 850,000 tonnes are expected to originate in the United States.
To this massive chicken meat import volume can be added a USDA estimated 167,000 tonnes of turkey meat, versus 18,000 tonnes of turkey locally grown. Unlike the faster-growing broiler meat market, turkey is a high-end, high revenue but demand inelastic poultry market niche. Over the past two decades, output and imports have stayed in the 9,000 to 18,000 tonne and 150,000 to 180,000-tonne range respectively.
Nor did turkey import volumes fall by much during the trade war, as Mexican turkey meat consumers tend to be high-end and their consumption is not impacted by import taxes. Going forward, we can expect domestic turkey production to stay in the 10,000 to 20,000-tonne range and imports to slowly climb towards 200,000 tonnes by the mid-2020s.
For now, when turkey meat is added in, it means that Mexico's total 2020 poultry meat imports exceed 1.1 million tonnes, with over a million tonnes of this total coming from the United States.
Furthermore, Mexico's large population and world-leading per capita egg consumption add an extra dimension to this internationally important poultry meat market. Growing an average of 2.8% annually since 2000 and 3.1% since 2015, Mexico's egg production continues to grow almost as fast as that of its chicken.
As the attached graph shows, despite 20 years of steady economic growth and already high per capita consumption, egg output shows no signs of leveling off. With Mexican per capita GDP at 15% of US GDP and 31% of US levels when adjusted for PPP, incomes need to rise by 30% for per capita egg consumption to stop growing and 100% before chicken consumption levels off.
Among egg's consumption's most important stimulants are recent marketing campaigns based on new scientific research. The latter implies that contrary to previously held beliefs, eggs do not play a significant role in boosting cholesterol levels or heart disease risk but are an excellent source of low-cost protein.
With consumer opinion turning in their favor, egg production is expected to grow from 2019's 2.987 million tonnes to 3.01 million tonnes this year. It's a 3.4% increase exceeds this year's 3.1% broiler meat output increase. Rising to 23.6kg this year, per capita egg consumption will finally exceed the 23.5kg peak achieved in the mid-2010s. It looks to reach at least 30kg before leveling off.
While no Mexican state produces more than 12% of its chicken meat, egg production is far more concentrated. Due to its favorable climate, the coastal northwestern state of Jalisco accounts for 54% of Mexico's egg output. It is followed by Pueblo's 17% share and Sonora's 5%, with no other state producing more than 3% of the nation's eggs. The smaller producing states tend to have a large proportion of backyard layer farms supplying smaller, irregular quality eggs while larger states have a high proportion of their output accounted for by integrators.
On one hand, at 69,000 tonnes and 2% of supplies, egg imports play a minor role in Mexican poultry compared to chicken meat imports, which account for 20% of consumption. On the other hand, while imports are not to be found in Mexican cooking, they play a vital role in the nation's poultry production.
Mexican poultry genetics are almost entirely imported, with the United States supplying at 95% or more in 2020. They are supplied to Mexico via imports of fertilized grandparent stock eggs and day-old chicks. Hence, while egg import quantities are minor and have no impact on consumption, they play an important role in sustaining the productivity of domestic broiler and layer flocks.
As was the case with broiler meat, the recent trade war made Mexico source these genetics from Brazil more than in the past. Brazil's share of Mexican egg imports peaked at 7% in 2018. With the end of trade frictions with America, the latter's productivity and transport advantages may reduce Brazilian fertilized egg imports to immaterial levels in 2020.
Going forward, after rebounding strongly over the last two years, we expect Mexico's chicken market to return to where it would be if the trade war had never happened: For the 2020s, we expect 2.5% annual increases in chicken production to be outraced by 3%+ increases in consumption, with slightly slower but still buoyant 5.5% to 6.0% annual import growth to bridge the resulting supply-demand gap.
Egg consumption can be expected to grow by 2.5% annually into the mid-2020s and by 2% thereafter, as incomes rise and consumption approaches saturation levels.
Over the long run, Mexico's importance to the world poultry market will only continue to grow. From 2000 through 2020 inclusive, Japanese imports grew 51.9%, from 721,000 tonnes to a USDA projected 1.1 million tonnes this year.
Mexican imports grew by 3.6% or nearly six times faster, from 219,000 tonnes to 0.94 million tonnes this year. When one adds in 167,000 tonnes of turkey imports, Mexico's total poultry meat imports may equal or exceed those of Japan in 2020.
The trend is obvious and clear: By the mid-2020s, Mexico will overtake Japan as the world's largest buyer of chicken meat. When turkey imports are factored in, Mexico will be buying 1.5 million tonnes of poultry meat annually by the mid-2020s –with America supplying 80% to 90% of this trade bonanza.
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