August 3, 2018
Mexico's dynamic and highly egg-centric poultry sector
A top poultry producer, consumer and importer keeps growing rapidly amid rapidly shifting trade flows. A unique culture that keeps egg consumption expanding even at high-income levels.
By Eric J. Brooks
An eFeedLink Hot Topic
While it does not get as much publicity as top exporters like America or leading importers like Japan, Mexico ranks among the world's top producers, consumers and importers of poultry products. The seventh largest broiler meat producer is also the second largest chicken meat importer (after Japan). With a population only 10% that of China or India, Mexicans also rank among the world's largest consumers of eggs, both in absolute terms and with a world leading annual per capita consumption of 23.6kg.
With a per capita GDP only 15% of neighboring America's, Mexico's protein consumption is growing several times faster, led equally by both eggs and chicken meat. Its growing population, strong GDP growth and scarcer feed have made it rely on first America, and more lately Brazi. The past 20 years have seen 4.6% increases in chicken consumption outstrip a respectable 4.0% annual growth in broiler meat output.
While broiler production is decentralized throughout the country, 54% of output and the operations of integrators are concentrated in the following states which encircle the Mexico City capital region: Veracruz (12%), Aguascalientes (11%), Queratero (10%), La Laguna (9%), Jalisco (8%), Guanajuato (6%). Poultry genetics are dominated by Ross, Cobb-Vantress and Hubbard lines, with much grandparent stock imported from America and Brazil. Various ratios of colored feed corn and dyes are put into broiler rations to ensure that chicken meat has a culturally preferred yellowish tint.
While the years since 2014 have seen Mexico's oil-powered economy slow down, its large manufacturing base minimized its impact on chicken consumption. In the five years since 2013, production and consumption have both risen by 3.8% annually, with imports rising 4% annually. After rising 3.3% from 2016's 3.275 million tonnes to 3.383 million tonnes last year, broiler meat output is expected to rise a USDA estimated 3.5% in 2018 (to 3.5 million tonnes) and 2.9% in 2018.
With consumption rising at nearly the same pace as output, the gap between supply and demand is bridged by growing import volumes. They grew by an average of 7.9% annually and by 3.9% since 2013, when Mexican income growth slowed down. From 181,000 tonnes in 1998, they flattened out at 790,000 tonnes in 2015 and 2016, when the oil crash price chilled its economy. As a proportion of consumption, imported chicken increased from 10% in the late 1990s to approximately 20% this year.
Oil prices are now rebounding and with them, both disposable income and chicken meat imports. From 791,000 tonnes in 2016, imports resumed growing, to a USDA estimated 804,000 tonnes in 2017. With Mexico's economic recovery gaining speed, the USDA expects them to rise 3.2% to 830,000 tonnes.
–But with Mexico putting a hefty import tax on US pork but not US chicken, domestic swine meat prices have moved upwards. This is motivating consumers to substitute chicken in place of pork faster than poultry integrators can adjust to the demand shift.
In fact, even before Mexico's pork import tariff was imposed, January to April chicken meat import volumes were 6% of last year's pace. Hence Mexico's 2018 chicken meat imports appear more likely to total around 850,000 tonnes and rise 5.5% to 6.5% from 2017 levels.
Going forward, Mexico chicken meat imports should resume growing by 4%+ annually and exceed a million tonnes by the early 2020s, possibly rivaling those of Japan. At the same time, the sourcing of Mexico's chicken meat imports is gradually diversifying.
Before 2015, 95% to 99% of Mexico's broiler meat imports arrived in duty-free from NAFTA trade partner America, with small, immaterial shipments from Canada, Chile or Brazil. On one hand, Mexico never imposed a tariff on US chicken meat the way it did on imports of American pork or cheese.
On the other hand, in 2013, Mexico established a 300,000-tonne tariff-free quota for imports of poultry meat from countries which it did not have an existing free trade agreement. Brazil took immediate advantage of this trade liberalization to exponentially expand broiler meat exports to Mexico.
As a result, the US has gone from providing 98% of Mexico's chicken meat imports in 2013 to 86%. Brazil's share of chicken meat imports has risen from 0% in 2013 to 12% (96,480 tonnes) in 2017, with Chile accounting for almost all the remaining 2%. Over these same five years, US broiler meat exports have flattened out. After rising 273% from 1998 (179,000 tonnes) to 2013 (668,400 tonnes), they increased a mere 3.4% over four years, to 691,400 tonnes in 2017.
January to April statistics indicate that Brazilian chicken meat shipments are running about 25% ahead of last year's pace. Conservatively speaking, this implies Brazil's 2018 chicken exports to Mexico will total 120,000 tonnes for the first time, giving it a 14% share of Mexico's broiler meat imports. Assuming Chile and Argentina maintain their portion of the market, US broiler meat imports to Mexico will flatten out in the 680,000 tonnes to 690,000-tonne range. Its share of Mexico's chicken imports will fall further to around 80%.
Will this trend of Brazil gaining a larger share of Mexican chicken consumption continue? No one knows: Right now, America is re-negotiating NAFTA with Mexico. On one hand, Mexico could agree to make it more difficult to import chicken from non-NAFTA countries like Brazil. On the other hand, if negotiations break down and Mexico puts a 25% tariff on US chicken, Brazil could supply 50% of its chicken imports in 2020. –All that is certain is that with per capita chicken consumption at 32kg, Mexico's chicken production, consumption and imports can grow by 3% to 5% annually for at least another two decades.
Unique culture keeps world leading egg consumption growing rapidly
As is the case in many developing countries, Mexico's egg consumption is increasing almost as quickly as its chicken consumption. For climate reasons, egg production is not dispersed the way chicken production. 55% of Mexico's eggs are produced in its central west coast state of Jalisco which along with the southern states of Pueblo (13%), Yucatan (5%). Together with the US bordering Sonora (8%) state in the north, these regions produce 81% of the country's eggs.
Since 1998, egg consumption's 3.7% annual increase has almost kept pace with an annual 4% rise in chicken meat consumption. The last five years have seen egg output expand 3.6% annually, compared to 3.8% for broiler meat. Only China (295 eggs per year), India (62) and America (247) produce more eggs than Mexico, but no nation comes close to its annual 358 eggs per year capita consumption.
That is significantly higher than the 13kg per capita egg consumption of wealthy countries and less than 10kg in developing countries. This is due to Mexican culture, which also insists on an intensely orange colored (and feed engineered) egg yolk usually achieved via supplementation of carotene or lutein-rich feed inputs and in some cases, dyes.
Unlike other societies where they are considered a regressive poor man's food, egg-based cuisine spans across all Mexican social classes, with the rich consuming more eggs than the poor. Alongside their traditional hearty egg-rich breakfast, Mexicans use eggs in a large variety of everyday food dishes including tacos, chilaquiles, molletes con huevo or mahaco con huevo.
Eggs also are used in a wide variety of traditional baked goods, as well as in more modern additions, such as exceptionally high mayonnaise consumption. –All this makes Mexico a special case where despite existing high consumption levels, egg demand will not level off any time soon but continue growing strongly.
After rising 3.5% from 2.72 million tonnes in 2016 to 2.83 million tonnes this year, the USDA anticipates 2018 production and consumption rising another 6%, to 3.0 million tonnes. Going forward, as is the case in China with pork, high aggregate demand hides large disparities between rural and urban egg consumption, especially with respect to processed foods that use them. With urban dwellers continuing to push up their egg consumption as incomes rise and rural residents doing so even more quickly, there appear to be at least two decades of above 3% annual growth in egg consumption.
Finally, unlike chicken, Mexico's layer sector has production roughly equal to consumption, with immaterial import volumes. While imports equaled 2% of 2017 output, none of them were used as table eggs by consumers or restaurants for two reasons.
First, imported eggs lack the orange yolk shade which would make them culturally acceptable. Second, most egg exporting countries wash their eggs, which makes it necessary to refrigerate them. In a nation that where many retailers traditionally keep eggs out in the open and millions do not have access to refrigeration facilities, that makes it impossible to market imported eggs for everyday consumption.
Hence, most of the 50,000 to 100,000 tonnes of eggs imported annually are pre-processed, preserved and used by bakery or confectionary sector food processors. A large proportion of imports also consist of hatching eggs used to replenish grandparent layer and broiler stock.
In 2017 it imported nearly US$150 million of hatching eggs used to boost poultry genetics and replenish broiler and layer flocks. The USDA estimates that 93% of these hatching eggs were imported from the United States, 6% from Brazil, with the remaining 1% originating in Canada, France or Spain. While trade agreements may alter the quantity or type of eggs imported for food processing or flock improvement purposes, they are expected to remain at 1% to 3% of output and used in specialized, non-consumer niche roles.
Going forward, Mexico's tattered trade relations with the US make it difficult to ascertain which nation's poultry sector stakeholders will capitalize on the Mexican market's unique broiler and layer. America could strong arm itself better access to Mexico's large, fast-growing poultry sector. Or Mexico could retaliate and give a large proportion of its broiler meat, processed eggs and poultry genetics import to Brazil and a constellation of European countries.
What is certain is that trade tensions have focused the attention of poultry sector technology suppliers on this exceptionally large, culturally unique and frequently overlooked NAFTA market. With China's once lucrative poultry sector stalled, industry suppliers from Canada, Europe and Brazil are paying close attention to Mexico's dynamic broiler and layer markets.
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