Throughout the 20 years since the signature of the North American Free Trade Agreement (NAFTA), the Mexican poultry industry has made significant advances in poultry meat and egg production. Prior to the agreement’s signing, Mexico’s poultry producers association, UNA, commissioned a study which found that the poultry industry in the U.S. was far superior to that of Mexico. Today, however, while significant differences remain, the differences between the two have been reduced.
Before NAFTA came into force, Mexico was already an attractive market for U.S. poultry producers. Over the period 1985-2004, for example, U.S. exports of chicken meat to the country grew 29-fold, while there was a 6-fold increase in sales of table eggs. Sales of U.S.-produced turkey meat in Mexico doubled over the period.
The Mexican government operated strict import controls, but these, however, often resulted in poultry products entering the country illegally.
As part of the NAFTA agreement, two tariff reduction mechanisms were established for poultry products.
One was under a General Agreement on Tariffs and Trade type agreement for chicken and turkey meat products, while the other was a gradual reduction in tariffs over 10 years for eggs, in addition to tariff-free quotas for the three products. These quotas were set with reference to previous imports and came with an annual increase of 3 percent. The quotas covered mechanically removed meat, turkey meat and poultry meat cuts.
Tariff exemption for poultry industry inputs
With NAFTA’s entry into force, various inputs for poultry producers became tariff free, principally equipment, machinery and soya. An additional benefit was access to inputs via quotas, for instance, for corn, fertilized eggs and day-old chicks. Other items, such as parent stock, were given a reduced tariff. For yellow corn, an initial quota of 2.5 million tons was set with a tariff of 215 percent, and gradual removal over 15 years.
The agreement has seen a significant increase in feed ingredient imports, with grain and oilseed imports rising from 5.8 million tons in 1994 to 9.5 million tons in 2013, representing an average annual increase of 2.6 percent.
Mexican poultry market
Various investments have been made by the Mexican poultry meat industry to raise competitiveness and to improve quality, so helping to differentiate Mexican products in the market. Consequently, the poultry meat sector has shown more dynamism than the egg sector.
Last year, total Mexican poultry production stood at 5,425 million tons. Of this total, 53.6 percent came from chicken meat, 46.3 percent came from eggs, while the remainder comprised turkey meat. Mexico is now ranked the fifth largest poultry producer in the world.
The contribution to the national economy is among the highest in the agricultural sector, contributing 0.88 percent to overall GDP, 26.12 percent to agro-industrial GDP, and 42.77 percent to livestock GDP.
Since the introduction of NAFTA, the overall poultry sector has outperformed Mexico’s other livestock sectors. In 1994, poultry meat production stood at 1.38 million tons. With an average annual growth rate of 4 percent, by 2013, this figure had risen to 2.9 million tons. Over the tariff reduction period – 1994-2003 – that annual rate of growth was even higher, averaging 5.8 percent.
In 2002, however, on the eve of market liberalization, the industry needed, and was granted, protective measures for chicken legs and thighs, and these measures remained in force until 2007. Over the period, production increased by 4 percent per annum, however it has subsequently slowed to an average of 0.4 percent each year.
Production of table eggs rose from 1,461,150 tons in 1994 to 2,522,428 in 2013. Over the period of tariff reduction, the average annual growth rate stood at 3.9 percent, however, under the free market the annual rate of growth declined to 2 percent.
Trends affecting the industry
The Mexican poultry industry has not been isolated from the changes that have occurred in other markets, such as the development of new products, the introduction of added value products, concentration of the industry and the adoption of contract farming.
Between 1996 and 2012, for example, the number of poultry companies operating in Mexico declined from 420 to 325. Mergers over the period numbered 95.
The number of contract farming agreements has increased. Through these agreements, small- and medium-sized businesses have been able to continue operating.
The various financial crises of recent years had varying impacts on the sector. For example, the downturn of 1995 had a great impact on demand because of additional climatic factors. The latter hit production of feed crops, meaning that the industry had to import feed crops at a higher cost exacerbated by unfavorable exchange rates.
In 2009, the main impact was on production. For the livestock sector, again the cost of raw materials was affected, with a reduction in tariffs and exchange rate volatility. And in response to these crises, the government adopted strategies to guarantee food at affordable prices, even if this came at a cost to producers.
Growing role of imports
Mexico is now the main destination for U.S. poultry exports. According to figures from the U.S. Department of Agriculture and USA Poultry & Egg Export Council (USAPEEC), the U.S. exported poultry products worth US$1,266 million to Mexico in 2013, an increase of 16.7 percent of 2012.
Poultry meat imports
Between 1994 and 2013, Mexico’s imports of poultry products grew at double the rate of growth in the market – increasing on average by 8.4 percent annually.
In 1994, chicken meat imports stood at 83,636 tons, but by 2013, they had grown almost five-fold to stand at 390,000 tons, with the majority of product being legs and thighs.
Over the past three years, imports of breast fillets also have been increasing. In 2011, Mexico imported 45,176 tons of breast fillets from the U.S. By 2013, this figure had risen to 69,000 tons.
Eggs and egg products
In 2003, imports of eggs and egg products for human consumption stood at 1,117 tons. Of this total, 55.7 percent corresponded to liquid egg products, 42.8 percent to dried egg products, and only 1.5 percent corresponded to table eggs. Ten years later, however, with the impact of avian influenza, the situation was the opposite.
Last year, table eggs accounted for 80.4 percent of the total, liquid eggs for 19.1 percent and dried egg products 0.5 percent.
Mexico’s poultry exports suffered a dramatic 30 percent reduction last year in comparison with the year before, which had already felt the effects of avian influenza, to stand at 11,649 tons, with a value of US$26.8 million.
Looking further back to 2011, the country exported 27,326 tons of poultry products, worth US$45 million. Since 2008, exports from the country have risen by 24.5 percent in volume terms and by 14.7 percent by value.
By volume, the main export products were chicken meat, which accounted for 36 percent of the total, table eggs, accounting for 26 percent, and further processed products, accounting for 20 percent. The majority - 72.1 percent - was sent to countries with which Mexico does not have trade agreements. In 2013, however, the main destination was for countries with which Mexico does have trade agreements and products included, for example, processed products using meat produced in Guatemala for export to the U.S.
Flock health issues and slow accreditation of establishments for exports have been the main brakes on exports.
Mexico’s animal health authorities and UNA have worked hard to gain recognition of disease-free zones within the country to facilitate exports. Additionally, UNA has been working with the country’s food safety body to achieve greater recognition of products and plants.
Since the signing of NAFTA, the Mexican poultry industry has registered a higher percentage growth rate than its counterpart in the U.S. However, it should not be forgotten that egg production in the U.S. is double that in Mexico, while production of chicken meat is six times greater.
To date, Mexico’s poultry exports have gone primarily to countries with which the country does not have commercial agreements, with processed products using imported raw materials being the main export to the U.S., however several local production plants are in the final stages of being recognized as being of a high enough quality to sell their products north of the border.