21 Nov, 2008 - Non-fat dry milk (NFDM) exports from the U.S. to Mexico have skyrocketed in the first half of the year (January to July) following full NAFTA implementation.
However, the financial crisis and peso devaluation will flatten retail and processing disappearance in the next 6-12 months. Higher worldwide milk prices will allow Mexico’s imports of non-fat dry milk, cheese, and butter to increase at marginal rates in the short and the medium terms as opposed to the high growth rates of the past 10 years. LICONSA, a parastatal dairy enterprise, has increased utilization of domestic fluid milk significantly in order to support the domestic dairy sector. In CY 2008, LICONSA expects to use 600 million liters of domestically produced milk, 62 percent more than in 2007.
Situation and Outlook
After a moderate increases in 2007, U.S. exports of non-fat dry milk to Mexico for CY 2008 are surging past last year’s numbers. In addition to milk powder, Mexico has imported more U.S. dairy blends, lactose, and whey powder. In fact, U.S. lactose exports to Mexico from January to July 2008 are up by nearly 40 percent relative to the same period in 2007.
Following full implementation of NAFTA this year, the Mexican dairy sector is now operating within a fully liberated North American market. With increasing demand for dairy and dairy products, the Mexican Government has opened third country TRQ’s . Although the full NAFTA implementation occurred smoothly and with relatively few complaints from the domestic industry, higher international prices, financial and political pressures have force LICONSA to buy more domestic fluid milk. Consequently, the use of imported NFDM within LICONSA’s programs continues to decline.
Moreover, the worldwide financial crisis and the peso devaluation will flatten retail and processing disappearance in the next 6–8 months. The devaluation of the peso will dampen the importation of U.S dairy products. In comparison, the peso has not fallen as rapidly relative to the euro, and thus, U.S. dairy products will face stiffer competition from European dairy products.
The Mexican Dairy Sector
The Mexican dairy industry comprises 310 companies employing over 72 thousand people and generates nearly 363 thousand indirect employment opportunities. Since 2000, the dairy processors have expanded production by 40 percent; however, fresh milk production grew by 10 percent. In 2006, total fluid milk production in Mexico represented 21 percent of total livestock output, higher than pork and egg production.
Seventy percent of domestic producers are fully integrated and are located in Jalisco, the Lagunera region (Coahuila and Durango area), Chihuahua, Queretaro and Aguascalientes states, and are responsive to international market forces.
Growth in milk production is greater than population growth; however, it is not sufficient to supply both the industry and the consumer demand for dairy products. Thus, it is necessary to import approximately 24 percent of dairy products and 76 percent of raw materials (milk).
The major milk importer in Mexico is LICONSA, a government enterprise, which distributes subsidized milk to low income consumers, at the current price of 4.00 pesos per liter. LICONSA sources products both domestically and internationally. The primary imported product of LICONSA is non-fat dry milk (NFDM).