BMI View: We forecast that the Mexican economy will continue to post solid growth, with real GDP growth set to average 2.6% between 2012 and 2020. We forecast a comfortable victory for Enrique Peña Nieto's PRI party in July 2012's presidential elections, which we believe will not adversely affect market sentiment. This bodes well for the agribusiness sector, as a business-friendly environment and stable economy will attract investment, thus improving efficiency.
Key Forecasts
- Real GDP growth is forecast at 3.8% y-o-y in 2011, 3.1% y-o-y in 2012 and 2.4% y-o-y in 2013.
- Droughts in Veracruz early in the 2011/12 harvest year caused damage to sugar plantations. However, high sugar prices are set to continue to motivate improved farm management and fertilisation, with the area harvested forecast to remain at 675,000 hectares. As a result, we have increased our forecast to 5.61mn tonnes, an increase of 0.8% y-o-y. To 2015/16, we forecast production to rise by 15.0% from the 2010/11 level to 6.39mn tonnes.
- Poor weather and a decline in area harvested will see 2011/12 corn output increasing by just 0.5% y-o-y on the low 2010/11 total to 21.2mn tonnes. We have also revised down our forecast for corn consumption and now see demand growing by 7.0% y-o-y to 30.83mn tonnes. High prices are anticipated to put a dampener on domestic consumption and demand from the livestock sector.
- Demand for beef dipped by 1.4% y-o-y to 1.94mn tonnes in 2010 as consumption was held back by high prices. We now estimate that consumption fell by a further 2.5% y-o-y in 2011 to 1.90mn tonnes, due to high grain prices and other production costs. We forecast that consumption will dip by 0.5% y-o-y to 1.89mn tonnes in 2012 as high costs continue to limit demand. Out to 2016, we believe that consumption will grow as per capita incomes rise, and forecast an increase of 6.3% on the 2011 level to reach 2.02mn tonnes.
- In 2011/12, we see coffee output increasing by 10.0% y-o-y to 4.11mn bags. The increase is owing to the results of work to improve plantations and favourable weather conditions during the critical flowering period. Out to 2015/16, we expect coffee production to grow by 22.5% on the 2010/11 level to reach 4.94mn bags.
Key Trends And Developments
We now believe that sugar exports are likely to remain buoyant during the 2011/12 harvest year, with some forecasts as high as 1.4mn tonnes. Production for the harvest year is now forecast to remain strong, despite a difficult start to the harvest year. Furthermore, high prices are expected to keep domestic demand subdued. In October 2011, the Mexican government announced a new sugar tariff-rate quota of 150,000 tonnes, in addition to the 150,000 tonne quota opened in June-July 2011. 15,000 tonnes are to come from Nicaragua, with the remaining 135,000 tonnes unallocated. The additional import quota is designed to bring greater stability to the domestic market and ease spiralling prices and render Mexican exports more competitive.
Despite measures by the Mexican government to stabilise the cost of tortillas, prices have continued to rise through 2011. According to the Market Integration National Information System (SNIM) of the Secretariat of Economy (SE), the average price of tortillas had reached MXN11.10 per kilogramme, up by 12.1% from MXN9.9/kg in early 2011. These price hikes prompted the government to announce further amendments to the ProMasa programme. The Secretariat of the Economy announced that it would now support up to 400,000 tonnes of nixtamal, with support of MXN1.0/kg for small and medium-sized enterprises and MXN0.8/kg for low-income consumers.
Lower corn output is expected to lead to an increase in imports to meet domestic demand, even if part of the corn that usually feeds livestock will be substituted with imported distiller grains. First, we forecast the country's corn production deficit to come at a historical high of 10.6mn tonnes in 2011/12, 51.4% higher than the 10-year average of 7.0mn tonnes. Second, Mexico's 2010/11 corn ending stocks have remained at a historical low of 1.4mn tonnes, 57.6% lower than the 10-year average of 3.3mn tonnes.
Thus, the USDA, in its latest grains report, increased its forecast for Mexican corn imports to 9.8mn tonnes in 2011/12, which would be higher than the previous record of 9.5mn tonnes in 2007/08. On October 21 2011, the Secretariat of the Economy announced the elimination of the last of the retaliatory import tariffs imposed on US goods, including ham and pork products. Half of the tariffs had been removed in July 2011 following the signing of a memorandum of understanding (MoU) between the Mexican and US governments on July 6. The value of goods affected in 2010 and in the first seven months of 2011 was in excess of US$1.5bn and US$787mn respectively. The removal of the remaining tariffs brings to an end a long-running trucking dispute between the two countries. The dispute stemmed from the US government's failure to honour commitments under NAFTA to allow Mexican trucks to circulate north of the border, owing to the US' concerns about the safety of Mexican vehicles. In September 2011, Nestlé announced plans to expand its involvement in the Mexican coffee industry through a US$15mn investment to establish a coffee-propagation centre and develop 30mn coffee plants by 2020. The Swiss firm has formed an agreement with Mexico's National Institute of Forestry, Farming and Fishing Research and with Mexican crop technology company Agromod, as reported by Dow Jones.
The agreement will see Agromod's plant propagation laboratory in the south-eastern state of Chiapas turned into a development and distribution centre for Nestlé plants, commencing in 2012. Slightly more than half of the crops will be of the arabica variety, while the remainder will be robusta. The investment is set to support government efforts to regenerate ageing plantations, which continues to hold back the sector's potential.
Click for Report details:Mexico Agribusiness Report Q1 2012
