The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.Enrique Peña Nieto, the candidate for the Partido Revolucionario Institucional (PRI), is still looking on course to win in the presidential elections on July 1 over his main rivals Josefina Vázquez Mota of the centre-right Partido Acción Nacional (PAN) and Andrés Manuel López Obrador of the leftwing Partido de la Revolución Democrática (PRD). Peña Nieto has made the liberalisation of Mexico's energy sector, including the state-owned oil monopoly Petróleos Mexicanos, one of the cornerstones of his campaign. Should this policy be enacted, it promises to be a significant boost to investment, which should have positive knock-on impact on the agribusiness sector. Peña Nieto has highlighted increasing investment in mechanised production, irrigation and farm management techniques as key to his agribusiness strategies. He has also stressed the need to clarify landownership in the countryside and to boost profitability by supporting competition and reducing regulation of the sector. Foreign policy is likely to continue to focus on boosting relations with Mexico's Central and South American neighbours, which is something the Calderón administration has also been keen to advance.
Key Forecasts
- BMI remains optimistic about the Mexican economy. Despite continued vulnerability to external shocks, we believe economic growth will be bolstered by solid private consumption and robust investment in the coming quarters. As a result, we see Mexican GDP increasing by 3.4% year-on-year (y-o-y) in 2012 and 3.0% y-o-y in 2013. We forecast strong growth in private consumption of 4.2% in 2012 and 4.0% in 2013.
- Despite the decline in domestic rice production, we forecast consumption will remain strong in 2012 and see demand increasing by 3.7% y-o-y to 891,100 tonnes. Consumption will be supported by imports of 750,000 tonnes. In 2012/13, we see consumption growing by a further 2.7% y-o-y to 915,200 tonnes. The stability of the price of rice, in comparison with steep price rises for other grains, will boost demand. Through to 2016, we see demand growing by 14.4% compared to 2011 to reach 982,400 tonnes.
- We now forecast that extreme droughts and a decline in area harvested will see corn output decreasing by 12.0% y-o-y on the low 2010/11 total to 18.60mn tonnes in 2011/12. We see production recovering by 15.6% y-o-y to 21.50mn tonnes in 2012/13, provided climactic conditions become more favourable. However, wheat output is forecast to fall by 11.2% y-oy that year to less than 3.28mn tonnes as a result of a fall in area harvested.
- We forecast sugar consumption will fall by 0.8% y-o-y in 2012 as the trend for high-fructose corn syrup (HFCS) continues, particularly in the soft drinks industry, fuelled by high sugar prices. Over our forecast period to 2016, we expect sugar consumption to grow by 2.1% from 2011's level to 4.28mn tonnes.
- We forecast pork production will increase by 2.3% y-o-y in 2012 to 1.21mn tonnes, as improved farm management techniques and increased export opportunities continue to provide incentives for producers, despite high input costs. Demand for exports is increasing following the recognition by the US that Mexico is free of classical swine fever. Over our forecast period to 2016, we expect pork production to increase by 10.8% from 2011 to 1.31mn tonnes.
Key Trends And Developments
- We believe sugar exports will decline steeply during the 2011/12 harvest year as adverse weather conditions have caused production to fall. Exports are forecast to fall by 36.4% y-oy to 911,000 tonnes. However, the prospects for Mexico's sugar export sector are optimistic. Exporters are supported by the abolition of all tariffs and quotas on agricultural trade between Mexico and the US in January 2008, as agreed under the North American Free Trade Agreement (NAFTA). With production forecast to increase by 13.9% in 2011-2016, far outstripping the increase in domestic demand, sugar exporters can expect strong growth over the long term.
- With coffee production expected to increase to 4.25mn bags in 2011/12, we see exports rising by 6.8% to a forecast 2.60mn bags. In April 2012, exports for the 2011/12 market year, which started on October 1 2011, stood at 1.72mn bags, up by 25.2% y-o-y, according to Amecafe data. With 2012/13 expected to be a strong year for coffee growers, export potential could be boosted again. Currently, around 60% of Mexican coffee is destined for the export market; however, the Mexican coffee industry has a 10-year goal to increase the proportion of coffee sold on the domestic market to 70%. If this campaign is successful, exports would fall over the medium-to-long term.
- The worst droughts in Mexico's recorded history continued to cause severe damage to crops in late 2011 and H112. Extreme lack of rainfall affected almost 70% of the country, with the north particularly badly affected. In financial terms, losses are estimated to be in excess of MXN16bn (US$1.3bn), including MXN9bn (US$710mn) for corn, MXN6bn (US$280mn) for beans and MXN420mn (US$33mn) for cattle.
- Mexico remains heavily reliant on imports to fulfil domestic dairy consumption. In 2011, Mexico accounted for 25% of all US dairy exports. The country became the first US$1bn market for US dairy, with total exports totalling an estimated US$1.2bn. Non-fat dry milk (US$600mn), cheese (US$200mn) and whey (US$130mn) accounted for the bulk of exports. US dairy exports to Mexico for Q112 totalled US$313mn, up by 30.4% y-o-y, suggesting the value of 2012 exports could be considerably higher still.
- Severe and prolonged droughts in H211 and H112 damaged Mexico's livestock sector, pushing up feed prices and forcing many producers to partially cull their herds. To help the sector adapt to the extreme weather, in March the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA) started a project to conserve and restore grazing lands in areas badly affected by drought. MXN562mn will be spent to restore rangelands and improve land management in areas used for cattle rearing in 19 states across the country. It is hoped the programme will help to bring down the increase in slaughter rates and the surge in exports of live calves to the US and new destinations such as Turkey, which has led to concerns about the limited availability of steers for slaughter to meet demand.
Click for Report details:Mexico Agribusiness Report Q3 2012
