Focus on Mexico
July 01, 2008
World Grain Staff
Mexico is a big grain consumer and a big grain buyer, and its membership in the North American Free Trade Agreement (NAFTA) has helped make it one of the biggest grain customers for the United States (U.S.).
Maize (corn) is by far the most important grain crop in Mexico, which has a population of just under 110 million, 71% of which are urban dwellers. For Mexican consumers, grain consumption traditionally revolves around tortillas made from maize flour.
According to the International Grains Council (IGC), Mexico is forecast to produce 23 million tonnes of maize in 2008, down from 24 million in 2007. Its wheat production is forecast at 3.4 million tonnes, down from 3.5 million.
Mexico’s imports of wheat are forecast at an unchanged 3.6 million tonnes in 2008-09, while its maize imports are set to rise to 10.5 million tonnes from 10.2, according to the IGC.
Around 74% of Mexico’s imported wheat comes from the U.S., with the rest coming from Canada. About half of its wheat imports are directly shipped by rail. Although there have been moves to open up the market to other suppliers, high freight rates mean that Mexico’s neighbors to the north will retain a strong advantage.
In recent years, Mexico has gone from being a small-scale importer of U.S. wheat to the position of either the second or third market for the U.S., as trade has become freer, particularly as a result of NAFTA.
In I the same period, there has been a move by Mexican farmers into other products, like table grapes or fresh vegetables, with many of those crops exported to the U.S.
Laura L Tamayo Laris, director of corporate affairs at Cargill Mexico, explained how the most important part of the market works. "What we produce is white corn," she told World Grain. "Most of it goes for the tortilla market, with the rest to Mexico’s large livestock industry, and much of it comes from a small number of producing areas.
"We have two crops a year. One is in the state of Sonora in the northern part of Mexico, which is harvesting about now (June) or in May. Production there is around 4.5 million tonnes."
The other big producing area is in the center of the country, where the harvest begins in November. "The crop there is 2.5 to 3 million tonnes," Laris said.
Cargill serves the market for maize to make tortillas in the center of the country. "We transport, clean and service small producers of tortilla, basically in Mexico City," she said.
SMALL FAMILY BUSINESSESCargill supplies 2,000 tortillerias. "These are very small businesses, small families that produce tortillas," she said. "They are family owned and family run."
The company runs a program to help the tortillerias improve their administration. "If they grow, we grow," she said. "It is in our interest."
The Mexican government is also helping the tortillerias improve efficiency with a financing program designed to help them replace old machinery.
Having the right quality of grain could also help the tortillerias cut costs. "We try to reduce other costs for our customers by giving them clean products for tortilla," she said. "You have to give them grain without any external matter. It costs a lot to clean the product."
Consistent grain size can also help them save energy. "If you have different sizes of corn, they do not cook in the same time," she said.
An average Mexican eats around 80 kilograms a year of tortillas, according to Laris, who added that consumption has been static in recent years. She said the tortilla industry and the government are looking for answers as to why consumption isn’t increasing.
One possible answer is that people are increasingly short of time. "In the urban areas, now you have both parents working and increasingly the problem is that people are not cooking as traditionally," she said. "They are looking for fast food. With the tortilla, you have to warm it. You cannot use it cold.
Tacos are very popular. "You see it all around," she said. "People are turning to something more manageable."
Another possible reason is concern about obesity. "We have a big obesity problem," she said. "There was the belief that tortillas will increase it, which is not true. One tortilla is only 50 calories."
Cargill does have a small corn factory, but by far the biggest producer is Maseca. "They are 85% of the market," she said. "We manage less than 5%; 3% maybe in corn flour."
Cargill also has a joint venture with 3,000 producers of durum wheat in Sonora, producing around 700,000 tonnes. "National demand is 400,000 tonnes of pasta," she said. "We eat a lot of pasta and it’s cheap. The rest gets exported. It goes to Peru and a lot into Africa; Libya sometimes where they eat couscous."
Mexico also imports around 13 million tonnes of maize and soybeans, mainly for the animal feed industry. "We have a very big feed industry," she said. "It goes for dairy production, chicken and beef. Normally, all that production comes from the U.S. They are our biggest supplier and partner in NAFTA."
HIGH PRICES ANGER CONSUMERSHigh prices for maize have triggered protests in Mexico, with thousands of people taking to the streets in January. But there is an upside to the higher costs. "This is a good thing for the agricultural sector, which has had many difficulties for a long time," she said. "For the first time in many years there is demand for doing business in agrifood in Mexico. This might be a good time for boosting agricultural production."
The government has responded by trying to implement policies that make food affordable for consumers, she said. One part of the response was the decision in May to remove import tariffs on maize, rice, wheat and sorghum in an effort to prevent shortages.
Ileana Lopez, a trader at Bunge Mexico, did not believe that the government’s aim — to go outside NAFTA for cheaper supplies — would work. "This was not helpful," she told World Grain. "Any origin other than the U.S. is much more expensive – like 30 or 40 dollars more expensive. Our only origin right now for importing grains is the U.S.
"When you increase prices, it impacts the economy. That’s why the government is trying to protect prices."
The poultry and pork industries are also suffering with less demand for their products. The result, she said, has been an increase in feed inventories as the industry scales down. "A lot of people have taken steps — starting to buy less and change their diet — because they cannot afford what they were eating before," she said.
So far, Mexico has not copied the enormous growth of corn-based ethanol production in the U.S. "The country only has one small plant," said Laris. "If we decided to do something, analysts say there might be good business in ethanol, but in sugar." Mexico produces around 5 million tonnes of sugar and consumers 3.9 to 4 million.
"You have a nice quantity of sugar you could use for ethanol," she said. "So you would use sugar." The Mexican Congress has just voted a law for promoting the use of biofuels.
Chris Lyddon is World Grain’s European editor. He may be contacted at: email@example.com.