Mexico Still Offers Plenty of Opportunity

A decade of moderate economic gains has helped expand dairy consumption and, by extension, imports of U.S. products.

U.S. suppliers shipped $1.4 billion in dairy products to Mexico in 2013, a little more than one-fifth of total U.S. dairy exports by value. According to Mexican Customs data, the United States held a 76 percent share of the Mexican dairy import market last year. Given the size of U.S. business in Mexico and the United States’ dominant position, some might wonder just how much more room U.S. suppliers have to grow.

Quite a bit, as it turns out. In fact, the climate for U.S. dairy business in Mexico is arguably better than it has ever been.

“The same underlying factors that have driven Mexican demand to this point remain in place, and the benefits gained from NAFTA continue to give U.S. suppliers a competitive edge. Those alone would be enough to further propel U.S. volume moving forward,” says Rodrigo Fernandez, USDEC’s Mexico office representative. “But now we have an additional factor: The evolution of Mexico’s domestic food and beverage industry into a regional supplier. Domestic and multinational food and beverage companies are increasingly looking to use Mexico as a base to serve a broader area.”

Dairy processor Grupo Lala, for example, after raising more than $1 billion in an IPO late last year, is looking to expand into Guatemala, Nicaragua and South America. Nestlé expects to ship about 40 percent of the output from a planned Mexican infant formula factory to Latin America and the Caribbean.

Thriving business

At the same time, the domestic food industry is growing 4-5 percent per year and the market is by no means saturated. In fact, despite a history of dairy use and rising demand, per capita dairy consumption in Mexico is relatively low.

A decade of moderate economic gains has helped expand dairy consumption and, by extension, imports of U.S. products. But economic gains have been insuf­ficient to spread to all corners of the nation. More than 40 percent of the population—around 53 million people—still lives below the poverty line and remains essentially a minimal dairy buyer.

“As that mass of people moves up the economic ladder, we can expect a whole new audience for U.S. dairy,” Fernandez says.

And definitely more dairy imports. Even though Mexican milk production has been growing 1.5-2 percent annually for the past decade and is likely to match that growth for the next five years, the country remains a deficit milk producer, relying on imports to satisfy about one-third of its annual dairy needs.

Even within categories the United States dominates, there remains significant room for growth.

According to Mexican Customs data, U.S. share of Mexico’s cheese import market grew from 72 percent in 2012 to 77 percent in 2013. However, U.S. suppliers hold only a 14 percent share of the “Hard & Semi-Hard” category. In addition, it has only been in recent years that U.S. suppliers have seriously pursued (and begun winning) gouda market share in Mexico.

Rising cheese consumption and a willingness of U.S. suppliers to cater to buyers’ needs, paying close attention to characteristics like flavor, melting properties and color, are likely to make Mexico the United States’ first 100,000-ton cheese export market in the coming years. It is one of the many dairy categories in Mexico that holds continued promise for U.S. suppliers.

(This article first appeared in the March 2014 edition of Export Profile.)

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The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the dairy farmer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.