Miller Magazine Issue: 113 May 2019

MEXICO 82 MAY 2019 (FTAs) than any other country in the world—12 FTAs co- vering 46 countries—which include the European Union, European Free Trade Area, Japan, the Pacific Alliance, Israel, and ten countries in Latin America. LATIN AMERICA’S 3RD-LARGEST AGRICULTURAL PRODUCER Agriculture accounts for 3.42% of Mexico’s GDP and employs over 12.97% of the country’s active population. Mexico is the world’s 11th-largest agricultural and livesto- ck producer, and the 3rd-largest in Latin America. Mexico ranks among the world’s largest producers of coffee, sugar, corn, oranges, avocados and limes. Cattle farming and fis- hing are also important activities in the food industry. The agribusiness industry in Mexico has been in continu- ous and steady expansion, with the agribusiness landscape driven in part by strong consumer demand and a steadily growing middle class. With a large land mass and a diverse range of climates, Mexico is well-suited to large-scale agri- cultural production. The highly-fragmented state of Mexi- can farming leaves significant room for consolidation and increasing yields. The United States remains Mexico’s principal agricultural trading partner, receiving USD 25.5 billion, or almost 78 percent, of Mexico’s total agricultural exports.However, Mexico has been active in looking for alternate sources of supply given bilateral trade uncertainties. MODEST GROWTH EXPECTED FOR GRAIN PRODUCTION The United States Department of Agriculture (USDA) fo- recasts the grain production in Mexico to grow modestly in marketing year (MY)2019/20, driven in part by new go- vernment programs incentivizing small farmers to produce basic grains. However, as these programs are still in their initial phases, it is not clear how they will operate and how strong of an impact they may have on production. Here is the summary of the USDA’s March GAIN report for Mexico: Overall feed grain demand is expected to continue growing steadily at approximately three percent in MY 2019/20. Corn continues to be the preferred feed grain in Mexico, given low international prices and nutritional characteristics. Meanwhile, demand for grain for human consumption is forecast to grow more slowly, around the level of population growth.Mexico continues to be a major importer of basic grains. In MY 2019/20, imports are expected to continue their modest growth to meet growing demand for feed and food grains. SHIFT FROM WHEAT TO CORN PRODUCTION Mexico has approximately 28,000 wheat growers, focu- sed heavily in the northern states of Sonora, Sinaloa, and Baja California. The MY 2019/20 wheat crop is expected to be relatively strong at 3.1 million metric tons (MMT). Producers note that relatively low prices for wheat have encouraged many growers to shift from wheat to corn production in the past few years. Corn has higher yields and farmers therefore see it as an attractive alternative. In Sonora, for example, growers shif- ted approximately 30,000 ha from wheat to corn producti- on in the past two years. Wheat consumption is expected to increase modestly (approximately 1.4 percent) in MY 2019/20, driven prima- rily by population growth. Similarly, consumption increased in MY 2018/19 as bread product sales recovered following a consumption slowdown in MY 2017/18, attributed in part to advertising campaigns advocating a reduction in ca- loric intake. Total consumption is expected to remain stable at 7.7 MMT over all three marketing years. THERE ARE 85 MILLS IN MEXICO Mexico has several distinct wheat markets. In the sout- heast of Mexico and the Bajio region, millers and bakers typically use domestic bread wheat, both due to favo- rable logistics and regional bread preferences. In central Mexico, including the Mexico City metropolitan area, the baking industry prefers high-protein flours, which facili- tates production of the crusty, hollow breads consumers in this region prefer. In both Mexico City and in much of northern Mexico, it is logistically easier to use imported wheat. Throughout Mexico, there are currently 85 mills owned by eleven major countries. These mills continue to mo- dernize with more efficient equipment, and older mills are being replaced. Installed processing capacity grew to 9.4 MMT of wheat, though currently only about 6.6 MMT of this capacity is in use. And total wheat imports are expected to grow slightly in MY 2019/20 to 5.7 MMT. The United States continues to be the largest supplier of wheat to Mexico, followed by Canada. However, Mexico has diversified its sources of wheat over the past several years, with secondary supp- liers varying depending on price and quality. MY 2017/18