WASHINGTON – The US Meat Export Federation (USMEF) estimates the US pork industry could lose more than $300 million for the remainder of 2018 and $600 million over the next 12 months on a decline in ham primal value caused by Mexican tariffs on US pork products.
Mexico implemented retaliatory tariffs on imports of most US pork products in response to US tariffs on aluminum and steel. On June 5, the tariff rate on chilled and frozen pork muscle cuts increased to 10 percent from zero. The tariff will increase again to 20 percent on July 5, effectively wiping out the North American Free Trade (NAFTA) benefit, USMEF said.
“Given the growth in US production and already large US consumption, it is likely that product not going to Mexico will be absorbed in other export markets as well as in the domestic market, at lower prices,” USMEF said in its report. “The drop in the ham primal value could translate into industry losses of more than $300 million for the remainder of this year and roughly $600 million over the next 12 months. The added negative price pressure for both hams and picnics could result in industry losses of $425 million for July-December 2018 and $835 million over the next 12 months.”
In general, the report states, new import duties can result in:
- decreased export volumes as US products are priced out of the marketplace;
- lower prices and margins for exported items as the trade adjusts to the new (higher) duties;
- lower livestock prices in response to the decrease in meat prices; and
- longer-term losses in market share due to trading partner’s desire to diversify away from the US.
Mexico already has established a duty-free tariff rate quota for 350,000 metric tons of chilled and frozen pork that will be open through the end of 2018, with 97 percent of the volume allocated to companies that imported chilled and frozen pork products in 2017. USMEF said import licenses are granted on a first-come-first-served basis, but the organization said US companies have been unsuccessful in applying for import licenses for US pork.
“USMEF’s understanding is that the duty-free quota is specifically aimed at Mexico’s processing industry and retailers are not able to purchase pork at zero duty (beyond Canadian and Chilean pork, where the potential for supply growth is limited),” according to the report.
Canada will be the most likely beneficiary of US-Mexico trade tensions. The European Union also could benefit as roughly 60 slaughter plants are approved to export to Mexico with others waiting for approval. Transportation and logistical challenges will make it difficult for Mexican processors to switch to Canadian and European pork, USMEF said, but increased Canadian and European supplies of pork could result in US market share dropping to 75 percent from the current 90 percent in the second half of 2018.
“This would result in a decrease in US exports of roughly 10,000 mt per month or more than 60,000 mt for the rest of 2018,” USMEF said. “If unit values hold at first-quarter levels, the drop in export value to Mexico would be more than $100 million over six months.”
The US accounts for 90 percent of Mexico’s imports of chilled and frozen pork with Canada supplying the other 10 percent, according to USMEF. In 2017, Mexico’s imports of US pork items subject to the new duties totaled 713,500 metric tons valued at $1.25 billion and accounted for 80 percent of Mexico’s imports from the US.