Search: Search
Marketing Division
Article View

Mexican Pork Tariff Impact
Created on Jul 10, 2018


In response to the United States (U.S.) placing tariffs on foreign aluminum and steel, Canada and Mexico have placed retaliatory tariffs on U.S. goods. On July 5 Mexico increased tariffs to 20 per cent on chilled and frozen bone-in hams/shoulders and other cuts. These retaliatory tariffs essentially eliminate any North American Free Trade Agreement (NAFTA) benefits and place the U.S. on par with World Trade Organization (WTO) mandated “most favored nation” levels.

Mexico accounted for 33 per cent of U.S. pork exports by volume (24 per cent by value) in 2017, making it the largest by volume market for U.S. pork. The Mexican market for pork has grown in recent years. As of April 2018, U.S. pork exports to Mexico were 7 per cent ahead of 2017 record levels; a per hog average value of $12.5 for every hog processed in the U.S. within the last year. The U.S. Meat Export Federation (USMEF) is predicting the U.S. market share will fall from 90 per cent to approximately 75 per cent in the second half of this year, representing a $100 million export value drop over six months. Furthermore, the USMEF states, “Looking only at ham prices, the drop in primal value could translate into losses to the industry of more than $300 million for the remainder of this year which would be roughly $600 million over the next year… The added negative price pressure for picnics and hams could result in industry losses of $425 million for July to Dec 2018 and $835 million over the next year.”

Of Mexico’s $1.25 billion annual pork imports, 90 per cent, equivalent to 363,718 metric tonnes (mt), is from the U.S. and approximately 10 per cent by volume comes from Canada. 63 per cent of Mexican pork imports by volume are of chilled bone-in hams and shoulders, accounting for 45 per cent of total U.S. production and 86 per cent of U.S. bone-in ham exports.

Mexico has a tentative agreement with the European Union (E.U.) to include pork and other farm products on a tariff-free list, with 60 slaughter establishments already approved for shipment. Furthermore, Mexico has issued a new duty-free quota (which the U.S. will be ineligible to ship under) roughly the size of the entire amount imported from the U.S. in 2017.

Each 1 per cent drop in the Mexican peso equates to a 1 per cent implied tariff on U.S. goods. The Mexican peso is down 12 per cent since April, currently at its lowest since Feb 2017, yet historically exchange rates haven’t significantly impacted rates of U.S. pork imported to Mexico. With Mexico taking steps to establish strong trade ties to the E.U. and open up free-trade quota outside of the U.S. they are likely hoping to diversify pork imports for the long term. In addition to the new tariffs imposed on U.S. pork, Mexican peso exchange rates and tariffs combined are likely to exhibit a more significant impact than one or the other would have had on its own.

The USMEF is predicting catastrophic impact, however wholesale pork prices continued the seasonal rise in spite of the 10 per cent tariff imposed after June 5th. As the 20 per cent tariff comes into play, the full impact of the tariffs will become more clear over the coming weeks.


 

Terms Of Use | Privacy Statement
Copyright 2019 by Ontario Pork Marketing Division