Mexican Pork Exports to the Japanese Market under the EPA

Transcription

1 73 Mexican Pork Exports to the Japanese Market under the EPA Virgilio Aguilar MORALES* and Toshikazu TATEIWA** Summary : This paper analyses the Mexican pork exports to the Japanese market, before and under the Economic Partnership Agreement (EPA) between these two countries. As part of this, this study presents, together with statistical information, an overview of the Mexican pork industry and trade and the exports to Japan under the EPA. It was found that although pork exports to Japan had initiated before EPA, this agreement signifies an opportunity for the Mexican pork exports to grow. However, Mexico has not taken a complete advantage of the quotas received in the agreement. The explanation for that might be found in the di$ culty to produce higher quantities and maintain good pork prices due to the increase of animal feed prices in recent years, and also in the high competition between the countries that export pork to Japan. These two aspects become some of the challenges that Mexican pork industry has in order to increase its exports to Japan. Key words : Mexican pork exports, EPA (Economic Partnership Agreement between Mexico and Japan), Japanese pork market and Japanese pork imports Introduction The international trend of meat production and consumption has changed considerably over the last half-century. From +30+ to,**/ the world meat production almost quadrupled from 1+.- million tons to,0/.. million tons, implying an annual average growth rate (AAGR) of - (FAOSTAT,,**0). Most of these developments resulted from the growth of poultry and pork production with an AAGR of /+. and -,., respectively. Simultaneously, consumption has been increasing, and factors such as the animal disease outbreaks such as the Bovine Spongiform Encephalopathy (BSE) and the Avian Influenza, have motivated changes in the global trade structure. Furthermore, as a consequence of GATT negotiations, international trade restrictions and national protection measures for meat products have been diminishing, and this has caused a severe competition between national and foreign meat industries. All these international circumstances have also had e# ects on Mexican meat industry. For instance, due to the outbreak of BSE in the United States, the most important Mexican commercial partner, the trade dynamics were altered when Mexico banned imports from its neighbor. In addition, one of the most outstanding examples of Mexican involvement in the contemporary market conditions of trade liberalization is Mexico s participation in the North America Free Trade Agreement (NAFTA) with the United States and Canada from * Graduate School of Agriculture, Tokyo University of Agriculture ** Tokyo University of Agriculture

2 74 +*3,**3 The Mexican pork sector, an important industry for Mexico s involvement in the international market, has confronted several di$ culties and challenges, and has been also widely researched. Some outstanding studies are developed by the Mexican Ministry of Agriculture, Livestock, Rural Development, Fishing and Nourishment (SAGARPA). One to be mentioned is Current Situation and Perspective of the Pork Meat in Mexico, which is an annual publication since Other researchers such as Schwentessius and Gomez ( +33+ ), Gomez and Schwntessius ( +33/ ), Perez Espejo ( +330 ), Sagarnaga et al. ( +331,,***,,**-) and Kato Maldonado et al. ( +330), have analyzed the situation and prospects of this sector from the perspective of trade liberalization, and have mainly evaluated the impact of the NAFTA. This article aims to analyze the Mexican pork exports to the Japanese market and intends to clarify the circumstances faced by the Mexican pork industry in the process of taking advantage of the Economic Partnership Agreement between Mexico and Japan (hereinafter EPA). In addition, this study presents an overview of the Mexican pork industry and the Mexican pork trade and the exports to Japan under the EPA. This also presents the issues and challenges of the Mexican pork industry and final conclusions. Overview of the Mexican Pork Industry During the early +32* s the pork industry seemed to become one of the principal activities of the Mexican livestock sector because of its enormous contribution to the national meat production. However, from +32. and in the following years, the production stagnated as a +, result of factors such as the trade liberalization, the suspension of grain subsidies, the reduction of credits and other economic problems that a# ected the buying power of the - general population. Although the pork production recovered in the +33* s, this growth was insu$ cient to reach the production levels of the beginning of the +32* s, which were around +.. million tons. On the other side, the poultry industry showed an important development, and in only ten years (from +32/ to +33/ ) poultry production was consolidated and raised by ++2. In a lower, but notable proportion of.. beef also increased while pork production was contracted in,3. As a consequence, pork reduced its participation in the meat national. production from./ in +32* to,*. 0 in,**2. The economic structure of the pork industry was drastically adjusted as shown below, and it was also a# ected by the formation of companies and mega projects, which were founded on the horizontal and vertical integration. As a result, the productivity was elevated and the industrialization and the commercialization became more e$ cient (SAGARPA, +332). These adjustments were driven as a consequence of NAFTA, which came into force in This treaty eliminated the safeguard quotas and tari# s on live hogs and pork from the United States and Canada, so the United States became the exporter with more penetration in the Mexican market. According to the statistics of the Mexican government, the pork industry generates -/*,*** direct employees and +./ million indirect employees in,**2. The production reached +,. million tons of meat annually, and its annual production value is higher than -*,*** million

3 Mexican Pork Exports to the Japanese Market under the EPA 75 Mexican pesos (US$,, +2* million). The inventory has +/ million heads and there are 123 thousand farms ; out of them ++.,*** are specialized. Regarding the last census, there are more than +2. million farms with at least one hog and around 2** thousand farms dedicated to more than self consumption, so they locally sell one or two hogs per week. Also, the commercial farms are approximately.* thousand, and their representatives are the ones actively participating in the government programs (Gonzales Padilla,,**2). The hog production in Mexico is formed basically by three di# erent types of production systems : technologically advanced or technical integrated systems / 0 ; small commercial production systems and traditional backyard production systems. These systems are di# erentiated by the level of technology, the degree of vertical integration, the source of inputs, the sanitary measures and the quality of hogs produced, and also by the diverse geographic locations. The larger and more technologically advanced systems (with more than /** sows) represent more than.* of total production. Small commercial systems (,** to /** sows) are equivalent to,/ of total production. Small backyard hog production systems that have farms with less than,* sows are still significant in the industry since they account for the rest of Mexico s pork production (ASERCA, +330). The competition in the meat market intensified, and the Mexican pork industry required more e$ cient processes in order to compete, mainly, with the United States pork products. According to Batres-Marques, et al. (,**0), the expansion of the technified systems became more comparable to those of the United States. However, the semi-technical producers have been facing adverse circumstances. Sagarnaga (,**-) claims that.,*** producers abandoned their activity, and there was a tendency to the elimination of these systems. The causes might be found, first, in the increase of the production costs, which have been mainly related to the animal feed costs and they have been higher than those of the integrated systems. Second, these systems do not use Federal Inspection Plants (better known by its initials in Spanish TIF) for the slaughter process, which limits their commercialization, and finally, due to sanitary reasons, the animal mobilization was restricted in several states of the country. Although Mexico is a net pork importer, the Mexican pork export industry has become more important. This industry has been improving and adapting to the international competition especially by meeting international standards for the product quality and sanitary. Also, technologically advanced production and processing systems for pork slaughter and processing have developed. For example, Norson that is a company located in Sonora State and is one of the leading companies in hog production and distribution in Mexico, was founded in +31,. This company has been exporting chilled and processed pork to Japan during +2 years. The success of this company lies in its vertical integration and the continuous improvement of its installations by retooling of slaughter lines, processed products facilities and freezing facilities. The Mexican pork industry had -/0 TIF slaughter and processing plants that have the

4 76 +*3,**3 highest level of development, that is to say, the highest sanitary standards and the most advanced technological processing levels, 1/3 industrial establishments dedicated to sausages and canned products and -*+ industrial establishments for lard and other edible animal fats (Arellano,,**2). TIF plants are certified and federally inspected by SENASICA-SAGARPA and some of these plants are HACCP-certified by the USDA Food Safety and Inspection Service, and +1 approved by the Japanese government to export pork to Japan. The Mexican sanitary conditions have been fundamental for exports. Producers and the government have worked together in order to improve this aspect. In,**3, Mexico was declared free of classic swine fever (CSF) ; hence, this represents an opportunity for all states 2 of the Mexico to be able to export. 1 Mexican pork trade ( + ) Imports In the +32* s Mexico initiated a process of trade liberalization, which was combined with the suspension of the government subsidies and supports o# ered to the pork industry. It resulted in the stagnation of the pork production in the +32* s and in its moderate growth in the +33* 3 s. Moreover, the Mexican pork meat consumption per capita has increased, and as a consequence, Mexico has been considerably relying on imports, which have dramatically risen since the mid-+33* s. In,*** imports represented +. of national consumption, and in,**1 they reached *. This proves Mexican inability to cover its internal demand. The United States has been the principal supplier of pork meat to Mexico, as shown in Figure +. In,**2 the United States provided 3- of Mexican imports of fresh and frozen or chilled meat, and was followed by Canada with 0. After NAFTA was signed, the United States raised its exports from /, thousand tons in +331 to -0* thousand tons in,**2, which means a growth of /31. Mexico also imports live hogs from the United States for slaughter although these imports have been irregular and ranged between a low of., 1.0 heads in +33/ and a high of,*1, 3,, heads in However, there has been a decline from +/+,*** heads in,**0 to 1/,.*3 heads in,**2. Mexico depends on imports from the United States to satisfy the national pork consumption. The ideal would be that the national production was completely oriented to the national market to avoid the dependency on imports. However, around -* of Mexican pork production is exported. This situation results from the attractive profitability that entering into the Japanese market may imply. The prices o# ered by Japan are higher than those o# ered in Mexico, and while the average value of one kilogram of pork imported from the United States to Mexico is US$ +1., one kilogram of Mexican pork exported to Japan is around US$.0.. (,) Exports Mexican pork production has been mainly focused on the national market, and according to the statistics published by FAO, its exports began in the +31* s with minimum quantities. +31* +,** +32*.++ +, During the s the annual average was, tons, and in the s it was tons, but

5 Mexican Pork Exports to the Japanese Market under the EPA 77 Fig. + Mexican pork imports by country, +331 Fig., Mexican pork exports by country, +331,**2 (tons),**2 (tons) Note : Include the HS Code : *,*-++*+, *,*-+,*+, *,*-+333, *,*-,+*+, *,*-,,*+ and *,*-,333. Source : Elaborated by the author. For the period,**-,**2, statistics from SIAP,,**3. http : // Accessed : September.,,**3 and for the period +331,**,, INEGI, Anuario Estadistico del Comercio Exterior de los Estados Unidos Mexicanos, Several years, and SICM-SE in Comercio Exterior, panorama nacional http : // php?portal porcino Accessed : September -,,**3. from +33+ to,**2 there was a constant increase with annual average growth rate (AAGR) of,1. According to the information from the Mexican government (Figure,), in,**+ the principal destination of the Mexican exports was the United States with 30 (--, 2.- tons) of the total exports, and the second importer was Japan with, ( 2.+ tons). However, the trade statistics o# ered by the Japanese Ministry of Finance point out that in,**+ Japan imported a total of.,,,*+ tons from Mexico. The di# erence of Mexican exports to Japan between the two sources is.+,-0* tons, which is a considerable quantity. Another discrepancy in the treatment of the statistics is evident in data from the United States. For example, in +331, based on the Mexican government information, Mexico exported to the United States,-, 3+0 tons, but the +- o cial statistics of the United States claim that Mexico did not export any pork meat to the $ United States from +33. to These di# erences between data from Mexico and from Japan and the United States continue during the subsequent years although Mexico does show a raise of its pork exports to Japan. An explanation to these discrepancies might be the trade triangulation between Mexico, the United States and Japan. For instance, from November +/, +33/ the Animal and Plant Health Inspection Service of USDA, allows fresh, chilled, and frozen pork and pork products from the Mexican State of Chihuahua to transit the United States, under certain conditions, for export to another country. This o$ ce had also previously allowed pork and pork +. products from the Mexican State of Sonora to transit the United States for export. In addition, most of the exports from Sonora State to Japan follow the route via Long Beach, United States (Valderrain,,**2). Due to this situation, the Mexican exports to Japan should be analyzed based on the Japanese statistics of trade.

6 78 +*3,**3 Fig. - Mexican agricultural, fisher, food and beverage exports to Japan,,**2 (Million US$ and ) Source : Elaborated based on statistics from the Ministry of Finance of Japan. http : // Accessed : September -,,**3. Mexican pork exports to Japan under the EPA ( + ) Importance and evolution Pork meat is the principal agricultural export product in Mexico to Japan. According to Japanese statistics of the Ministry of Finance, Mexico exported to Japan US$ 1., million of agricultural products in,**2. In this year, around half of the exports (US$ million or.3 ) constituted meat products including beef, pork and horse meat. Due to the ban on United States exports caused by the BSE outbreaks, Mexican beef exports slightly increased ; however, the Mexican commodity with the largest value was pork meat with US$,3, million. This value represents -3 of the total Mexican agricultural exports to Japan or 2+ of the total meats exported to Japan (Figure -). The participation of the Mexican exports in the total Japanese pork imports represents a minimal share comparing with the main suppliers. From +332 to,**2, Mexico has been the fourth main exporter to Japan, except in,**.,,**/ and,**0 when it was displaced by Chilean exports. The United States has been the main pork exporter country to the Japanese market from,**+ to,**2. Its average share in the total Japanese imports of fresh, chilled and frozen meat from,**+ to,**0 was -,, and it reached.+ in,**2. Denmark has usually been in second position except in,*** and,**., when it was on the first place. Canada has been in the third place for many years (Figure.). The tendency of the Mexican exports to Japan from +33* to,**2 might be divided in three stages. The development stage from +33* to,**+ with an AAGR of.., the contraction stage from,**, to,**. with an AAGR of +* and the recuperation and expansion stage with an AAGR of +1 (Figure /). This dynamics has been influenced by the changes in the Japanese market, which have been mainly a# ected by problems related to the animal disease outbreaks +/ inside and outside Japan. Moreover, the decline in the Japanese pork production that

7 Mexican Pork Exports to the Japanese Market under the EPA 79 Fig.. Evolution of the Japanese pork imports by country, +322,**2 (thousand tons) Note : Include fresh and frozen pork meat regarding al the codes covered by the HS code *,*-. Source : Same as Figure -. Fig. / Mexican pork exports to Japan +322,**2 Source : Same as Figure -. continues at an average of one percent per year, and the increase of per capita consumption +32*,**,,**/ +0 until the early s are influential factors. From to, as a result of the animal disease outbreaks and the motivation to substitute for poultry and beef, the per capita consumption of pork was raised from +*. 0 to +,. + kg. Mexico has taken an advantage of these changes in the market, and its exports have also been favored by the signing of the EPA. (,) EPA and Mexican Pork Exports The agreement between Mexico and Japan represents the first comprehensive agreement for Japan covering the agricultural sector. During the negotiations of EPA, the agricultural $ +1 sector was the most debated and di cult to negotiate. Although, it represents a sensitive sector from the Japanese perspective, it represents an opportunity to diversify its agricultural exports for Mexico. Nevertheless, the results obtained seemed to favor both countries and the Agreement enter into force in April,,**/. Among the negotiations regarding the agricultural

8 80 +*3,**3 Table + Mexican pork exports to Japan before and under the EPA Japan s Fiscal Year Pre- EPA (B) Under EPA (A) (B) (A) + AAGR + AAGR ( + April--+ March),**+,**,,**-,**.,**/,**0,**1,**2 Average Average (B) (A) Value (million US$) Volume (t), Share,++.+5*0/ /43 +// -, * -.51,*.4/ +2* -, * * /41,-+ /*5/13 042,33 /25* /5*.*.40,, / / +2 Quota (Tons) -25*** /-5*** 0/5*** 1.5*** Utilized quota ( ) +*, Notes : Annual Average Growth Rate ( ). +, Share in the total value of the Japanese pork imports. Include fresh and frozen pork meat regarding all the codes covered by the HS code *,*-. Source : Elaborated by the author with statistics from the Ministry of Finance of Japan. http : //www4customs.go4jp/toukei/ srch/indexe.htm Accessed : September -,,**3 and the Agreement between Japan and the United Mexican States for the Strengthening of the Economic Partnership, Annex +, p. +.* sector, pork meat was the principal product of interest for Mexico, and Mexican negotiators made an e# ort to obtain significant tax preferences and quotas. In this manner, Japan introduced an import tari# quota for pork meat under the EPA, combined with a special price di# erential tari #. +2 Since several variables are involved in the growth of the Mexican pork exports and the preferential access to Japan is only one of them, it is di$ cult to evaluate the impact of EPA on the Mexican pork exports to Japan. A simple but useful first analysis is to compare pre-epa and under the EPA exports. In the process of this analysis, the statistics of Japanese pork imports from Mexico are based on the Japan s Fiscal Year since the quotas established in the EPA for pork products were established taking into consideration of the Japan s Fiscal Year. Before EPA (from,**+ to,**.) Mexico exported an average of -/ thousand tons of pork to Japan, equivalent to US$ +2+ million (Table + ). During this period, the volume of exports diminished with an AAGR of +., and the share of Mexican pork in Japanese imports contracted from /3. to -2.. After EPA entered into force, Mexican pork exports recovered and reached a historic record in,**2. From,**/ to,**2 an average of.1 thousand tons were exported from Mexico to Japan ; that is to say, +, thousand tons of more pork than the average exported before EPA. In addition, the AAGR, with +2, was positive and the Mexican share in the Japanese pork imports grew to 1-.. Although Mexican exports have increased, they have not completed the negotiated quotas. In the past years the non-utilized quota has been around,*, and this may be covered if the Mexican pork industry solved the problems that diminish its competitiveness such as production costs, animal feed, and other factors that will be explained below. Issues and challenges of the Mexican pork exports Mexico has not completely utilized the quotas that were negotiated in the EPA. This section approaches the problems that have limited the increase of Mexican pork exports to Japan, which are related to production, production costs, sanity and prices o# ered by Mexico

9 Mexican Pork Exports to the Japanese Market under the EPA 81 Table, Mexican pork production by state (tons) State,**/,**0,**1,**2 Change Share,**//,**2,**2* Sonora,+-5.1/,*35-*0,+,5/3.,,,5.++.4, +34. Yucatan 3*5./ *,5+/+ 225/2/, Sinaloa +15,.2 +25/ ,*52*+,* Chihuahua 05* / /+,,4. *40 Baja California +50, *-- -04/ *4+ Subtotal /5-* *5,2+ 34,,340 Jalisco,+*5,.*,++5/+/,,+502/,+/511*, Guanajuato +**5/0/ +**5.2* +*+52,, +*-50/ * Michoacan.,5,+3.,52/1., *41-40 Nuevo León +05.** +/5+,- +/ Querétaro ,50, Aguascalientes +*5/,/ +* / +*5303.4, +4* San Luis Potosi *. 25,* *41 Zacatecas 05/ /3 15/-3 +/4, *41 Colima / ,,4+ *41 Quintana Roo * ,,.4- *40 Subtotal, /5-+*.-/ , Subtotal - Other states , ,+ +4/ -,42 TOTAL +5+*,53.* +5+*253., +5+/,5** , +**4* Note : * Estimated Share in the total production. Source : Calculated with statistics of de SIAP-SAGARPA. Basic Statistic. http : //www4siap4sagarpa4 gob.mx/ Accessed : May ++,,**2. compared to other supplying countries to Japan. To start with, the Mexican states authorized to export to Japan do not have enough production to take advantage of the quotas to Japan Out of Mexican states, only five can export pork to Japan. They are from the North, Baja,* California, Sonora, Chihuahua and Sinaloa ; and from the South, only Yucatan. In,,3. 0 (-,+, +/1 tons) of the total Mexican production was concentrated in these five states, and basically this percentage represents the share of Sonora and Yucatan, which is,1. + (Table,). These two states are the second and third national producers, following Jalisco state that has not been allowed to export pork to Japan. The volume of Mexican pork exports to Japan represented +/ of the production in the five states that are allowed to export to Japan,+ and Sonora has been leading these exports. In,**2 the production in this state grew only /. From,**/ to,**1 Yucatan maintained a constant production growth ; its production increased in +-, but it decreased in the same percentage in,**2 (Table,). Mexican exports to Japan are concentrated by ten companies ; seven of them are in Sonora State, and in order to take advantage of the quotas in the future, this state needs to raise its production. This would be conditioned by the international context (specially the United States) regarding the prices of animal feeds (inputs), products and byproducts. Mexican policies and company strategies would also exert influence. Another method to know the production capacity is analyzing the installed capacity and the utilized capacity. In this way, there are two companies working at +** of their installed capacity ; four from 12 to 3* and three from.- to 1. (Table -). The only slaughter house in Yucatan has an installed capacity to slaughter.2,*** heads per month and uses 2.,**2

10 82 +*3,**3 Table - Installed capacity of TIF slaughter houses, selected slaughter houses STATE TIF Monthly Installed capacity Utilized share of the Monthly No. (heads slaughtered/month) installed capacity ( ) Sonora,,1 +25*** 33 Sonora 01,*5,2* 12 Sonora,11 N.D. 2/ Sonora 0,,-5*.* /* Sonora 1* 25.**.- Sonora ** 1. Sonora 00 //5,** 2* Sonora 1..-5,** 3* Sonora /1,150** +** Yucatan +/,.25*** 2. Jalisco -/2 +,5*** -2 Jalisco,-2.52**., Guanajuato ++-,05.** 13 Queretaro.+, ++5*** 1+ Nuevo Leon +2* +.5.** 0+ Zacatecas.3 +53,* * Source : Elaborated based on information from SIAP-SAGARPA,,**2. of its capacity. Not all TIF slaughter plants are working at +** of their installed capacity, but in order to increase production, companies would have to invest in their processing capacity or, to form a partnership with those companies that do not reach their total capacity. An estimate of the costs for transforming the industry to produce what the foreign markets demand by building new slaughterhouses and to expand current installations that completely meet international standards for breeding, slaughtering, refrigeration and export packaging is about 2** million Mexican pesos (US$ /1 million), (USDA,,**3). Production costs have considerably increased in the past three years. By the middle of,,,**0 these began to increase, and the most a# ected ones were the non-integrated systems. The production costs of these systems are composed, in average, by /0 of feed expenses,,, of financing costs, +* of zoo sanitary services, ++ of others such as electric energy and combustible, and + of labor force. Out of the pork production total costs, one of the expenses with more importance in the competitiveness of this industry is hog feeding. These costs change according to the production systems. In recent years feed has increased as a direct consequence of the rising price of forage grains and oleaginous pastas. From December,,**/ to December,,**0 these costs increased in the small commercial production systems, which do not always count on their own grain supply. Thus, their feed prices have fluctuated over the prices of companies that do obtain their own feed. However, these small commercial systems play a very important role in the supply of hogs to companies that have the processing infrastructure, export certifications, technology, and all other conditions necessary to process, packing and distribute pork products in the national or foreign markets. Figure 0 shows the total production costs per kilogram of meat produced in the integrated systems and small commercial production systems. The analysis of the cost composition in Figure 1 clearly reveals that feed costs have

11 Mexican Pork Exports to the Japanese Market under the EPA 83 Fig. 0 Mexico. Pork industry estimated costs by production system Source : Elaborated with the information of Everardo Gonzales (,**2). Fig. 1 Mexico. Composition of hog production cost in small commercial production systems Source : Same as Figure 0. represented more than half of the total production costs, and in,**1 feed reached almost 0* of the costs in the non integrated technified system due to the grain price rise. Following feed costs, financing is the second expense with around,*. Medicines also represent,*, and had a slight reduction in,**1 because some states were declared free of disease ; in consequence, they reduced the use of medicines. Mainly as a result of the feed cost increase, total production costs have substantially raised. In,**, feed costs were slightly over /*, but in,**1 they reached /0.This tendency is a consequence of the impact on prices that increased due to the decision of the United States to concentrate most of its corn production to be transformed into ethanol (SAGARPA,,**1). As a respond to the rise of the production costs in the pork industry, the Mexican government implemented subsidies and other support programs to help producers with animal feed purchasing and animal processing. For example, in,**2, producers received a direct subsidy of,** Mexican pesos (US$ +2. -/) for every metric ton of corn they bought.

12 84 +*3,**3 Regarding animal slaughtering, producers received +** Mexican pesos (US$ 3. +1) if animals were sacrificed in TIF plants. In,**3, the main objectives of the Mexican government are to subsidize slaughtering in TIF plants in order to promote the sacrifice in perfect health conditions and to subsidize feed grains at competitive prices. These subsidies have allowed producers to compensate some of the losses caused by the high production costs. However, the supply of animal feed (mostly grains) at competitive prices would be a fundamental factor. The growth of grain production in Mexico has been lower than the meat production. Therefore, Mexico has depended on grain imports to meet the national feed demand, mainly concentrated in yellow corn from the United States. According to Adcock et al. (,**1), in,**., the Mexican states that used imported corn for animal feed from the United States were Sonora, the principal pork exporter to Japan, with of the total corn imports ; Jalisco (with +,.. ) ; Durango (with +++. ) ; Veracruz (with 30. ) ; Puebla (with 2,. ) ; Queretaro (with 1. 1 ) and Yucatan (with 1., ) (Adcock et al.,,**1). In this manner, the demand of grains in the livestock sector has been expanding. In the pork industry the demand of grains had a growing tendency in the +33* s that has continued until today. In,**1, the pork industry required... million tons of grains (,+ of the livestock grain demand) and 2/* thousand tons of oilseeds (,* of the livestock grain demand). In,**2 Mexico eliminated the quotas of corn imported from the United States, and Mexican producers found an opportunity to purchase low cost grains, but the international increase of grain prices in,**3 slowed down this opportunity. Forced to deal with the insu$ ciency of grains, one of the principal challenges of Mexico is to promote the production of yellow corn. Indeed, the scenery of high prices observed in,**1 and,**2 which was caused by the bio-fuel policies established in the United States motivated a reaction in some Mexican states. Puebla, Sinaloa and Chihuahua have been working along with corn producers in order to promote and increase the production of yellow corn. Moreover, Mexico also needs to elevate the yields per hectare since the current low yields cause very high prices of the corn in Mexico. As a reference, the yields per hectare in the United States increased from -. 3 tons in +30+ to almost 3./ in,**1 and in the same period,- Mexico went from one ton to,3. tons. In order to have an international comparison of the influence of animal feed on the total costs, the estimations by the breeding company PIC in,**0 can be considered (Pig International,,**2). A large portion of the costs is explained by the expenses in animal feed, which were, in average,.2 of the total costs in the selected countries (Figure 2). The costs of animal feed in Mexico in,**0 represented /3 of the total costs, a number that is over the average and over the main pork suppliers to Japan. In addition, in Mexico the costs of financing represent most of the non-feed costs (around,* ), and in other countries such as the United States, Canada and Denmark financing costs and veterinary medicines are lower. However, an advantage of Mexico is the labor costs. According to Tony Fowler (,**0) in,**0, while in Canada, Denmark and the United States labor costs were ++, 2 and /,

13 Mexican Pork Exports to the Japanese Market under the EPA 85 Fig. 2 Estimated hog production costs in selected countries (US$/kg live weight) Note : The Exchange rate used was *. 02, US$ per Euro. Source : Pig International (,**2). respectively ; in Mexico they represented less than, of the total production costs. In fact, one of the main strategies of the Mexican exporters is the orientation to the elaboration of products with value added by their inexpensive labor force. In that manner, Mexican processing costs are substantially less than those of any of its competitors. In,**1, the Mexican compensation costs in manufacturing were US$,3,. /hr while in Denmark, Canada and the United States it was US$.,.-, US$,2. 3 and US$,../3, respectively. Other costs that could have and important impact on the Mexican prices are the freight costs. To approach this cost ; the information provided by the Company Hapag-Lloyd regarding the sea freight costs can be utilized. The results show that Mexican sea costs are higher than Canada, United States and Denmark. While the price of one ton shipped from Mexico to Japan is around US$ 0,* for Canada, United States and Denmark was US$.1/, US,/ $ /0- and US$ -/3. The cost for Chile was estimated in US$ 23- (Hapag-Lloyd,,**3). Competitiveness of Mexican pork exports to Japan has depended on production costs that are the determining factor influencing the prices of Mexican products. The statistics from the Ministry of Finance of Japan on the pork import prices were used to analyze the price per kilogram of imported meat, giving attention to the exporting country and the tari# s. The following are the results : In general, if the import price by exporting countries is calculated by dividing import value by the import quantity, Mexican pork prices has been over its competitors since,**,. Mexican prices were lower than United States prices only in +331, +333,,*** and,**+. The largest annual average price di# erence between Mexico and its competitors from,**/ to,**2 was that with Canada ( +1., yen per kilogram), closely followed by Chile and Denmark ( +/ and +-.. yen/kg, respectively), and with the United States the di# erences has been lower ( 2. 2 yen/ kg). During,**2, the competition has been more intense and prices of all countries have been balanced. Mexico continues o# ering the highest prices, but the di# erence lowered (Table.). A more detailed analysis based on tari# s shows that in,**2, /*./ of the total Japanese pork imports came from the tari# code HS *,*-.,3.*,,, which corresponds to frozen meat. In the,.

14 86 +*3,**3 Table. Japanese pork import prices per kilogram by country, +331,**2 (yen/kg) Country ,***,**+,**,,**-,**.,**/,**0,**1,**2 Average Average,**/ *2 Di# erence* Mexico US Denmark Chile Canada 0*241 /0.4, /.+4, /--42 /224/ 0,/4-0*,40 0*.42 ///4* /.+4, /.-4+ /-040 /..4* * /3/4- /.34, /.+43 /3+4* 0*04+ /3.4- /324+ //-42 /-*4* /-+41 /,/4, /-/4, 242 /3*43 //*4. /-34, /,240 /1*4. 0**4- /2243 /2,4+ //*4, /,-4+ /,.4. /,.4- /-*4/ *242 /0+4/ /-14. /,04- //14. /124/ /2-4* /2+41 /.,41 /,.4. /,.43 /,-42 /,34* +/4* /0.4, /.+42 /-.4/ /2,4, 0*14, /3041 /314- ///4- /,24- /,24- /,/4- /,/4* /, , * Regarding the average price of Mexico. Source : Elaborated based on statistics of the Ministry of Finance of Japan. Accessed : March 1,,**3. http : // Fig. 3 Frozen pork imports prices by country,,**/,**2 (HS *,*-,3*,,) Source : Elaborated by the author with statistics from the Ministry of Finance of Japan. http : // Accessed : September -,,**3. same year, Japan imported from Mexico -/, +*. tons and this quantity was equivalent to 2. 1 of the total Japanese pork imports of the same code. The prices of Mexican pork products corresponding to this code have been higher than prices of the other countries. They increased especially by the middle of,**1, and few months later in September, prices reached /0/ yen/kg. During the first semester of,**2 there was a significant drop that allowed Mexico to almost level prices with its competitors (Figure 3). The code HS *,*-. +3.*,, that includes fresh and chilled pork is the second most important code among the Mexican pork exports. Since,*** this code has represented around -* of the total Mexican pork exports to Japan (Figure /). Mexico increased the value of its exports to Japan from /, 2.- million yen in,**/ to 1, 2/, million yen in,**2. Mexican prices of this code have also been higher than those of others countries (Figure +* ) High prices of Mexican pork have been a fundamental factor that could a# ect the enlargement of Mexican exports to Japan. Mexican exporters are aware of this situation ; therefore, they have already started the implementation of strategies to lessen production costs. Exporters also consider it important to provide value added to their products, taking advantage of the labor force whose cost is lower than in other countries (Garcia Vicente,,**2). Mexican pork has price-competitiveness due to lower labor costs, especially for partially processed items such as jowl meat and sliced or skewered belly. That, combined with lower

15 Mexican Pork Exports to the Japanese Market under the EPA 87 Fig. +* Fresh pork imports prices by country,,**/,**2 (HS *,*-+3*,,) Source : Same as Figure 2. duty rates, is enticing some restaurants and retailers to carry the product. Mexican packers also are aggressively trying to take advantage of their smaller plants and hog sizes to develop customized products for the Japanese market (Valderrain Conrado, (,**2)). The representative of a Mexican export company assured that some companies o# er their pork products at high prices, which means a disadvantage for them, Valderrain Conrado (,**2). However, these prices are explained by the fact that their products have higher value added and are not produced in the United States or Canada because of the need of larger labor force, which is more expensive in these two countries. The representative also claimed that one of their advantages is the willingness to o# er and adapt their products to the needs of the buyers (importers and processing industry). The main purpose of Mexican producers is to increase their exports, and meeting the demands of Japan means large labor force, which does not imply large costs in Mexico. Regarding the sanitary and safety measures, only the states that are recognized as free of classic swine fever (CSF) by the Japanese government are allowed to export pork meat to Japan. Until,**2 Mexico was free of CSF in,3 of its -+ states, which represent more than 32 of the national production. However, in January,**3, it was o$ cially announced by the Mexican government that all the Mexican states are free of CSF. In this manner, sanitary restrictions regarding the mobilization of hogs and the inclusion of new regions to the export block will contribute to the improvement of Mexican exports to the Japanese market. The only issue that remains is the Japanese government recognition and authorization of these states as disease free states that have potential to export. Conclusions It might be concluded that the EPA has been only one of the factors contributing to the increase of the Mexican exports to the Japanese market. After this agreement was signed Mexican pork exports rose, but it is clear that there have been other elements intervening. The history of Mexican pork exports to Japan began in +331 after the ban to the Taiwanese

16 88 +*3,**3 Notes + The process of pork liberalization initiated in +322 with the elimination of prior import permits that aimed to complete the national supply (SAGAR, +332)., - In +32. Mexico abolished direct supports to Sorghum (SAGAR, +332). In this period meat consumption in Mexico was dominated by poultry. Based on FAOSTAT database, in Mexico per capita consumption of pork products decreased from,* kg in +32- to 3 kg in +33* while the poultry meat increased from 1 kg to +* kg for the same period.. / 0 Calculated with data of SIAP-SAGARPA,,**3. http :// Accessed : March +*,,**3. http :// Accessed : April /,,**3. This production system covers the complete swine cycle (feed production, breeding, finishing, processing, marketing and distribution). 1 National Service of Health, Innocuity, and Agro-alimentary Quality- Agricultural, Livestock, Rural Development, Fishery, and Food Secretariat. 2 In late April in,**3, news about the H+ N+ virus that was found for the first time in Mexico and then expanded to other countries, spread all around the world. At the beginning of the outbreak the virus was strongly related with hogs, which caused a severe impact on the Mexican pork industry since pork consumption decreased around 2* in Mexico and prices decreased around -* ( periodicoelsur.com/noticia.aspx?idnoticia Accessed : March 1,,**3). Mexican exports, however, were not a# ected since the Japanese government did not ban imports from Mexico based on the scientific explanation that H+ N+ virus was not transmitted by consuming pork meat. According to the statistics of Japan Ministry of Finance, from January to May the Japanese imports of Mexican pork grew 2 from,**2 to,**3. Therefore, there is not evidence of an e# ect on Mexican exports yet, and due to the novelty of the situation and the lack of information, this issue should be analyzed in a di# erent paper focusing on the Mexican pork industry and the impacts of H+ N+ in consumption. 3 Per capita consumption of pork meat in Mexico increased from kg in,*** to +/. + kg in,**1 (SNIIM-SE,,**3). +* ++ Calculated with the information obtained from SNIIM-SE,,**3. Data calculated based on information from SIAP-SAGARPA. http :// php?idliga +/23 &tipo + Accessed : April -,,**3. +, Data calculated based on information from FAOSTAT,,**3. aspx?pageid /-1&lang en Accessed : April -,,**3. +- FASonline. HS code *,*-. http :// +* /*//,**3. +. United States-GPO. http ://fdsys.gpo.gov/fdsys/pkg/fr-+33/-++- +/ /pdf/fr-+33/-++- +/.pdf Accespork imports. This fact determined the initiation of Mexican exports and represented an incentive to Mexican producers for improving and enhancing their production systems and safety measures in order to be allowed to export. However, despite these advantages, Mexico still needs to improve its competitiveness especially with cheap animal feed inputs. It also requires investment in order to increase the hog production since the processing facilities are not completely utilized. In addition, Mexico needs to work on its quality, sanity and safety measures in order to become a confident export country, so that other states that have not been allowed to export are certified. Mexico s competitiveness has also been limited by the pork production costs, which have been mainly increasing due to the price of feed grains.

17 Mexican Pork Exports to the Japanese Market under the EPA 89 sed : August -,,**3. +/ Japan has prohibited meat imports from several countries, for example, for Foot and Mouth Disease : Korea (,***) and countries of the EU (,**+) ; for avian flu : China (,**-), Indonesia (,**.), Cambodia (,**.) Thailand (,**.), United States (,**.) and Canada (,**.) ; to BSE : Canada (,**-) and EU (,**-,,**0), information taken from JAICAF (,**2). +0 In +322 the United States and Japan signed the Beef Market Access Agreement (BMAA) and the Japanese per-capita beef consumption increased from -. 3 kg in +32/ to 1./ kg +33/. Source : MAFF, http :// 1.xls Accessed : May +,,,**2. +1 The negotiations initiated in November,**, after the recommendation by the Japanese-Mexican Joint Study Group - which is comprised of individuals from both governments, business and academia areas. +2 The amount of import quota in total (including other categories of pork) from the first to fifth Japanese Fiscal Year is -2,*** tons in,**/ JFY, /-,*** tons in,**0jfy, 0/,*** tons in,**1jfy, 1.,*** tons in,**2jfy, and 2*,*** tons in,**3 JFY. In-quota tari# s were reduced from..- to,., for pork (fresh, chilled, or frozen) and from 2/. to.-. for prepared and preserved pork (ham, bacon or pressed ham) +3 Based on information from the Ministry of Agriculture, Forestry and Fishery of Japan (MAFF). http : // Accessed : May ++,,**2.,* There are some companies in the states of Jalisco, Nuevo Leon and Aguascalientes that can export to Japan. However, these companies have to use pork meat from the Unites States or third countries free of CSF without vaccine, accepted by the Japanese authorities. In addition, pork has to be treated with an e$ cient (cooking) method in order to be disinfected (from CSF). This process can take place in authorized plants located in states free of CSF (SENASICA,,**2).,+ According to statistics from the Ministry of Finances of Japan, in,**1 total Mexican pork exports to Japan were.2,-./ tons and the production in the five states allowed to export to Japan reached --3, 3.. tons.,, These systems refer to companies that are not integrated into the purchase and manufacture of balanced feed, and do not have processes or infrastructure to elaborate primary cuts.,- Although states such as Sinaloa, Chihuahua and Guanajuato have yields similar to the United States (FAOSTAT,,**2),. Elaborated based on statistics from United States Department of Labor, Bureau of Labor Statistics, March,**3. *2.htm Accessed : May,,,,**3.,/ The reasons why Mexican freight costs are higher than its competitors are not clear. However, the transport systems, insurance costs, forwarding agent commissions, etc. are determinant in the freight costs. This point requires a special analysis and should be carried out in a special paper with the relationship between a shipping company and export company. References Adcock, Flynn J, C. Parr Rosson III, and Varela A. (,**1), Tracking U.S. Grain and Soybean Exports in Mexico. Center for North American Studies, Texas A&M University. ASERCA ( +330), La Porcicultura en Mexico, una Tradicion Enclavada en la Modernidad. Claridades Agropecuarias, No. -., -,*. Batres-Marquez S.P., Clemens Roxanne and Jensen Helen H. (,**0), The Changing Structure of Pork Trade, Production, and Processing in Mexico. Center for Agricultural and Rural Development (CARD) Publications *0-mbp +*, Center for Agricultural and Rural Development (CARD) at Iowa State University.

18 90 +*3,**3 FAOSTAT (,**2), Statistics Database of the Food and Agriculture Organization of the United Nations, http : //faostat.fao.org/ Accessed : June,*,,**2. Gomez Cruz, M.A. and Schwentessius, R.R. ( +33/ ), Impacto de la devaluacion en el sector agropecuario : agudizacion de la crisis agricola, in Estudios Agrarios : Revista de la Procuraduria Agraria, No. +, octubre - diciembre, Mexico, Gonzales Padilla Everardo (,**2), Fortalecimiento de la Porcicultura Nacional. National Meeting of Mexican Pork/Hog Producers,,**2. CGG-SAGARPA, Queretaro, Mexico. September +3,,**2. Hapag-Lloyd. (,**3), Ocean Tari# Rates, http :// Accessed :,3/*./,**2. Hernandez, Moreno Maria del Carmen (,**+), Estrategias Competitivas frente a la Globalizacion. El caso de los porcicultores de Sonora (Mexico), CIAD, A.C. JAICAF, Japan Association for International Collaboration of Agriculture and Forestry (,**2), Japan Agrinfo Newsletter, Several issues, http :// Accessed : November,2,,**2. Kato Maldonado, L. and Blanca Suarez ( +330), Crisis, apertura y sobrevivencia en la porcicultura Mexicana, Comercio Exterior, Vol..2, No. 2, agosto, 0/ Perez Espejo, Rosario ( +330), La porcicultura en el tratado de libre comercio de America del Norte, in Hubert C. De Grammont and Hector Tejera Gaona (coord.), La sociedad rural mexicana frente al nuevo milenio, Vol. + La insercion de la agricultura mexicana en la economia mundial, Mexico : Casa Abierta al Tiempo, UNAM, Plaza y Valdes. Pig International (,**2), A panorama of production costs. Volume -2, Number,, +/ +3. SAGAR ( +332), Situacion Actual y perspectiva de la carne de porcino en Mexico. Coordinacion General de Ganaderia. Sagarnaga Villegas M and Flores Verduzco J. J., ( +331), El impacto del TTLC sobre el sistema agroindustrial porcino mexicano, CIESTAAM, Universidad Autonoma Chapingo, Mexico. Sagarnaga Villegas. M., Salas Gonzalez. J.M., Ramos C., Valencia J. (,***), Impacto del TLCAN en el sistema productivo porcino mexicano, cinco años y medio de operacion. Reporte de Investigacion /,, Chapingo, Mexico : CIESTAAM, Universidad Autonoma Chapingo, Mexico. Sagarnaga Villegas, M. Salas Gonzalez. JM., Mariscal Aguayo V., Estrella Quintero H., Ruiz Flores A., Gonzalez Alcorta M., Juarez Zarate A. (,**-), Impacto del TLCAN en la Cadena de Valor Porcina, Universidad Autonoma Chapingo, Mexico. SAGARPA (,**0), Situacion Actual y perspectiva de la carne de porcino en Mexico,**0. Coordinacion General de Ganaderia. SAGARPA (,**1), Programa emergente de apoyo a la rentabilidad Porcicultura. Available : http ://www. sagarpa.gob.mx/ganaderia/comite/po/vientres_ porcino _ +3*.*1.pdf Accessed : June,3,,**2. SAGARPA (,**2), Corn Production. Historical database. Available : http :// Accessed : November +/,,**2. SAGARPA-SIAP (,**2), Statistics Database. Avance Mensual Pecuario. Con informacion de las Delegaciones de la SAGARPA. Available : http :// Accessed : June,2,,**2. Schwentesius Rindernmann, R. and Gomez, Cruz M.A. ( +33+ ), La porcicultura mexicana ante la posible firma de un tratado de libre comercio con EE.UU. y Canada. Reporte de Investigacion *+. CIESTAAM-UACH, Mexico. SENASICA (,**2), Establecimientos para exportar productos carnicos a Japon , / default.asp?id 212 Accessed : October,*,,**2. SIAP-SAGARPA (,**2), Directorio Nacional de Centros de Sacrificio de Especies Pecuarias de los Estados Unidos Mexicanos, 0,.

19 Mexican Pork Exports to the Japanese Market under the EPA 91 SNIIM-SE, Sistema Nacional de Informacion e Integracion de Mercados, Secretaria de Economia, (,**3), Consumo Nacional Aparente de productos pecuarios seleccionados. ArchivosFuente/Comentarios/Otros/cnapec- *1.xls Accessed : *-/*3/,**3. Tony Fowler, (,**0), Pig Cost of Production in selected Countries. Meat and Livestock Commission (MLC) December,**1. BPEX USDA, United States Department of Agriculture (,**3), Mexico Livestock and Products Semi Annual,,**3. GAIN REPORT../ 1 /,**3, http :// pdf, Accessed : May ++,,**3. USMEF, United States Meat Export Federation (,**1), Mexican Pork A Growing Competitor In Japan. Insight, August,,,,**1, Available : _*2,, a_ Japan.pdf Accessed : -/ +* /,**3. Zaida M. San Juan-Mejia, Miguel A. Martinez-Damian and Roberto Garcia-Mata (,**1), E# ect of Pork Meat Imports on the Mexican Beef Meat Market. Agrociencia, Vol..+, No. 2, 3, Interviews Arellano Susana, Director of OCETIF (TIF Slaughter and processing plants Certification Entity). Interviewed by the author in Mexico, D.F. September +,,,**2. Garcia Vicente, Director of the National Federation of hog/pork Mexican producers. Interviewed by the author in Juriquilla, Queretaro, Mexico. September +2,,**2. Valderrain Conrado, Export Sales Manager of the pork export Company Sonora Agropecuaria, S.A de C. V. Interviewed by the author in Chiba, Japan. March /,,**3. Received May +-,,**3 Accepted July +/,,**3

20 92 +*3,**3 EPA,**/ EPA EPA EPA EPA : EPA