Open arms: Finding new markets for exports

Although it has a number of free trade agreements (FTAs), Mexico’s diversification of export markets has been slow. In 2013, five countries – the US, Japan, Canada, Venezuela and Guatemala – accounted for 84.7% of Mexico’s agrifood exports. In the past few years, diversification efforts have for the most part been directed at penetrating markets in Asia.

Mexico has attempted to carve out a market for its meat and fruit and vegetable exports in the Chinese and South Korean markets, while increasing exports to Japan, its key partner in the region. The Trans-Pacific Partnership (TPP), for which Mexico is in accession negotiations, will open six new markets in the region, and could be a boon to exports, particularly of value-added products.

JAPAN: Since 2006, when Mexico’s FTA with Japan took effect, trade of agrifoods between the two countries has increased consistently.

According to the Department of Agriculture, Livestock, Rural Development, Fisheries and Food ( Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, SAGARPA), in 2013 agricultural exports to Japan rose by 27%, topping $1bn.

In first-half 2013 pork accounted for some 27.68% of exports, followed by avocado (12.97%), beef (10.65%) and tuna (8.6%). Other exports include cattle, fish, flour, tequila, melon, juices, coffee, beer, shrimp, wine, cotton and cocoa.

In 2013, the two countries agreed to strengthen the existing commercial accord, resulting in the abolishment of export quotas for 13 strategic products, including meat and processed meat products ( chicken, beef and pork), honey, plantain, oranges, orange juice, agave syrup, tomato juice and tomato sauce. Enrique López López, director-general of the Mexican Association of Cattle Breeders, told OBG, “We send higher-priced American cuts to Japan and we have also found an interesting niche market for tripe there.”

Japan is an important market for meat exports, and one in which Mexico enjoys a comparative advantage. “The Japanese want specific cuts of beef, which require a lot of labour and in which we are very competitive. We are starting to see the meat industry better market higher-priced cuts,” Kenneth Shwedel, partner at Ksadvise, an agribusiness consulting company, told OBG.

CHINA: In 2013 exports from Mexico to China fell 20% year-on-year, reaching a total value of around $168m. Imports, however, grew to $487m, up from $414m the previous year. The exports consisted mostly of flour, cotton, beer, tequila, juices, avocado, almonds, chocolate, honey, coffee, oils and figs. Chinese leaders had expressed interest in an FTA between China and Mexico in 2006, but this was put on hold when relations between the two countries cooled after former Mexican President Felipe Calderón received the Dalai Lama in 2011.

In 2012 Mexico also filed a complaint with the World Trade Organisation accusing China of providing unfair subsidies and tax breaks to its clothing and textiles businesses.

However, the current administration seems keen on restoring good relations with the Asian giant. In April 2013, only five months after assuming the presidency, Enrique Peña Nieto visited China. The diplomatic gesture was quickly returned when the Chinese president visited Mexico two months later.

During his visit, Xi Jinping stated China’s commitment to deepening commercial ties with Mexico through an FTA. Such an agreement could see food exports from Mexico increase exponentially. The trade balance between the two nations has been disproportionately on the Chinese side.

Mexico gained important access to China for tequila products in 2013, and in 2014 talks were in an advanced stage for exports of mangos and lemons, among other products. In 2013 the first shipments of 100% pure agave tequila made its way to China. As for pork exports, Chinese authorities have already approved the certification of meat plants in Mexico. According to SAGARPA, exports to China could reach $1bn in the short to medium term. In early 2014, it was also reported that Chinese authorities had cleared berries produced in Mexico for import.

SOUTH KOREA: In June 2013, the secretary of agriculture, Enrique Martínez y Martínez, met with his South Korean counterpart, Le Dong Phil, in Seoul, where both leaders reinforced their commitment to increasing trade of agrifoods between the two countries. Efforts are now being made to harmonise phytosanitary requirements. South Korea has already authorised the imports of Persian lime.

With an annual production of more than 1.89m tonnes spread over around 153,443 ha of land, Mexico certainly has the installed capacity to increase exports of the fruit. Shipments to South Korea are expected to begin in 2014. According to SAGARPA, negotiations are also ongoing on protocols to allow exports of grapes. Primary product trade between the two nations amounts to around $75m; Mexico sends about $67m of products to South Korea, around 50% of which is meat products (beef and pork).

TRANS-PACIFIC PARTNERSHIP: The TPP, which will unite 12 different countries – Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, Japan and Vietnam – could increase exports to the region by between 30% and 40% in the next three years, according to figures from SAGARPA. Taiwan and South Korea could also be joining the TPP. In January 2014, South Korean officials visited the US to negotiate South Korea’s entry, while Taiwan is conducting feasibility studies.

Since Mexico already has bilateral agreements with the US, Canada, Chile, Peru and Japan, the biggest advantage will be the opening of the six markets with which Mexico currently has no trade agreements – Singapore, Malaysia, New Zealand, Australia, Brunei and Vietnam. According to SAGARPA, these markets are attractive for higher-priced, value-added products such as juices, dry pepper and condiments.

In 2012, Mexico’s agrifood exports to the region amounted to MXN18.8bn ($1.5bn), nearly 90% of which went to the US and Japan. The remaining countries represent MXN445m ($34.6m). Therefore, the potential to increase exports is significant. Mexico has the opportunity to gain market share for 20 products which the region imports (excluding the US). For this reason, Mexico is negotiating preferential access to these markets for pork, beer, avocado, beef, tuna, tequila and coffee, among other products.

While the TPP could boost exports of fruits and vegetables, and in the case of Japan and China meat, some industries may be vulnerable to competition, such as milk, which Mexico imports from New Zealand to meet local demand. With the biggest meat producers in the world in the TPP’s membership list – the US, Australia, New Zealand and Canada – the prospects for carving out new export markets for Mexican meat, outside of Japan and China, could also be limited. With a sizeable domestic market, Mexico is an attractive prospect for big meat-producing countries.

Enrique López of the Mexican Association of Cattle Breeders told OBG, “Japan is a market of opportunity, in which we want to increase our free trade quotas. However, to the remainder of the countries our exports are limited to non-Muslim, non-Jewish populations, because we do not specialise in halal or kosher meats, though we are working towards acquiring the required certifications to do so. With the TPP we see more elements that are against us than are in our favour. The greatest disadvantage is that our markets are now open to big meat-producing countries, such as Australia, New Zealand and Canada.”

FOOD SAFETY: A key factor for Mexico to gain access to new markets is the adherence to food safety requirements. The sector’s development plan for 2013-18 allocates MXN5.14bn ($399.38m) for the strengthening of agrifood health and safety measures. With more funds flowing into this area and the opening of new export markets abroad, Mexico’s agrifood exports look set to rise in the coming years.