The federal government in Mexico announced US$83mn in support to the pork industry in May 2009

Aug. 1, 2009 - PRLog -- In the Mexico Agribusiness Report for Q3 2008 we introduce two new outlooks, rice and soybean.

Production of the two crops has followed a very similar pattern over the past few decades. Output of both rice and soybeans rose though much of the 1980s, but fell off abruptly in the mid-1990s. The cause for the sudden collapse in production of the crops was the liberalisation of Mexico's agricultural sector in preparation for the implementation of the North American Free Trade Agreement (NAFTA), which was signed in 1994.

Price supports for agricultural commodities were cut back and farmers were forced to face the vagaries of the market. Many found that without government protection, production just wasn't profitable. As tariffs on imports from the US were gradually eased to zero in the 10 years following the signing of the treaty, imports from the North took the place of domestic production. For both rice and soybean, Mexican farmers found they were unable to compete on price with crops grown in the US. Production dwindled.

Soybean production was hit especially hard, dropping from almost 1mn tonnes in 1990 to 100,000 tonnes a decade later. After hitting a nadir of 81,000 tonnes in 2006 and 2007 production rose up to 89,000 tonnes in 2008. In 2009, we forecast production to rise to 153,000 tonnes. We do not believe that output will rise back to its 1990 peak in the foreseeable future. Production in Mexico is just too expensive in comparison to in the US, where much less irrigation is required. However, we do expect something of a turnaround in soybean production. This will be encouraged by a return of government assistance to the sector. Subsidies for diesel and electricity have been increased and some price supports have been reintroduced.

The biggest story in Mexican agribusiness this past quarter has been the outbreak of H1N1 'swine flu'.

Despite assurances from the World Organization for Animal Health (OIE) and the UN Food and Agriculture Organization that the virus cannot be caught from eating pork, demand for the meat collapsed at home. Countries around the world also slapped import bans on Mexican pork.

We had already expected demand for pork to be sluggish in 2009 owing to the poor state of the Mexican economy – the report is now forecasting Mexico's GDP to contract 7.1% in 2009. The flu outbreak will add further woe to producers already suffering under the strain of high feed costs and slow demand. The federal government in May announced MXN1.1bn (US$83mn) in support to the pork industry to help producers recover from the outbreak, but many will still be forced out of the sector.

In the longer term, we do not see the flu having a lasting impact on Mexico's pork production. Unlike the devastating outbreaks of avian flu across Asia and other parts of the world earlier this decade, there have been no enforced culls of animal stock. Once the hysteria has passed and the economy begins to recover, we believe demand will return strongly.

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