Changing from Within and Without: The Mexican Beef Cattle Industry Faces the Future
Dr. Derrell S. Peel§
Introduction
Beef cattle production has been important in Mexico since the Spanish conquistadors
came looking for gold and silver in the early sixteenth century. Right behind the miners came
the ranchers trailing herds of imported Spanish cattle to provide meat for mining towns. Cattle
production continues to play a vital role in Mexican agriculture today but, as it is in many cattle
producing countries, the economic environment for the Mexican cattle industry is changing
rapidly. These changes bring a host of new opportunities and challenges for Mexican producers.
Mexico has all the ingredients for a viable beef cattle industry including the availability
of vast areas of production resources, suitable primarily for forage production; the comparative
advantage of using those resources for cattle and beef production; and the presence of strong and
growing consumer demand for beef. There seems to be little doubt that Mexico will continue to
have a significant cattle and beef industry but it won’t be a case of business as usual.
Higher income, urban consumers in Mexico are demanding more and different products
than in the past. Product marketing is changing as modern supermarkets sweep the nation with
new retailing systems. Large quantities of imported beef are filling in for lagging domestic
production and challenging Mexican producers to adopt relatively more intensive production
systems. These changes in consumer demand and the beef marketing system have profound
implications for cattle and beef production in Mexico.
Change in Beef Demand is Driving Industry Change
More and more Mexican consumers are demanding, not only more beef, but different
products than were traditionally consumed in Mexico. Historically, beef consumption in Mexico
consisted primarily of grass-fattened animals and beef from cull cows and bulls. Cull beef has
played a very different role in the Mexican beef industry than in the U.S. In Mexico, cull beef
has typically been consumed, not as hamburger, but as muscle cuts right along side grassfed
beef, often with little or no differentiation. As little as a decade ago, cull beef likely accounted
for a third of total beef consumption and still today in many rural areas almost all beef
consumption is cull beef. It is estimated that cull beef still represents 20 to 25 percent of average
per capita beef consumption in Mexico but the overall demand for cull beef is decreasing. A
small but growing part of this is now in the form of hamburger as U.S. burger restaurant chains
expand their presence from the North into central Mexico.
In many of the larger cities, however, consumer preferences are changing in favor of beef
from younger animals that have received some grain feeding. Although consumers in the
northern regions of Mexico demand beef products that are quasi-American in quality and style
(i.e. steaks), most Mexicans prefer beef that is very lean with little or no marbling and which is
processed and cooked differently. The fastest growing beef demand component in Mexico is for
this “Mexican” fed beef, which is distinguishable from U.S. fed beef and also from traditional
Mexican grassfed and cull beef. Although demand is growing for a different quality of beef
animal, domestic Mexican consumers still prefer traditional cuts and methods of processing.
Across much of Mexico, beef from the chuck and round is preferred over steaks and other
middle meat (rib and loin) products.
The Mexican Cattle Feeding Industry
A limited cattle feeding industry has existed for many years in northern Mexico.
Traditional cattle feeding centers in Sonora, the La Laguna region (Durango/Coahuila) and
Monterrey (Nuevo Leon) produced fed cattle to meet the distinctly northern beef demand. In
most cases this feeding was a less intensive version of U.S. style feeding of European-cross
steers or, more likely, the heifer mates to steers that were exported to the U.S.
More recently cattle feeding has expanded in other areas including Mexicali (Baja
California), Culiacan (Sinaloa), Guadalajara (Jalisco) and the Huasteca region (Tamaulipas/San
Luis Potosi). These newer regions, in addition to the traditional feeding areas are increasingly
feeding animals for the “Mexican” fed beef market. In most cases this is feeding of
predominantly Zebu or Zebu-cross animals. In general this type of feedlot production is
somewhat less intensive (compared to U.S. feedlot production) and usually uses shorter feeding
periods resulting in carcasses that are very lean with little or no marbling. However, this type of
carcass is noticeably different than traditional grassfed beef in having white rather than yellow
fat and because it is usually 12 to 18 months younger in age at slaughter. Feedlot production is
estimated to be in excess of 1 million head per year and represents roughly 35 percent of
Mexican beef production at the current time.
Although growing demand for fed beef in Mexico implies more opportunities for feedlot
production in Mexico, there are several major challenges as well. Mexican feedlots must
compete against the U.S. market and grass based production systems in Mexico for limited cattle
supplies. Some feedlots are located long distances from feeder cattle sources and transportation
costs are high, especially for feedlots in the northwest part of Mexico.
The need for more intensive beef cattle production in Mexico also forces the industry to
compete in new economic arenas. More use of concentrate feed for beef production increases
the beef industry’s competition with pork and poultry production for feed resources and
generally with all other agricultural production for use of limited arable lands. Mexico produces
only about half of its total feed grain needs. Although pork and poultry production are more able
to economically use imported grain, the relative inefficiency of feed conversion of cattle makes
use of imported grain very uncompetitive for beef production. The Mexican feedlot industry is
faced with the challenge of producing higher quality beef animals using medium quality feed
resources including a heavy reliance on by-product feeds.
Mexican Cattle Production
The changes described above have significant implications for the diverse cattle
production sectors in Mexico. Beef cattle production in much of the arid and semiarid region of
northern Mexico has focused for many years on cow-calf production of European cross animals
suitable for export to the U.S. In general, cattle and beef values in the U.S. and Mexico are
converging, as one would expect with more economic integration between the two countries.
This means that cattle values in Mexico are increasing relative to U.S. values. However, the
more intensive grain-feeding system used in the U.S. tends to value calves higher relative to the
Mexican market and there will continue to be incentives for animals to move north into the U.S.
Nevertheless, beef values in the Mexican market are now close to U.S. values, and there will be
more opportunities to market calves from this region in the domestic market.
Roughly half of all Mexican beef cows are located in the tropical region of the country.
This region is also where the majority of grass finishing of animals takes place. The heaviest
concentration of beef production is along the Caribbean coast from Veracruz to Campeche.
Although animal productivity is relatively low, the sheer volume of forage production in the
tropics makes the region a large contributor to total Mexican beef production. The tropics are
the home to much dual-purpose beef production using Zebu-dairy crossbreeding as well as
specialized beef production using Zebu dominated genetics. Animal productivity in the region is
limited by poor forage quality, parasite and disease prevalence, climatic stress, and relatively low
management levels.
Increasing demand for fed beef and the corresponding decrease in demand for grassfed
beef has dramatic implications for total beef production potential in the tropical region. Grassfed
animals usually graze for two to three years after weaning to reach slaughter weight. Reduced
grassfed beef production will release significant quantities of forage for other uses and implies
the possibility of increased cow-calf production in the region. More and more calves born in the
tropics are now moving to feedlot areas after weaning or stocker production. This also means
that animal marketing and transportation patterns are changing as well. Animals that formerly
remained in the tropics from birth to slaughter weight may now move to northern cattle feeding
areas with the meat ultimately moving back to urban centers in the middle of the country.
Tropical producers now have additional marketing opportunities with growing feedlot demand
for tropical feeder cattle. Some producers in the tropics are now experimenting with more
intensive production systems including intensive grazing and supplementation systems to
produce beef carcasses similar in quality and age to feedlot beef.
The Role of Imported Beef
Imports of beef into Mexico have skyrocketed in the last five years. The U.S. has the
largest market share of the beef imports and has seen the largest growth in tonnage. However,
imports of Canadian beef have increased the most in percentage terms and the U.S. share of
Mexican beef imports has declined from over 90 percent to less than 80 percent in the last couple
of years.
There are three primary reasons for the rapid growth in beef imports into Mexico.
Imports fill in for insufficient domestic production. With drought-reduced herds, financially
stressed producers have been unable to increase production to meet the rapidly growing
consumer demand for beef since the mid 1990s. Mexican data shows that beef consumption
expands rapidly with increasing incomes for lower income levels. More than simply a matter of
total beef quantity, the demand for fed beef in Mexico is growing faster than the capability to
produce fed beef in comparatively more intensive production systems.
Imported beef helps improve the product mix in the Mexican market. Demand is greatest in
Mexico for end meats from the chuck and round, partly as a matter of cultural preference for
these products and partly because these products are priced more appropriately for lower income
consumers. Roughly 75 percent of U.S. beef exports to Mexico are Select quality chuck and
round products. These are products with relatively low demand in the U.S. and exports provide a
higher value market for these products.
Imported beef is price competitive in the Mexican Market. Beef carcass values in the domestic
Mexican market are essentially equal to average carcass values in the U.S. This means that
relatively low value products such as those described above are very price competitive in the
Mexican market. Although the economic basis for the beef industry in Mexico is secure, in a
free market environment the availability of imported product to supplement domestic production
will force the Mexican industry to produce and sell products under the shadow of keen
international competition.
What Does the Future Hold?
Mexico is a country with a relative excess of forage resources and there seems to be little
doubt that beef cattle production will continue to be an important part of Mexican agriculture.
However, the growing demand for fed beef means that there will be ever-stronger economic
forces attempting to reshape production activities in ways that are sometimes very different from
the traditional view of the industry. My own research suggests the following observations and
expectations about the future of the Mexican beef cattle industry.
Cow-calf production will continue to be a vital primary production activity in all regions
of Mexico. In the north, the focus will continue to be on production of cattle for export to the
U.S., this will include both steers and spayed heifers and may include more emphasis on
additional weight gain as stockers prior to exporting. In the tropics, there is likely to be an
increase in cow-calf and stocker production as more forage becomes available from reduced
production of grassfed beef. A higher proportion of tropical cattle will move to feedlots for
finishing and thus, in general, will result in more flows of animals from south to north in the
country. Cattle markets that were previously very regionalized will become more national in
focus and the economic signals within the industry will be come more consistent in different
regions. Additional movement of animals within the country will heighten animal health issues,
especially for campaigns to eradicate Brucellosis and Tuberculosis, even in areas not focused on
international exports of animals.
As long as economic growth is maintained, I anticipate that beef consumption will
continue to grow and that demand for younger, fed animals will replace demand for grassfed and
cull animals. There will be additional opportunities for cattle feeding in Mexico but the
economics will be very challenging. Mexican feedlots probably cannot compete with the U.S.
market for European type cattle and cannot compete head to head with U.S. feedlots producing
U.S. style fed beef. Mexican feedlots also face increased competition from pork and poultry
production for limited production of concentrate feeds. However, the growing demand in
Mexico is for a distinctly Mexican style fed beef. With a clear focus on the uniquely Mexican
product demand, Mexican feedlots have a viable market niche. As Mexican feedlots shift their
focus to utilize more tropical type cattle they will face less competition with the U.S. market.
Additionally, Mexican feedlots must utilize feeding programs less intensive compared to the
U.S.; optimize use of medium quality feed resources, such as by-product feeds; and minimize
use of imported grain in order be competitive. One advantage of Mexican cattle feeders is that
the majority of the firms are in or are closely aligned with the meat business and thus, the cattle
feeders are in a good position to understand evolving beef demand in Mexico.
Mexico is likely to continue to import beef from the U.S. and other countries. In most
cases, however, these imports will be a matter of supplementing domestic production rather than
replacing it. Under the best of circumstances, it is unlikely that Mexico will be able to produce
sufficient quantities of beef for the burgeoning domestic market. Cattle from northern Mexico
will continue to be exported to the higher value U.S. market for feeding and processing, despite
continuing deficit beef production in Mexico and the need for imports to supplement domestic
production.
Even in the event that Mexican production should increase sufficiently to cause an
approximate balance between overall supply and demand in beef there is still the issue of product
imbalance. Imports are likely to occur in order to balance supply and demand for specific beef
products. Moreover, the relatively high demand in Mexico for Select chuck and round products
are likely to make these products very price competitive in the Mexican market. Once again
these products serve primarily to supplement domestic production.
There are also new market possibilities on the horizon that could impact the Mexican
beef cattle industry. Continued declining demand for cull beef in Mexico, along with the
possibility for increased cow-calf production, could cause Mexico to become a surplus cull beef
market. In the next few years, it is possible that Mexico could potentially join Australia and
New Zealand as suppliers of lean, processing type beef to the U.S. More generally, the large
Hispanic population in the U.S. suggests the possibility of niche markets for Mexican products,
which represent Mexican preferences for quality and processing styles. Continued
modernization of Mexican meat processing, refrigerated storage, and transportation
infrastructure will increase the possibility of exports at some point in the future. Finally, there is
the, as yet not well researched, question of the possible role of Argentine and/or Brazilian beef in
the Mexican market. Mexico is a logical target of expanded exports from both of these countries
and there would be subsequent impacts in all of the NAFTA countries.
The Mexican market is likely to be one of the most dynamic beef markets in the world in
the next decade. The changes that are occurring will provide many challenges to Mexican
producers and for all of Mexico’s cattle and beef trading partners but at the same time offer
unprecedented opportunities to participate in the rapidly growing global beef market.
§
A note about the author:
Dr. Derrell Peel is Professor and Extension Livestock Marketing Specialist in the Agricultural
Economics Department at Oklahoma State University. Since 1992, he has worked extensively to
understand beef cattle production and markets in Mexico and the relationships between U.S. and
Mexican cattle and beef markets. Dr. Peel lived in Mexico in 2001 while on a sabbatical leave
from OSU in order to continue his research into the Mexican cattle and beef industry.
Web Note: This article was published in The Cattlemen, magazine of the Texas and
Southwestern Cattle Raisers Association, December 2002.