Mexican retaliatory tariffs- a new opportunity?

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In response to US President Donald Trump’s tariffs on steel and aluminium, Mexico announced retaliatory tariffs on US steel, aluminium and agricultural products.

These tariffs encompass virtually all fresh/frozen pork, sausages and some prepared hams purchased from the US. A 10% duty stands on fresh/frozen pork cuts until July 5, when it rises to 20%. Meanwhile, a 15% tariff on sausages and 20% on some hams came into effect immediately. In 2017, this trade totalled approximately 1.35 million tonnes, was worth around $1.2 billion, and accounted for 89% of total Mexican imports of the products in question.

Significantly for other global exporters, Mexico also announced the opening of a 350,000 tonne duty free quota for imported pork cuts. The new quota is currently planned to remain in place until the end of 2018 and is designed to minimise any potential rise in pork prices on the Mexican market.

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The quota is open to Mexican pork processors and operates on a first come-first served basis. Established importers have access to 97% of the quota, with the remaining 3% reserved for new importers. Imports can be sourced from any country eligible to export pork to Mexico, which technically includes the US, according to the USDA. While it is uncertain whether this will be true in practice, this could potentially limit the opportunity for new suppliers.

Nonetheless, this does still offer a new opportunity for international exporters to supply Mexico duty-free. A number of EU plants are already approved to export pork to Mexico, although none are in the UK. Outside of the quota, these shipments would incur a 20% tariff, significantly limiting the viability of the trade and so in previous years, volumes supplied by the EU have been negligible. A new export opportunity will likely be welcomed by the EU pork market, which has been struggling with exports so far this year as Chinese demand has fallen back.

Note however, it will not necessarily be easy for the EU to win a slice of the Mexican market. It is unlikely to be viable to supply fresh/chilled product, which occupies 88% of imports at the moment. In addition, product will also need to compete with Canadian and Chilean pork, which already enjoys tariff-free access under separate trade agreements. As the tariff measures are theoretically only temporary, US suppliers may also opt to offer discounts to their Mexican buyers to maintain relationships and trade flows.

EU pork prices are also generally higher than those in North America, which may limit the opportunity unless discounts are made. However, the average EU export price for frozen shoulders and legs was lower than Mexican import price last year, so perhaps there is some opportunity for these products in particular. However, this product only accounted for less than 0.5% of Mexican pork imports in 2017.

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Overall, with further trade negotiations expected over the coming weeks, it remains to be seen what the ultimate impact of these tariff measures might be. This will clearly be an important area to watch. For more information on the outlook for global pork prices click here.

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Bethan Wilkins, Analyst

bethan.wilkins@ahdb.org.uk, 024 7647 8757