Study: Mexican Chicken & Food Prices to Increase15 May 2012
US - Retail chicken prices in Mexico will rise by 22.4 per cent, the meat Consumer Price Index (CPI) will jump 7.2 percent and the food CPI by 1.9 per cent, should the Mexican government implement duties on US chicken leg quarter imports, according to a study that assessed the likely impact of the duties on prices and inflation levels in Mexico, conducted by Dermot Hayes, PhD, Professor of Economics and Finance at Iowa State University.
Early in 2011, three Mexican poultry companies petitioned the Mexican government to begin an antidumping investigation of imports of chicken leg quarters from the United States, frivolously claiming that US companies were exporting leg quarters to Mexico at below-market prices. The Mexican ministry announced its preliminary results with proposed duties on US poultry ranging from 64 per cent to 129 per cent.
The loss of this enormous leg market would damage the US chicken industry and competing meats. Mexico is the largest customer of US poultry exports. If these tariff rates are indeed imposed in Mexico’s final determination, US exports of chicken leg quarters to Mexico would decrease from about 250,000 metric tons per year to 0 and would result in the loss of hundreds of US jobs and a loss of $275 million annually for the US poultry industry.
The Iowa State study examined what implementation of the duties would mean for Mexican consumers.
The availability of affordable US leg quarters has allowed a significant portion of consumers in northern Mexico to include meat in their diets on a regular basis. This region is currently suffering from the aftermath of a severe drought and the widespread availability of affordable chicken legs has helped alleviate a severe shortage of food.
Results from the study indicate that in the short run, on an annualized basis, the duties will eliminate 250,000 metric tons of chicken leg quarters from the market and replace them with 79,000 tons of imported whole chicken. Domestic consumption will fall by 163,000 tons, in part because chicken prices will rise by 22.4 per cent. A 22.4 per cent increase in chicken prices will increase the meat CPI by 7.2 per cent, the food CPI by 1.9 per cent and the overall CPI by 0.4 per cent.
Imported chicken leg quarters are an economical animal protein for disadvantaged Mexican consumers, especially in Northern Mexico. These consumers will bear the brunt of this adjustment to higher food prices, Dr Hayes said.
“The sudden disappearance of 250,000 tons of leg quarters will cause national poultry prices to increase,” Dr Hayes continued. “In the immediate aftermath of the duties, it will not be possible for the Mexican poultry industry to increase production. This means that the market will be brought back into balance by reduced consumption and by increased whole bird imports.”
The Mexican poultry industry will benefit most from these duties, according to the study. “This industry has grown at a far faster rate than the poultry industry in the United States because middle class Mexican households prefer domestically produced fresh poultry,” Dr Hayes noted. “It is ironic that the expansion in the number of middle class Mexican consumers is due in part to the free trade agreement that prompted this dispute.”
“Mexico is an important trading partner for the US chicken industry and we hope that this frivolous antidumping case will be dropped as soon as possible,” said National Chicken Council President Mike Brown. “The negative ramifications of imposing these duties are clear, for the US chicken industry and for Mexican consumers. US-Mexican trade relations should be strengthened by encouraging trade to expand, not diminish.”
A public hearing is scheduled for 15-16 May in Mexico City arranged by the Mexican Unit of Foreign Trade Practices (UPCI) about the Mexican anti-dumping investigation against US chicken leg quarters. Expected to take part in the hearing are the petitioners in the case, US exporters and Mexican importers. Under Mexican law, the hearing will provide participants an opportunity to recap information they have provided to UPCI during the course of the investigation, or to provide supplemental and supporting material. The hearing is one of the last steps before UPCI renders its final determination in the case, which will have to be reached by August under Mexican law.
Last month, 16 bipartisan US senators wrote to US Trade Representative Ron Kirk expressing concerns with the antidumping action Mexico has instituted against US chicken leg quarters. “As we continue the Trans-Pacific Partnership negotiations, we urge you to resolve this situation to ensure that Mexico honors its commitment under the North American Free Trade Agreement,” they wrote.