The Mexican pork industry is at a crossroads, says Christine McCracken, senior analyst animal protein at Rabobank. The industry has made great changes from a low-tech, fragmented production sector to a globally competitive pork supplier.
The transformation is laudable, McCracken says. But in order to meet future market expectations and provide consistent financial results, Rabobank analysts say the sector must continue its modernization process.
If it can’t, the industry will be left exposed to the volatility that has been associated with herd health challenges and the tighter margins associated with inconsistent pork quality.
Future pork supply hinges on improved biosecurity and productivity gains.
The pandemic has forced new investments in the structure and operation of the Mexican pork industry, Rabobank analysts report. One of the biggest is a renewed effort to enhance biosecurity to limit the impact of herd health challenges and ensure stable hog supplies.
“The sizable herd loss, due to outbreaks of PEDv and a new strain of PRRS in 2020/21, sharply curtailed production and cut financial returns for impacted producers,” McCracken says. “This ultimately drove inefficiencies in the processing sector and contributed to a spike in live hog prices.”
Similar to what happened in 2014 with PEDv, there has been a renewed effort by producers to step up investments in infrastructure and improve herd management. Measures to boost biosecurity are going to be key to Mexico’s success. With African swine fever (ASF) moving closer to Mexico, Rabobank believes the shift toward larger, vertically-integrated production dramatically reduces potential herd health risks since it combines the ownership of the animals from breeding through to pork distribution.
Productivity is moving in the right direction, but improvement is needed. Moving to more multi-site, specialized systems has helped improve the number of pigs born alive per sow (PBAS) per litter on large-scale commercial arms from an average of less than 10 PBAS to around 12 in the past decade, Rabobank says. Still, growth in meat production continues to trail growth in the breeding herd – a sign of ongoing productivity losses and herd health challenges.
“We expect broad adoption of improved genetics, improved nutrition and better herd management – along with improved biosecurity – will help the industry accelerate production through 2025,” McCracken says. “To fuel this growth, we anticipate further expansion in the sow herd, with investments in isolated sow units and greater geographic dispersion of operations to limit the health risks.’
Pork demand shifting toward premiumization, but remains tied to economic growth.
The value of Mexican pork is increasing as new domestic markets for premium pork cuts and processed meats expand. Meanwhile, processors are further maximizing pork carcass values by opening new export markets.
“While pork volumes are expected in increase through 2025, the expected shift in value cannot be overlooked,” McCracken says. “Improvements in disposable income and growth in new retail formats are creating stronger interest in further processed products and a wider variety of cuts.”
Rabobank says this reflects a gradual move toward more dual-income households and a need for convenience products, but also a shift in availability of products from the processing sector. Higher carcass values will help processors generate improved returns while yielding more consistent financial results.
Analysts say improvements in Mexico’s cold chain and product distribution will support additional growth in value-added sales. This will not only ensure product quality but will also create more consistency.
Mexico is now the fifth-largest exporter of pork in the world, but until recently had little success in growing its international impact. In 2021, Rabobank says Mexico is expected to export around 300,000 metric tons, about 4% of the global pork trade. At 18% of Mexico’s total pork production, exports are an important part of the industry’s capability to stabilize margins and optimize carcass values.
Investment needed to meet future demand.
The industry in Mexico must step up its investment in biosecurity and address critical weaknesses in its production systems or it will risk ongoing supply chain disruptions, Rabobank says.
“Although the industry has made tremendous progress, it is only as strong as its weakest link,” McCracken says. “The Mexican hog production sector remains vulnerable to herd health challenges, and the large number of small hog operations with lax biosecurity will make progress difficult.”
Rabobank says its outlook for steady supply growth reflects their current expectation for improved herd health and continued productivity gains, aided by further industry integration. Read the full report here.
More from Farm Journal’s PORK:
Sorenson Advocates for Animal Protein During Borlaug Dialogue
Check Out These Real Pork Recipe Winners
