Dairy to Mexico

(Last updated: 20 May 2008)

Trends and opportunities

The market

The Mexican dairy market has been growing slowly but steadily throughout the 2003-2007 period. This trend is expected to continue for the foreseeable future. In 2007, the Mexican dairy market generated total revenues of $6.8 billion and this has contributed to a compound annual growth rate of 1.2 per cent for the period spanning 2003–2007, according to government statistics.

In 2007, milk sales proved the most lucrative generating total revenues of $4.1 billion, equivalent to 60.4 per cent of the market's overall value. In second place, cheese sales generated revenues of $1.7 billion equating to 25.2 per cent, followed by the fromage frais and yogurt segment with 7.10 per cent of the market's share. Other dairy products such as, spreadable fats, chilled desserts and cream represented the remainder.

The performance of the market is forecast to accelerate, with an anticipated growth rate of 1.9 per cent for the five-year period 2007-2012 expected to drive the market to a value of $7.5 billion by the end of 2012.

About eight per cent of the total Mexican cheese market is imported, with more than 30 per cent of hard and semi-hard cheeses imported. The main imports of cheese and semi-hard cheeses are from the European Union, New Zealand, a number of South American countries, and to a much lesser extent, the USA.

The market for imported butter varies annually, but represents between 20–30 per cent of the total butter market. Imports of other dairy products such as yoghurt and ice cream are primarily from the USA and in relatively small amounts. Consumer preferences for lower cost margarine are also contributing to the expectation that butter production will remain stable or decline slightly.

Opportunities

Mexico is one of the world's largest importers of dairy products. It offers good opportunities for Australian companies, particularly for:

• bulk sales of powdered milk
• cheese and dairy ingredients
• in-country investment
• technology transfer
• livestock

Tariffs, regulations and customs

Mexico is a member of the North American Free Trade Agreement (NAFTA) with the USA and Canada. It has also recently signed a free trade agreement with the European Union, which will eventually provide member countries with tariff advantages compared with non-member countries.

Tariffs and import procedures vary between products; however, the following is a guide:

• Fresh milk and cream have a 10-20 per cent tariff, but health regulations impose a 48-hour shelf life after pasteurisation, making fresh milk importation difficult.   Whole milk powder is subject to import quota restrictions and for fat content by weight not exceeding 1.5 per cent, the applied base rate is 282 per cent. Other milk powders incur a 10 per cent tariff.
• Cheese – 20-40 per cent tariff. However, the import of cheese is complex as ‘cheddar’ faces 125 per cent, but gouda, edam and other semi-hard cheeses face lesser, varying tariffs. Cheese from NAFTA countries will enter Mexico duty free, while other countries may still face a 40 per cent tariff.
• Cream cheese – 125 per cent, except from NAFTA countries.
• Butter – 20 per cent tariff.
• Yoghurt – 20 per cent tariff.
• Ice cream and similar products – 20 per cent tariff 

Industry standards

Domestic and imported goods and services must comply with the Official Mexican Standards (NOMs), which are technical specifications and guidelines developed to ensure the harmonisation and regulation of materials, products, processes and services.

There are phytosanitary requirements to be complied with depending on the type of product.  

Marketing your products and services

Market entry

The dairy market can be entered by a new company starting up, by an existing company diversifying into dairy product production, or by a dairy product company established elsewhere beginning to sell in this market. Small-scale entry, perhaps as an artisanal producer of premium dairy products, does not require very large amounts of capital.

However, for new entrants aiming to challenge the major players in the mass-consumer market, entry barriers are higher. Scale economies in production will be important.

Most dairy products are perishable, which means that reliable supply and distribution cold chains are vital to avoid the costs of wastage – this can be a particular barrier to entry in less developed economies. Leading dairy product manufacturers may have strong brands, aimed at retaining end-user loyalty, which means that new players will have a more difficult task to differentiate their own brands. Government regulations include laws on food safety, which increase compliance costs. Overall, there is a strong likelihood of new players in the dairy market.

From the consumer's point of view, dairy products may be used directly as food or beverages, or ingredients for other home-made foods. There are a wide range of foods and drinks that can be used in similar ways to dairy products so, if dairy prices rise too high, it would be easy for consumers to replace them with alternatives. This reduces the pricing freedom of retailers and market players. Some of the alternatives may have advantages for retailers, such as cheaper storage or higher margins. The threat of substitutes is assessed here as strong, although dairy products are important parts of most people’s diet and are unlikely to be replaced completely.

The Mexican market is more concentrated than most of the other geographical markets considered in these profiles, with substantial market shares for Grupo Industrial Lala and Pura. However, there are also several smaller players, which boosts rivalry. Switching costs for buyers are not particularly high, although some retailers may allocate contracts to single suppliers of dairy products.

As dairy products are usually perishable, storage costs are high. Industrial production of dairy products requires substantial, specialised assets, and the need to sell these off when leaving the market translates into high exit costs. Overall, rivalry is moderate.

The best way to market your products is by engaging a reputable distributor in the country and visiting clients at least once every year. Prices should always be in local currency and the US dollar should be used for referencing.

In the case of bulk commodities, the use of a local broker or agent is advisable unless a local company and representative is established.

Distribution channels

Consumer presentations are largely sold through the main supermarket and hypermarket chains, with the US format for inventories.

Links and industry contacts

Dairy-related resources

Portal Sagarpa - www.sagarpa.gob.mx
Sedesol - www.liconsa.gob.mx

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

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