Global Outlook Symposium Mexico

1. Global Outlook SymposiumMexico Chad R. Russell Regional Director October 29, 2007

2. U.S. Beef Exports- Mexico Thousand MT Source: USDA and USMEF Forecasts; BVM= Beef Variety Meats

3. U.S. Pork Exports-Mexico Thousand MT Source: USDA and USMEF Forecasts; PVM= Pork Variety Meats

4. Key Drivers for Exports to Mexico • Market access • Competitor developments • Domestic production • Political situation • Economic situation • Consumer trends

5. Market Access • General, both beef & pork • NOM-30: Mexico’s principal meat regulation is under review • Zero tolerance for Salmonella • Zero tolerance for bone fragments in boneless meat • New Animal Health Law: Legislation recently passed by Mexico’s Congress • Secretariat of Health will “coordinate” approvals of meat plants • Provisions for traceability • Provisions for animal welfare (GPP) • Periodically more stringent enforcement of import requirements

6. Market Access • Beef • Six Prohibited Products: beef feet, weasand meat, sweetbread, small intestine, ground beef, and head meat • Anti-dumping Duties: On May 4th NAFTA panel lets stand anti-dumping duties until April 2011 • Pork • Local producer groups continue to pressure their government, especially Congress, to impede the importation of pork • To date, the Executive Branch has rejected pleas for a safeguard and anti-dumping duties; however, Congress largely remains supportive of producer concerns

7. Competitor Developments • U.S. import market shares for beef and pork are 83% and 88%, respectively • Increased sharply over the past five years • U.S. gains have been Canada’s losses • Uruguay recently approved to export beef to Mexico • Mexico’s self sufficiency for beef has changed little since 1992 • Conversely, Mexico’s self sufficiency for pork has deteriorated 13 percentage points since 1992 • However, Mexico’s pork industry is consolidating, modernizing, and becoming more vertically integrated

8. Product as a Percentage of Meat Consumption in Mexico Percent Source: SAGARPA Statistics.

9. Per Capita Meat Consumption Kilograms per year Source: SAGARPA Statistics.

10. Domestic Production • Beef • Production increased 2.3% per year from 1990 to 2005, but decelerated to 2% the last five years • Limited investment in the sector • Beef production largely dependent on precipitation in northern Mexico • Cattle exports forecast down over 8% for 2008 • Price elasticity of supply is inelastic • $110 peso per head subsidy for slaughter • Rising grain costs a problem for many feedlots • Congress considering subsidy for users of grain

11. Domestic Production • Pork • Production increased 2.5% per year from 1990 to 2005, but decelerated to 1.4% the last five years • Increasing investment in sector • Larger operators moving from hog producers to meat producers • Price elasticity of supply for pork is three times greater than for beef • $100 peso per head subsidy for slaughter • Rising grain costs are accelerating transition to more efficient, integrated production • Congress considering subsidy for users of grain

12. Political Situation • Current government solidly pro trade and market oriented • To date, has not supported efforts of producer groups to impede imports of U.S. red meats • Many congressmen sensitive to plight of local producers and continue to pressure the executive branch to take action • Next presidential election in about five years

13. Economic Situation Source: Bank of Mexico and IMF

14. Consumer Trends • General • Over 90% of retail consumers are price driven • Over 60% of consumers prefer to buy meats at traditional markets or local butcher shops • Consumers becoming aware of brands and their benefits, but less than 4% of products are branded

15. Consumer Trends • U.S. Beef • Appreciated for its tenderness, color, and ease of preparation • Consumer perceptions about fat content represent the greatest constraint to non purchase • Many consumers perceive U.S. beef as not fresh • U.S. Pork • Recognized for its convenience and ease of preparation • Many consumers perceive pork, independent of origin, as not being clean or safe to eat • Mexican pork is more likely to be associated with positive attributes (delicious, natural, nutritious, and fresh)

16. Summary • Excellent market access compared to other foreign markets • Price sensitive market • Poultry has become the preferred meat, primarily at the expense of beef but to a lesser extent pork. • Expect increased competition for a more efficient and price competitive Mexican pork industry in the next 2-3 years • Conversely, the U.S. beef industry will not anytime soon face a more efficient, competitive Mexican beef sector • However, the threats are the growing popularity of poultry meat and over the longer term the prospect of more competition from South American origins and the Mexican pork industry

17. Summary • Mexican consumers are becoming more aware of the importance of a healthy diet but often are not well informed about the role of red meat in such a diet • Mexico will remain a large, growing market for U.S. beef and pork for many more years because of its • unrealized economic potential • geographic proximity to the U.S. • population growth • expanding modern supermarket sector • popularity as a tourist destination • limitations to self sufficiency in the production of red meats