China has received most of the attention for the past five months with highly pathogenic avian influenza (HPAI) H7N9. However, Mexico has struggled for almost a year with HPAI H7N3 in its commercial egg-laying flocks and broiler production flocks. According to the World Organization for Animal Health (OIE), the H7N3 strain does not affect humans, swine, or other reproductive species. The first outbreaks occurred in central Mexico in June 2012 with the second ones about 50 miles away in January of this year. Outbreaks have continued through mid-May. The poultry markets of the U.S. and Mexico are integrated under NAFTA and any disruptions in Mexican production will affect the U.S. market.

The June 2012 outbreaks affected 44 egg-laying farms and about 4.9 million laying hens were destroyed in an attempt to contain the disease. Eventually 11 million hens were required to be depopulated and another over 11 million were voluntarily depopulated. According to the U.S. Agricultural Attaché in Mexico, egg production normally is about 2.3 million metric tons per year. This was a major market mover because Mexico has the greatest per capita annual consumption of eggs in the world at approximately 330 eggs (50 pounds). In 2011, Mexico exported 11 percent of its egg production. About 9,000 metric tons of eggs were exported from the U.S. to Mexico in 2012 to offset some of the lost production. The source of the outbreak was not definitively determined, but the source likely was wild and/or migratory birds or waterfowl.

The first January 2013 outbreaks occurred about 13 miles apart and the H7N3 virus had a 99 percent similarity in the genetic sequence to the June 2012 outbreak. About 285,000 laying hens were slaughtered to control the outbreak. Another outbreak was discovered on January 12 involving 400,000 laying hens closer to the June 2012 outbreak. On February 18 another breakout was confirmed on 12 farms, 10 producing fertile eggs for broiler productions and two producing table eggs, housing 1.0 million layers, most of which died from the disease or were destroyed. By mid-March the government of Mexico had authorized the use of 57 million vaccine doses on long-life chickens producing breeder hens, hens producing broilers chicks and layer chicks for table eggs and hens producing table eggs.

Additional outbreaks have been reported in April and May according to reports from the OIE, with the government continuing to depopulate flocks to control the disease. Also, over 130 million chickens have been vaccinated, with a goal of vaccinating 200 million chickens per month. As this analysis was being written the Mexican Secretary of Agriculture announced another outbreak with 55,000 egg-laying hens depopulated. Most of the outbreaks have been in commercial flocks, with a few in backyard flocks.

The National Service of Health, Food Safety, and Food Quality (SENASICA) officially in charge of controlling the disease has made credible efforts to get control and following OEI guidelines for releasing information. Other parts of the federal government have focused on keeping imported supplies available to temper price increases. Under NAFTA all tariffs and quotas were removed years ago for products from the U.S. and the government has sought out possible supplies elsewhere to meet demand for low-price chicken and egg protein.

The production disruptions in Mexico have not yet had a significant impact on the U.S. broiler market. Mexican broiler production for 2013 is estimated by the Foreign Agricultural Service of USDA at 2.975 MMT, up slightly from 2012. Imported broilers, 98 percent from the U.S., are also expected to be up slightly at 0.640 MMT, with a market share of 17.7 percent. U.S. broiler exports to all customers are expected to be unchanged in 2013 from 2012 at 3.3 MMT, but total U.S. broiler production is likely to be up 2.4 percent at 17.0 MMT. If Mexican production falls short of demand, the U.S. should be able to fill the shortfall.

The HPAI outbreaks have influenced Mexican trade policies with the U.S. In August of last year the Mexico government announced final resolution of an anti-dumping case on importing of U.S. chicken leg quarters and the imposition of compensatory tariffs for the importing of these products. Because of the continuing HPAI outbreaks and increased poultry and egg prices, the Secretary of the Economy has determined the compensatory tariffs will not be imposed until the supply and demand situation has stabilized. This is an old dispute that has lingered for years. U.S. chicken consumers favor white meat and dark meat sells at a substantial discount. Mexican consumers prefer whole chickens and dark meat, also known as chicken leg quarters. When U.S. production costs are spread equally on a per pound basis for all products, it appears that the chicken leg quarters are sold below costs. Many officials in the Mexican government see the anti-dumping tariff as a tax on low income people, but cannot overcome the politics of helping the domestic industry.

One possible outcome would be to produce and slaughter chickens in Mexico, sell the chicken leg quarters in the domestic market and export some of the breast meat to the higher priced U.S. market. That is precluded for now by major disease issues like Exotic Newcastle Disease (END). U.S. officials rightly worry about transferring END to domestic chickens. The U.S. government has not made any classification of areas where Mexico is considered to be free of or at low-risk of END. Animal and Plant Health Inspection Service (APHIS) of USDA discussions on recognizing some Mexican states as eligible to export poultry products continue. If the United States recognizes Mexico or parts of Mexico as END-free, it could open a window for Mexican poultry exports to the U.S. when markets signal demand for specific products. According to Mexico’s animal health authorities, almost all of Mexico is free of END.

How the Mexican government continues to manage HPIA outbreaks will be watched by the U.S. government and other developed countries that are currently considering expanded imports of Mexican livestock and poultry products. Sanitary and phyto-sanitary (SPS) issues have become more important than traditional tariff and quota barriers. These may become a larger factor if the Trans-Pacific Partnership Free Trade Agreement includes a chapter that goes beyond the WTO-SPS agreement. The Mexican and U.S. poultry markets cannot become further integrated until the SPS issues are resolved.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.