Exotic Newcastle Disease (END) and Avian Influenza (AI) are the two big disease issues in poultry trade. The U.S. and Mexican governments have had disagreement over how much of Mexico is free of both diseases. Mexico had declared most of the country free of END, but had several detections in early 2011. About half of the country is free of low pathogen AI according to Mexican estimates. The U.S. last had an END outbreak in 2002-03 and has had localized low pathogen AI outbreaks.
NAFTA and WTO rules require the regionalization when possible of trade-related sanitary and phytosanitary standards. This allows exports from regions within a country that are free of an animal disease even if the disease is present in other parts of the country. The importing country makes a risk assessment to decide if trade restrictions can be defined regionally so international trade can occur without risk to domestic production and human health in the importing country. Processors in the exporting country need to be certified by the exporting country and may be subject to audits by the importing country. Mexico uses that approach to ban poultry imports from counties in the U.S. when localized low pathogen AI outbreaks occur without impeding shipments from the rest of the country.
The Mexican poultry production industry is concentrated according to data collected by the U.S. Agricultural Attaché. A domestic company, Industrias Bachoco SAB, produced 38 percent of the broilers in 2010 followed by the Mexican unit of Pilgrims Pride at 14 percent and Tyson de Mexico at 12 percent. Most of the commercial broilers are produced in 14 states and account for 34 percent of Mexican livestock production. There are 22 federally inspected slaughtering and processing facilities with another two scheduled to be added. This should make initial work by U.S. inspectors and ongoing monitoring easier to achieve.
Allowing more Mexican poultry meat imports to the U.S. will provide balance for the Mexican industry. According to estimates by the Foreign Agricultural Service of USDA (FAS), in 2011 Mexican broiler production on a ready to cook equivalent basis will be 2.85 million metric tons (MMT) and consumption will be 3.41 MMT. Imports, 95 percent from the U.S., are forecast at 0.58 MMT. FAS does not forecast exports for Mexico, but according to the U.S. Agricultural Attaché, exports will be about 16,000 metric tons (MT), mostly to Asian markets. The Mexican industry is committed to developing export markets.
The U.S. and Mexican markets are somewhat different in demand and that affects trade flows. The U.S. market has a clear preference for while meat and dark meat moves into export markets at a third of the price. The reduction in U.S. chicken dark meat sales to Russia in the last year has pressured U.S. prices and export prices in other markets. The dark meat market is stronger in Mexico, particular for chicken leg quarters. Mexican broiler producers appear to be planning to move white meat to the U.S., while keeping the dark meat for domestic use.
Chicken dark meat sales from the U.S. to Mexico have been an ongoing issue for the two countries. In July of 2003 the two governments signed a temporary safeguard tariff rate quota for chicken leg quarters that expired in 2007. Imports from the U.S. increased from 173,000 MT in 2007 to 256,000 MT in 2010. The Mexican government started an antidumping investigation in February 2011 on chicken legs and thighs imported from the U.S. The standard argument is that the imported products are sold below costs, but how costs are calculated is a key issue with white meat prices higher on a per pound basis and dark meat prices pressured by lower sales to Russia. This issue is separate from the continuing strong import demand for deboned poultry dark meat used by the sausage industry.
Removal of sanitary and phytosanitary barriers to trade is a major issue throughout the world where tariff barriers have been eliminated or sharply reduced. They are often seen as a non-tariff barrier that protects high cost producers from lower cost imports. Given that U.S. equipment and technology for producing broilers and other poultry are easily moved across the U.S.-Mexican border, there is no surprise that the Mexican industry wants greater access to the U.S. market.
A counter force to this movement is the heightened concern about the safety of imported food and the spread of disease to domestic production. These are valid concerns that were noted earlier and are recognized in NAFTA and WTO rules. Article 712 of NAFTA establishes the right of a country to use sanitary and phytosanitary measures “in order to protect human, animal, or plant life or health in its territory,” as long as they are based on scientific principles, are not trade restrictions in disguise and treat all NAFTA partners fairly.
The U.S. and Mexican governments are committed to address concerns through coordination and harmonization of regulations. According to the USDA Economic Research Service publication NAFTA at 17: Full Implementation Leads To Increased Trade and Integration, “In April 2010, USDA’s FSIS and SAGARPA’s SENASICA announced the signing of a ‘terms of reference’ document that focuses on ensuring food safety and protecting public health in both the United States and Mexico. This document outlines matters of equivalence, audit procedures, eligibility for exporting establishments, and communication channels between the two agencies.”
The U.S. government can meet its obligations under trade agreement like NAFTA and ensure food safety and protect domestic food producers by working with importing countries to meet U.S. requirements. Coordination and harmonization of regulations will allow the two countries to work together to achieve a common goal while allowing each government to respond to consumer concerns.
Ross Korves is the Economic Policy Analyst for Truth About Trade & Technology.