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 GROWING POPULATION--The horizon of Mexico City shows the development of the country. Mexico's population continues to rise and to move to urban areas. Mexico's population offers opportunity for U.S. wheat exportsBy Jennifer M. Latzke On the final leg of the U.S. Wheat Associates Board Team Trip to Latin America, the board team experienced the organized chaos that is Mexico City, Mexico. Mexico is the most populous Spanish-speaking country in the world, with an estimated 108.7 million people, and 70 percent of its population lives in urban areas. Mexico City boasts a population of 22 million or so, and by all estimates is the largest concentration of population in the Western Hemisphere. This population, which is growing at a rate of 1.53 percent per year, is continuing to develop a taste for wheat products, and the emerging middle classes are leading the pack. While corn tortillas are culturally the most popular, the market for pastas and artisan breads is rising. And most encouraging to U.S. wheat producers is that it's all within a truck drive or a railcar trip from the United States. Life after NAFTA It's been 14 years since the signing of the North American Free Trade Agreement and the team learned life after NAFTA for Mexican producers, millers and bakers has changed. Producers switched out a lot of land from wheat production and turned it into fruit and vegetable production, which are higher value crops. The Mexican government eliminated its state buying agency CONASUPO in 1994 and allows millers to purchase wheat directly from suppliers. NAFTA allows wheat from the United States to enter Mexico under a zero tariff, with no limits or quotas on the tonnage that can be imported. Canada has the same conditions and is the only real competitor for the market. Non-NAFTA countries have a 67 percent import tariff on wheat and flour. After NAFTA the Mexican railroads were privatized, with three regional companies emerging and significant investments and improvements in the Mexican rail infrastructure. Because Mexico is the only major wheat buyer to share a border with the United States, there is every expectation that these improvements to transportation will keep rail rates competitive to ocean freight. Using U.S. wheat The team spent two days in Mexico City learning about the milling and baking industries and their usage of U.S. wheat. On the first day, April 2, the team began the morning with the Mexican Millers Association, or Canimolt. Mexico City has 92 various millers, which process about 5.2 million metric tons of wheat and produce 4.1 million metric tons of wheat flour each year. The millers have a capacity of 8.027 million metric tons of production. And the United States is the top supplier, by far, of wheat to Mexico. Canada comes in at a close second. On average, Mexico produces about 3.6 million metric tons of wheat itself, and usually imports about 2.8 million metric tons of wheat from the United States each year to meet its demand. Mexico is the sixth largest buyer of spring wheat in the world for the United States, according to USW. An interesting fact that members of Canimolt shared is that Mexican farmers produce more durum wheat than the country can use or export. So, they use it for animal feed. It's not a quality issue, the members of Canimolt explained, just that the Mexican farmers find that durum wheat is easier to grow and yields more than hard red winter wheat. In 2006, Mexico exported nearly 213,000 metric tons of its durum to Italy for pasta production and used the rest as animal feed. Total annual per capita wheat consumption in Mexico is about 51 kilograms, or 113 pounds, with bread consumption at about 31 kilograms or 69 pounds per person per year. And, with the high cost of wheat and flour, smaller mills have to be careful not to price their products out of the range of the poor in Mexico. In February this year, the price of a 100-pound bag of flour was 325 pesos or about $30, up from $18.63 per bag in August of last year, according to USW. In the last six months, flour has increased 62.1 percent in price. From the offices of Canimolt, the group then visited the offices of the Altex Group for a discussion of the transportation and logistics of moving wheat from the United States to Mexico with Armando Rosales. Altex is the second largest company in Mexico to mill wheat. Consumption trends On the final day in Mexico City the trade team met with the Mexican Bakers Association, or CANAINPA, as well as the leadership of APPAMEX, the Mexican Grain Traders Association, and took a tour of the CONTRI railcar unloading facility on the outskirts of Mexico City. The Mexican Bakers Association states that there are 27,450 bakeries in Mexico, with 26,500 classified as artisan and 950 classified as industrial or in-store bakeries. Only 4,500 bakeries are members of CANAINPA. CANAINPA offers a baking school at its offices in Mexico City, as well as legal and business advising services for its members. CANAINPA is concerned with the consumption figures for wheat products in the country. Wheat in Mexico has to contend with cultural traditions of corn tortilla consumption. Also, many doctors in Mexico, according to the bakers, recommend people cut their consumption of wheat breads when attempting to diet. Steady economic performance in Mexico is raising income levels, but poverty is still a concern in many areas. World Bank Estimates in 2005 stated that more than 45 percent of the population was living in moderate poverty and 18 percent of the population was living in extreme poverty. In rural areas, the extremely poor spend nearly half of their income on food, beverages and tobacco. So, if bread prices rise, consumption will likely decrease as poor consumers switch to less expensive corn-based products. While nearly three-quarters of the bread produced in Mexico comes from smaller, artisan bakeries, there is one giant in the room. Grupo Bimbo is the largest baking company in Mexico and throughout Latin America. The Mexican market, according to USW, accounts for 69 percent of Bimbo's total sales, with the rest of Latin America accounting for nearly 11 percent. Bimbo produces pan breads and has a portion of the growing cookie and biscuit market as well. With wheat prices at $10 per bushel, it has indicated that it may increase its prices to keep its profit margin healthy. If that were to occur, there would be a possible ripple effect in the rest of the market. The final stop of the tour was the CONTRI facility, where the trade team learned about the rail car shuttles that travel from the U.S. to Mexico for unloading. According to USW, U.S. wheat exports to Mexico via rail accounted for 49 percent of total sales, or 1.06 million metric tons in 2007. On the day the trade team was there, the facility was unloading a BNSF shuttle with the last of the 2007 wheat crop to be sold out of Wichita, Kan. Of particular concern to the folks at CONTRI is the quality of wheat they can purchase from U.S. growers. Besides the transportation benefits of being a border purchaser of U.S. wheat, CONTRI and other facilities also like the fact that U.S. wheat is a reliable product with timely delivery. The CONTRI facility is family owned and can move about 120,000 metric tons at one facility, or unload a shuttle train in 19 hours. CONTRI handles wheat, corn, sorghum and some soybean meal, from the United States. Its main market for the wheat they bring in from Kansas, Oklahoma and the rest of the High Plains is its own flour mills. CONTRI also serves as a rail unloading facility for larger companies looking to move wheat into Mexico via rail. As the trade team members left for their home states, one lesson was supreme in their minds. Mexico and the rest of Latin America will be the emerging frontier for U.S. wheat exports. With growing populations, and emerging middle classes, a new market for U.S. wheat is just a railcar, truck or boat ride away. Editor's note: Jennifer M. Latzke can be reached by phone at 620-227-1807, or by e-mail at jlatzke@hpj.com. This is the final in a four-part series on her recent trip to Latin America with U.S. Wheat Associates. For previous coverage or to visit her blog of the trip, visit www.hpj.com. Date: 5/15/08
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