Cattle, Credit and Consumer Demand

Frontera NorteSur
 Brought to the New World in the Spanish conquest, cattle soon became an emblematic fixture of Mexican culture. The bullfight, trade fairs, cowboy attire and national cuisine all embrace the body and image of the cow. 
 After quickly crossing the Rio Grande, cattle trails extended from north to south and then south to north.
 Today, Mexico imports US-raised cattle breeding stock and exports young animals to the US for fattening and slaughter. The two nations participate in binational working groups to prevent animal diseases and to assure sanitary conditions in corals on both sides of the border.
 A secure and profitable cattle trade is on the agenda of the free-trade inspired Security and Prosperity Partnership of North America.
 But times are tough in Mexico’s cattle country. High prices for production inputs, low prices for milk, expanding drought, and thirsty, dying cattle all form part of the contemporary ranching landscape.
 “We are in a difficult situation and I am not exaggerating,” Alejandro Gil Flores, president of the Tamaulipas Regional Ranchers Union, told the Enlineadirecta online news service. “I have never went through anything like this in the 30 years I’ve devoted to ranching,” Flores added.
 In 2009 the Calderon administration plans to spend a record $5 billion in Government subsidies and credits on the countryside, according to Agriculture Secretary Alberto Cardenas.
 Surviving a tumultuous market was of deep concern to ranchers who gathered earlier this summer in the central Mexican city of Aguascalientes for the annual meeting of the National Ranchers Confederation. Lack of credit, slow delivery of government assistance, high transportation and energy costs, and depressed commodity prices were among the issues raised by livestock producers from throughout Mexico.
 In an interview with Frontera NorteSur, a ranchers’ representative from the Yucatan Peninsula blamed scant investment, costly credit and US beef imports for hampering the futures of thousands of small cattlemen.
 Luis Alberto Zepeda Cruz, president of the eastern region of the Yucatan Ranchers Union, said 92 percent of small producers are excluded from the credit system, with private banks demanding 10 percent down payments and ranch mortgages on loans that charge 18-20 percent annual interest rates; the rate is higher than the 12-14 percent normally charged for other enterprises, according to Zepeda.
 “These banks have created financial lending institutions that approve credit much faster but at a higher rate which the small producer can’t pay off,” Zepeda said.
 The rancher spokesman said his group represents 4,500 producers who have about 450,000 head of cattle.
 Constrained by poor access to credit, Yucatan’s producers are stuck shipping young cattle to feed lots in Tamaulipas at the rate of 2,000 animals per month. No local fattening pens or  meat processing plants that would add product value serve his members, Zepeda said.
 “If there were feed lots in Yucatan, we could be supplying Yucatan and the Caribbean zone of Chetumal, Cozumel and Quintana Roo, where there is a lot of tourism, with a lot of meat,” Zepeda asserted.
 Overall, the Yucatan cattle industry is mired in a classical colonial situation of producing raw materials for consumption elsewhere, while importing basic commodities. For Zepeda, the result is practically “no integral development of the state of Yucatan.”
 The “dumping” of US produced beef in Mexico is another big problem keeping Yucatan cattle growers down, Zepeda contended.
 In recent years, Mexico became the biggest market for US beef exports.
 According to the US Meat Export Federation, a trade industry group funded by the United States Department of Agriculture, sales of US-produced beef to Mexico accounted for 27 percent of all sector exports in 2007. Two years ago, 359,442 metric tons of beef netted one billion dollars. Exports continued their upward spiral in 2008, topping 400,000 metric tons before declining 19 percent during the recession-plagued months of January-May 2009 in comparison with the same period of time one year earlier.
 Although the retail sector scooped up 70 percent of all US exports, analysts consider Mexican supermarkets a still largely untapped opportunity.
 “Long term Mexico should remain a large, growing market for US beef as local production will most likely not be able to keep pace with future demand,” noted the trade industry journal Mexico Beef in October 2008.
 The Aguascalientes convention came at a time when Mexicos’ federal Secretariat of Agricultural, Livestock and Fisheries (Sagarpa) has unveiled a strategic shift in assistance programs to ranchers and other rural producers.
 In a presentation to the Aguascalientes gathering, Jeffrey Jones, Sagarpa undersecretary, mapped out a 5-point planning strategy to boost the farm and livestock sector. The central tenets include combining public and private resources with a consumer-driven marketplace.
 A big difference between the new approach and past ones is that the federal government will shift away from subsidizing individual producers to financing projects like roads that collectively support the industry. A former senator from Chihuahua and one-time president of the Senate’s border affairs commission, Jones conceded that previous policies tended to benefit an organized, privileged few.
 Acknowledging that the North American Free Trade agreement market created distortions that had hurt industry sectors, the federal official urged producers to get better organized, conduct market-driven planning and participate in government decision-making. Only one Mexican state, Nuevo Leon across from the Texas border, has a real handle on local market analysis, Jones said.
 “Public policy should be inclusive, focused and diversified,” he added. “My role is not to tell you what to do…if a product doesn’t have a market, it is doomed to fail from the beginning.”
 In response to rancher complaints of dry credit,  Jones later told Frontera NorteSur and Ganadero magazine that his department was in touch with private banks and working on the issue a step at a time. He reemphasized Sagarpa’s new message that producers must get organized.
 “It’s difficult for governments to support unorganized groups and the first thing people have to do is organize,” Jones said. “The real issue is not between rich and poor, but between the organized and unorganized. The organized are rich and the unorganized poor.”
 Asked about prospects for an alternative livestock industry-buffalo ranching- in his home state of Chihuahua, Jones said consumer interest would kindle or extinguish a nascent business. “Everything depends on the market, whether it is buffalo or any other kind of agricultural or livestock product,” asserted the high federal official. “The first thing we want to do in planning is make sure the producers and states have a market mapped out.”
 During his Aguascalientes speech, Jones also discussed unofficial commodity price projections in the hands of Sagarpa. Although prices for basic grains have declined internationally, Mexican ranchers haven’t benefited because the devaluation of the peso has made imports more expensive, Jones said.  Based on expected price trends, dairy producers could see an increase beginning in the middle of next year. Jones said that the price paid for milk to Mexican dairy farmers fell from 4.5 pesos per liter in 2008 to less than 4 pesos by the summer of 2009.

Author

Kent Paterson