THE MEXICAN HOG INDUSTRY: MOVING BEYOND 2003



respect to price, the meat-processing companies that provide slaughtering
services and prepare the primary cuts for packers and the fresh meat market
are not able to pass along increases in hog prices. Thus, the ability of these
firms to survive (as well as the services that they provide to the production
chain) is in jeopardy any time that hog prices increase substantially.

D. Production Costs and Competitiveness

The Mexican hog industry faces a lot of competitiveness problems that can
be traced to inefficiencies in the production chain:

(1) Grain production. Grain is obviously a key input to hog production,
and Mexico possesses few comparative and competitive advantages in grain
production. First, almost 75 percent of Mexico’s surface area is located in
arid or semiarid climates, which is not conducive to grain production.
Moreover, the annual amount of underground water that Mexico has on a per
capita basis is about 4,900 cubic meters (Comision Nacional del Agua -
CNA). This is very low, compared with 99,700 cubic meters for Canada and
9,500 cubic meters for the United States. Complicating matters is the fact
that 70 percent of the rain falls only during four months, mainly in the south
and southeast regions of the country. These regions are mostly
mountainous, which again is a difficult setting for grain production.

For social and political reasons, the Mexican government historically
pursued an agricultural strategy that segmented the sector. Numerous small
farmers called
ejidatarios were provided with user rights to parcels of
farmland ranging from 10 to 25 hectares. In spite of its very questionable
social benefits, this strategy strongly affected the efficiency and production
capacity of these small farmers.

As a consequence of these factors, the average yield in Mexican grain
production is about 2.5 metric tons per hectare, less than half the average
yield in Canada and the United States, and the cost of key feed ingredients is
45 percent higher in Mexico than in the United States or Canada (table 2).



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