Food prices to increase with duties on US chicken imports

by Editor fleischwirtschaft.com
Wednesday, May 30, 2012

C. Retail chicken prices in Mexico will rise by 22.4%, the meat Consumer Price Index (CPI) will jump 7.2% and the food CPI by 1.9%, should the Mexican government implement duties on U.S. chicken leg quarter imports, according to a study released on Monday.

The study assessed the likely impact of the duties on prices and inflation levels in Mexico, conducted by Dermot Hayes, Ph.D., Professor of Economics and Finance at Iowa State University.

Early in 2011, three Mexican poultry companies petitioned the Mexican government to begin an antidumping investigation of imports of chicken leg quarters from the United States, claiming that U.S. companies were exporting leg quarters to Mexico at below-market prices. The Mexican ministry announced its preliminary results with proposed duties on U.S. poultry ranging from 64% to 12%.

The loss of this enormous leg market would damage the U.S. chicken industry and competing meats. Mexico is the largest customer of U.S. poultry exports. If these tariff rates are indeed imposed in Mexico’s final determination, U.S. exports of chicken leg quarters to Mexico would decrease from about 250,000 metric tons per year to 0 and would result in the loss of hundreds of U.S. jobs and a loss of $275 million annually for the U.S. poultry industry.

The Iowa State study examined what implementation of the duties would mean for Mexican consumers.

The availability of affordable U.S. leg quarters has allowed a significant portion of consumers in northern Mexico to include meat in their diets on a regular basis. This region is currently suffering from the aftermath of a severe drought and the widespread availability of affordable chicken legs has helped alleviate a severe shortage of food.

Results from the study indicate that in the short run, on an annualized basis, the duties will eliminate 250,000 metric tons of chicken leg quarters from the market and replace them with 79,000 tons of imported whole chicken. Domestic consumption will fall by 163,000 tons, in part because chicken prices will rise by 22.4 percent. A 22.4 percent increase in chicken prices will increase the meat CPI by 7.2 percent, the food CPI by 1.9 percent and the overall CPI by 0.4 percent.

Imported chicken leg quarters are an economical animal protein for disadvantaged Mexican consumers, especially in Northern Mexico. These consumers will bear the brunt of this adjustment to higher food prices, Hayes said.

The sudden disappearance of 250,000 tons of leg quarters would cause national poultry prices to increase, Hayes stated. In the immediate aftermath of the duties, it would not be possible for the Mexican poultry industry to increase production. This meant that the market would be brought back into balance by reduced consumption and by increased whole bird imports.
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