Wipe your feet first
Jan 16, 2018
MEXICO CITY, MEXICO – Amidst tense renegotiations and rhetoric around the North American Free Trade Agreement (NAFTA), the government of Mexico (GOM) has announced a tariff rate quota (TRQ) for rice of 150,000 metric tons (MT) each for calendar year 2018 and calendar year 2019. Under the TRQ, rice can be imported in any form (paddy, milled) and avoid the 20 percent duty on milled rice or the 9 percent duty on paddy rice. This TRQ is identical in amount, terms, and purpose as took place in 2017.
“The U.S. already benefits from duty free access to Mexico thanks to NAFTA, but this TRQ allows other countries that don’t currently have a free trade agreement with Mexico to benefit from duty-free access,” said Marvin Lehrer, USA Rice’s representative in Mexico. “This means that Mexico’s diversification of rice suppliers will continue. The U.S. market share will remain dominant but there will continue to be fierce competition here.”
In announcing the TRQ for rice, and one for beef, the Mexican government said it was attempting to lower the price and guarantee the supply of these basic commodities for the Mexican population. Specifically for rice, the decree mentions an import dependency of some 82.5 percent, principally from only one origin. While not mentioning the United States directly, this percentage roughly coincides with the current U.S. market share and coincides with Mexico’s concern about being too dependent on the U.S. for food.
“While the tonnage in this TRQ represents only about 15 percent of Mexico’s import market last year, it appears that Mexico’s goal is to implement free trade agreements with all markets either through bi-lateral or multi-lateral agreements,” said Terry Harris, chairman of the USA Rice International Promotion Committee. “There is no doubt that Mexico wants to diversify its trade away from dependency on one or two markets.”
Prior to last year, the U.S. had been the sole supplier of paddy rice to Mexico. The TRQ in 2017 paved the way for nearly 90,000 MT of paddy rice from Guyana, making up 12 percent of the large paddy market. Trade sources indicate that Guyana’s rice crop appears strong this year, and with demand off from their traditional market - economically depressed Venezuela - it is likely that Mexican millers will continue to source Guyanese paddy in 2018. Rice is second only to gold in importance to Guyana’s export economy, and the country traditionally exports about half of its more than 600,000 MT of rice produced annually.
Trade sources expect Mexico’s 2018 TRQ to be filled by mid-year as strong demand for cheaper product continues and the battle over market share between importers of milled rice and importers of paddy rice rages on.
The influx of cheap Asian milled rice entering Mexico has been putting pressure on the millers to source cheaper paddy rice – hence the surge in Guyanese paddy imports.
As a price-sensitive market, margins between Asian milled rice, especially higher quality Thai rice and U.S. rice will determine market shares going forward.
“Mexico remains our largest export market in both value and quantity and we’re going to do what we need to do to keep it that way,” said USA Rice President & CEO Betsy Ward. “We believe our quality and reliability are second to none, but against the backdrop of NAFTA renegotiations, there’s no question this is another shot across the bow with regard to the agriculture trade our two countries enjoy. We get the message loud and clear, and are making sure our government understands the significance of these actions.”