Customized Report Service – Mexico recovery reporting

Macroeconomy and finance

Mexico's economy contracted severely in 2020, where its real annual Gross Domestic Product (GDP) decreased by 9.2%. Factors contributing to this result of subdued domestic demand included COVID-19 pandemic containment measures that diminished manufacturing output and decreased foreign investment in this sector, along with weakened public finances and low oil prices. Public debt increased to 65.0% of GDP in 2020 from 53.3% in 2019, driven by spending on pandemic management. Meanwhile, inflation slowed down to 3.5%, due to rising unemployment, lower spending due to the lockdown - in turn, raising food prices, and a significant drop in global oil prices. Furthermore, the services sector (accounting for nearly two-thirds of economic activity) such as hospitality and tourism revenues suffered, due to non-essential travel restrictions and closed borders.^{Footnote 1}

Mexico's real seasonally adjusted GDP by expenditure in constant prices decreased by a percentage change of −0.199% in Q3 of 2021, which contracted from 12.660% compared to the same period in 2020. The largest drop occurred over the last two quarters in 2020, whereby the real GDP declined to 3.343% during Q4-2020 and continued to further decline in 2021 (between 1.474% and −0.199%) - reaching its worst recession levels in almost a century.^{Footnote 2}

Driving the strong expansion in Mexico is industrial output, which rose 1.6% over a year earlier in September of 2021, slowing from an upwardly revised 5.5% hike in the previous month and missing market expectations of a 3.9% increase. Though subdued, this latest reading makes it the seventh straight month of growth in the industrial sector. In September 2021, growth was sharp again in the construction sector (8.3% vs 8.8% in August) and mining activities remained at 2.0%. Meanwhile, output fell over the month for manufacturing activities (−0.4% vs 6.6%) and utilities remained in the negative (−3.3% vs −5.1%). The GDP from agriculture in Mexico decreased to MXN$520,266.4 million (Q3-2021) from MXN$623,709.9 million (Q2-2021), and is expected to pick back up to reach MXN$721,544.0 million by the end of Q4-2021.^{Footnote 3}

As of November 29, 2021 - approximately 65 million people or 50.4% of Mexico's population are fully vaccinated and 9.0% are partly vaccinated against COVID-19 (Our World in Data). At the rate of administered doses each day (reported last week), it is calculated that it will take a further 133 days to administer enough doses for only another 10% of the population. Mexico is reporting 2,898 new infections on average each day, equivalent to 15% of the peak reached on August 17, 2021. There have been 293,950 coronavirus-related deaths reported in the country since the beginning of the pandemic. The Latin American countries currently with the highest reported average infection numbers, along with Mexico include Brazil (9,268), Colombia (2,442), and Chile (2,294).^{Footnote 4}

Euromonitor's Global Recovery Tracker: helps to understand how industries, economies, and consumers have adapted and assess the path to recovery of disruptions caused by COVID-19. This recovery tracker indicated that within the top five Latin America regions (Q3-2021), Mexico had the highest recovery index (2019 average = 100) at 105.3, followed by Chile (102.6), Colombia (95.6), Brazil (92.0), and Argentina (91.9). Of the recovery index indicators measured during this period, Mexico scored the highest in terms of consumer confidence (179.8), followed by retail sales (98.6), employment (97.3), economic activity (96.9), and consumer spending (95.4). Mexico's recovery index returned close to early COVID values (Q1-2020) from 106.3 to reach 106.0 in Q2-2021.^{Footnote 5}

Trade

Overall results

In 2020, Canada's agri-food and seafood exports to Mexico totalled Can$1.73 billion. Leading sectors, accounting for 76.3% of all exports were canola seeds at a value of Can$658.6 million (38%), wheat and meslin at Can$225.9 million (13%), pork & pork products at Can$197.9 million (11.4%), canola oil at Can$135.2 million (7.8%), and beef and veal products at Can$106.2 million (6.1%). The top five commodities were canola seeds (HS:120510), non-durum red spring wheat (HS:100199), refined canola oil, low erucic acid (HS:151419), chocolate and other food preparations containing cocoa, nowhere else specified (HS:180690), and malt, not roasted (HS:110710), representing over 62% of Canadian exports going to Mexico in 2020.

During the period of January to September of 2021, Canadian agri-food and seafood exports to Mexico increased by 45.9%, reaching Can$1.89 billion compared to Can$1.29 billion for the same period in 2020. Impacts on trade due to COVID-19 continues to be manageable.

Data for the month of September alone, indicates that exports have decreased by −19.4% from Can$212.1 million in September 2020 to Can$170.8 million in September 2021. Value and quantity, however, increased from Can$163.2 million in August 2021 to Can$170.8 million in September 2021.

Canada's imports of agri-food and seafood products from Mexico reached Can$2.53 billion in the first nine months of 2021 (January to September), representing an increase of 2.5% (Can$2.46 billion) compared to the same period last year in 2020.

Sector analysis (top 5 sectors of 2020)

Canola seeds (HS:1205)

Canola seeds were Canada's largest agricultural export sector to Mexico in 2020. Mexico was Canada's third largest canola seed export market after Japan and China in this year, with exports valued at Can$658.6 million (1,273.4 thousand tonnes). This value represents an increase of 26.2% from Can$522.0 million (1,036.4 thousand tonnes) in 2019.

Data in 2021 (January to September), Canadian canola seed exports to Mexico were valued at Can$729.6 million (966.9 thousand tonnes) in 2021 vs Can$548.3 million (1,066.0 thousand tonnes) in 2020.

For the month of September alone, exports to Mexico decreased from Can$112.4 million (217.1 thousand tonnes) in September 2020 to Can$52.7 million (63.6 thousand tonnes) in September 2021. Value and quantity, however, increased from August 2021 to September 2021.

Wheat and meslin (HS:1001)

In 2020, Canadian wheat and meslin exports to Mexico were valued at Can$225.9 million (747.2 thousand tonnes), representing an increase of 5.5% from Can$214.1 million (697.2 thousand tonnes) in 2019. Globally, in 2020, Mexico was Canada's 7th largest export market for wheat and meslin.

Data in 2021 (January to September), Canadian wheat exports to Mexico were valued at Can$186.4 million (495.7 thousand tonnes) in 2021 vs Can$188.0 million (634.6 thousand tonnes) in 2020.

For the month of September alone, exports to Mexico decreased from Can$33.6 million (127.1 thousand tonnes) in September 2020 to Can$18.6 million (50.5 thousand tonnes) in eptember 2021. Value and quantity, also, decreased from August 2021 to September 2021.

Pork and pork products

In 2020, Canadian pork and pork product exports to Mexico were valued at Can$197.9 million (114.2 thousand tonnes), representing a decrease of −37.0% from Can$314.2 million (161.7 thousand tonnes) in 2019. Globally, Mexico was Canada's 4th largest export market for pork products after the US, Japan, and China in 2020.

Data in 2021 (January to September), Canadian pork exports to Mexico were valued at Can$317.0 million (143.3 thousand tonnes) in 2021 vs Can$125.9 million (75.4 thousand tonnes) in 2020.

For the month of September alone, exports to Mexico increased from Can$14.0 million (7.7 thousand tonnes) in September 2020 to Can$37.3 million (18.2 thousand tonnes) in September 2021. Value and quantity, also, increased from August 2021 to September 2021.

Canola oil (HS:1514)

In 2020, Canadian canola oil exports to Mexico were valued at Can$135.2 million (117.5 thousand tonnes), representing an increase of 32.7% from Can$101.9 million (90.9 thousand tonnes) in 2019. Globally, Mexico was Canada's 5th largest export market for canola oil after the US, China, South Korea, and Hong Kong in 2020.

Data in 2021 (January to September), Canadian canola oil exports to Mexico were valued at Can$226.2 million (126.0 thousand tonnes) in 2021 vs Can$92.4 million (81.2 thousand tonnes) in 2020.

For the month of September alone, exports to Mexico increased from Can$12.7 million (10.9 thousand tonnes) in September 2020 to Can$26.2 million (11.2 thousand tonnes) in September 2021. Value and quantity, also, increased from August 2021 to September 2021.

Beef and veal products

In 2020, Canadian exports of beef and veal products to Mexico were valued at Can$106.2 million (15.2 thousand tonnes), representing a decrease of −16.7% from Can$127.5 million (16.6 thousand tonnes) in 2019. Globally, Mexico was Canada's 2nd largest export market for beef products after the US with Japan behind Mexico in 2020.

Data in 2021 (January to September), Canadian beef and veal exports to Mexico were valued at Can$142.1 million (17.7 thousand tonnes) in 2021 vs Can$65.3 million (8.7 thousand tonnes) in 2020.

For the month of September alone, exports to Mexico increased from Can$6.1 million (968.8 tonnes) in September 2020 to Can$15.4 million (1.6 thousand tonnes) in September 2021. Value and quantity, however, decreased from August 2021 to September 2021.

Source: CATSNET, 2021

Mexico's trade opportunities suffered from the pandemic, but the Canada-US-Mexico Agreement (CUSMA) that came into effect in July 2020, is set to bring twofold changes to the country's competitive stance in the region. The main changes include a quota for Mexican-made vehicles - leaving the country as the production hub in the region and increasing the labour market - while, strengthening intellectual property rights and transparency rules. This deal is expected to particularly position Mexico as a strong competitor in the manufacturing sector and should play in Mexico's favour as the rising tension in trade intensity between the US and China escalates.^{Footnote 1}

Latin America and the Caribbean islands (LAC) and Mexico's trading relations with Canada have recovered from the adverse economic impacts of the pandemic in 2020, both in the trade of merchandise and agri-food and seafood products. During the period of January to September (2021), total merchandise exports to Mexico and LAC countries increased by 38.4% and 24.3% over the same period last year, respectively. Meanwhile, Canadian exports of agri-food & seafood products grew by 45.9% to Mexico and by 27.2% to the LAC. Exports to these regions are mainly led by commodities such as soybeans, sugar, pork and beef.

Ongoing drought conditions and water shortages in Mexico are expected to have a negative impact on domestic and export-oriented agricultural production, particularly for those States in Northern Mexico. Mexican States like Sonora, Sinaloa, Chihuahua, Jalisco, Michoacan, Zacatecas, and Guanajuato are top producing regions (60-70%) of total production in several agricultural categories such as livestock, grains, legumes, and fruits and vegetables. Given that less than 30% of Mexico's agricultural land uses irrigation systems, the sector can be deeply affected by changes in the rain conditions or its changes in water demand - both in agricultural purposes and human consumption. In terms of market opportunities, if indeed some agricultural production is reduced due to the drought conditions and potential water shortages, Mexico will have to look into foreign suppliers for essential commodities such as rice, beans, wheat, and pork meat. The Mexican government often opens quotas with special tariff exceptions for countries that can supply emergency stocks on such agricultural products.^{Footnote 6}

Supply chain disruptions

International supply chains are faced with intense disruptions, namely due to material shortages and soaring energy prices.

Auto industry

Mexican companies have been hit hard by bottlenecks in international supply chains, from producers in the auto industry to producers of toilet paper and cement. Thousands of vehicles have sat on Mexican assembly lines awaiting missing semiconductors and other raw materials, depressing growth prospects for Latin America's second-largest economy - with automakers contributing to approximately 3.4% of Mexican GDP. Logistical bottlenecks have forced a slew of temporary work stoppages and are curbing business to a halt. The US and Mexico recently agreed to work on making shared supply chains, to increase competitiveness in the face of disruption in the manufacturing industry (especially to attract International production lines and for semiconductors in the auto industry). Furthermore, this bilateral working group will aim to invest in social programs to tackle migration and to increase the resilience of cross border trade (September 9, 2021).^{Footnote 7}

Beer

Due to the outbreak, government measures impacted the beer manufacturers throughout Mexico, as they were considered to be a non-essential industry, forcing the production and distribution of beer to shut down for a time frame of 40 days starting in April, 2020. This resulted in price increases and stockpiling behaviour with concerns of product scarcity. Additionally, dependent on the state, measures were taken by the government to limit the days and legal opening hours for retailers selling alcohol. These restrictions were implemented in hopes of discouraging less private gatherings and limit domestic violence cases and ultimately less hospital occupancy.^{Footnote 8}

Cattle

Mexican cattle imports declined by −18.7% in 2021 (Jan-Jul), when compared to the rise in 2020 at 1.44 million head (highest total since 2012). Santa Teresa, New Mexico is the largest port for cattle, accounting for 42.1% of total imports in 2020. Beef demand was further weakened by the pandemic in 2020, making room for increased demand for pork products in 2021. Although drought was a concern and significant issue in Mexico in 2020, along with the weakened Mexican Peso, factors such as the summer's wet season and recovered pesos/dollar value with higher cattle and beef prices have improved the conditions in the Mexican cattle industry. As the industry continues to grow, however, Mexico remains heavily dependent on imported feed grain and will continue to struggle with higher feed costs.^{Footnote 9}

Travel restrictions

Effective March 2020, inbound land border crossings to the US from Canada and Mexico, including commuter rail and ferry travel were limited to "essential travel" access only (fully vaccinated non-citizen travelers were permitted to cross starting on November 8, 2021). These restrictions did not apply to air, rail, or sea travel. Canada opened its land borders to neighbouring countries earlier, beginning on August 9, while there were no crossing restrictions implemented by Mexico.^{Footnote 10}

Other recovery indicators

Consumers

In response to the pandemic, many Mexicans began working from home and that arrangement is expected to continue even as the impact of the pandemic dissipates. Euromonitor statistics in 2020, reports that 73% of the population accessed the internet from home, while around 56% of online users were at the workplace. A number of younger "digital nomads" have even moved and now work from home in some of Mexico's favourite tourist havens, including such cities as Cancun, Playa del Carmen and Tulum.^{Footnote 11}

Although the COVID-19 pandemic has boosted the demand for digital payments, challenges remain in Mexico with a substantial amount of the population who do not trust banking with major financial institutions (high proportion not in possession of a credit or debit card) as Mexicans remain skeptical over the security of online payments. Notably, there is a 40% of active labor force performing in the informal economy, thus, there is a constraint to increase demand for digital payments in the short term.^{Footnote 12}

Mexicans have a strong sense of community despite the fact that they rely in large part on their own self-discipline. According to Euromonitor's survey: 50% say being active in the community is important to them and they look towards their neighbours as they continue to battle the spread of the virus. Furthermore, 46% say they will be even more active in their communities in the future.^{Footnote 11}

A large proportion of consumers enjoy high median disposable incomes. However, high income inequality in Mexico creates significant differences in lifestyles and priorities, and many of these differences have been exposed during the pandemic. Albeit, a survey, reveals that Mexicans across all income groups are feeling a stronger sense of optimism than their global counterparts: 64% of respondents (versus 51% globally) say they expect to be better off financially in future. Additionally, 65% (versus 48% globally) say they expect to be healthier in future.^{Footnote 11}

Description of above image

	Change in comparison to March, 2020	Change in comparison to April, 2019
Domestic goods and services	−19.1%	−21.2%
Domestic goods	−20.1%	−20.3%
Domestic services	−17.8%	−22%
Imported goods and services	−21.3%	−30.6%
Overall	−19.7%	−22.3%

Sources: Statista and INEGI

Foodservice and hospitality

The home seclusion trend and limited tourism opportunities, both domestic and international, have negatively impacted performances of leisure, lodging and travel locations for consumer foodservice in 2020. Consumer foodservice through the retail non-standalone category was hit the most, declining by 40% in current value terms, compared to standalone foodservice that declined by 17%. Although, standalone outlets experienced declines as well, it remained the dominant format for consumer foodservice distribution due to these operators being situated closer to residential areas and they met safety concerns with less crowds. Non-standalone outlets were hit most due to reduced domestic tourism and international travel opportunities during the pandemic. Theme parks and stadiums remained closed throughout the year or operated at limited capacity, causing restaurants within these tourist destinations to close, also affecting the busing and airport transportations that remained open but operated at reduced capacity.

Eat-in foodservice-based outlets struggled the most; even as restrictions relaxed they were only permitted to operate at 30% capacity in most cities, while some with outdoor dining spaces were allowed to operate at up to 50%. This scenario resulted in a strong uptake of home delivery options for many channels, with to-go options likely to continue to grow into the early part of the forecast period.^{Footnote 13}

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Resources

• Chavez, Luis. USDA – Foreign Agricultural Service. June 2021. Drought Conditions in Mexico and Its Effect on Agriculture
• Daniel E. Slotnik, et al. The New York Times. November 2021. The U.S. reaffirms its land border restrictions as Canada relaxes its own. Mexico has none.
• Embassy of Canada in Mexico, 2021. E-Commerce Sector in Mexico study (focus on agri-food products & consumer goods)
• Euromonitor International. February 2021. Country Report: Consumer Foodservice By Location in Mexico
• Euromonitor International. Global Recovery Tracker: Recovery Index (Q3-2021)
• Euromonitor Intelligence. March 2021. Country Report: Economy, Finance and Trade in Mexico
• Euromonitor International. May 2021. Country Report: Alcoholic Drinks in Mexico
• Euromonitor International. October 2021. Consumer Lifestyles in Mexico
• Fred – Economic Data: Economic Research (Federal Reserve Bank of St. Louis), GDP by expenditure in constant prices for Mexico
• Peel, Derrell. Beef magazine. November 2021. Animal Health: Mexican cattle imports decrease in 2021
• Reuters COVID-19 Tracker. Global: Latin America and the Caribbean. (as of November 30, 2021)
• Torres, Noe and Anthony Esposito & Daphne Psaledakis. Reuters. 9 November 2021. Americas Analysis: Corporate Mexico feels heat from global supply chain crunch and Mexico and U.S. agree to work on supply chains, migration
• Trading Economics. September 2021. Summary: Mexico Industrial Production and Summary: Mexico GDP from Agriculture

Customized Report Service – Mexico recovery reporting
Global Analysis Report

Prepared by: Erin-Ann Chauvin

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