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Can Mexico achieve self-sufficiency in palm oil production?

For many years, Mexico remained a net importer of oils and fats. Domestic productions of oils and fats are insufficient to meet the demand of the large population. Last year, Mexico produced 2.25 Mn T of oils and fats which meet about 65 percent of the domestic demand. Soybean oil production constitutes 45.7 percent of the total oils and fat production in 2020. This is followed by rapeseed oil at 23.6 percent. Palm oil production amounted to approximately 114,000 tonnes.

Based on the data released by the Oil World, in 2020 Mexico imported about 1.28 Mn T of oils and fats. Palm oil import amounted to 500,000 MT which constitutes 39 percent of the total imports of oils and fats. Mexico imports almost 80 percent of the palm oil it consumes. The three top suppliers of palm oil to Mexico are Guatemala, Costa Rica, and Colombia. Palm oil is becoming an important export earner to several countries in the region. According to the report published by Market Data Forecast, the Latin American palm oil market size is estimated to grow at a CAGR of 6 percent to reach USD5.2 billion in 2021.

Central America Data, a business information website reported that during the first seven months of 2020, exports of palm oil and its derivatives from Central America to Mexican companies amounted to $138 million, an increase of 22% compared to the same period in 2019. From January to July 2020 the major exporters of palm oil from Central America to Mexico were Guatemala, with USD80 million, followed by Costa Rica, with USD75 million.

Graphic by MPOC Analytics. Data source: Oil World

The oil palm sector is relatively new in Mexico. Palm oil cultivation in Mexico started in the late 1990s. The Mexican government saw the potential of the crop as a means to alleviate poverty among smallholder farmers. It was considered a viable alternative at a time when the cattle market had collapsed. Mexico’s palm oil industry grown rapidly between 1998 to 2016, making palm oil the third-largest oil being produced in the country by volume. Mexico’s oil palm plantations were mostly developed on converted cattle lands.  Government programs encouraging the planting of oil palm in several states largely contributed to this growth. Mexico and Central America are considered a promising new frontier for oil palm expansion.

Mexico: Palm Oil Production from 2010 to 2019 (in 1,000 metric tonnes)

Source: Statista 2021

A recent industry report indicated that Mexico’s oil palm planted area has been increasing over the past five years, reaching nearly 109 thousand hectares in 2019. Almost 42 percent of Mexico’s oil palm cultivated area was in the state of Chiapas. 

In 2020, Mexico’s palm oil production stood at 114 thousand metric tonnes. Palm oil consumption reached 614,000 MT which constitutes 17.7 percent of the oils and fats consumption in 2020. Mexico’s current per capita consumption of vegetable oils is approximately 26 kg, comprising mainly cooking oil for home use with the remaining comprising of HRI and industrial consumption.

However, despite numerous efforts by both the government and the private sector, the development of the palm oil sector in Mexico was hampered by several factors. In Mexico, oil palm cultivation is primarily a smallholder crop. The limitation in the cultivation land area has somehow contributed to the slow pace in the expansion of palm oil production volume in Mexico. According to The Mexican Federation of Oil Palm (FEMEXPALMA), today, about 90 percent of Mexico’s 8,000 growers are smallholder farmers, producing on plantations smaller than 123 acres. Based on industry estimates, palm oil production in Mexico is expected to grow by only 6 percent in 2020. Moreover, many farmers prefer planning other types of cultivation such as fruit trees and hardwoods in the key palm oil production areas.

USDA market report indicated that soybean oil will continues to dominate the Mexican market, controlling approximately 60 percent market share in MY 2019/20. In Mexico, the food processing and oil blending industries accounted for most of the soybean oil consumption. Under the current development phase, palm oil production is expected to continue to lag. It may take many more years before Mexico can achieve self-sufficiency in palm oil consumption.

In the meantime, both Guatemala and Costa will remain the top two exporters of palm oil to Mexico. The proximity of these two countries to Mexico, cross-cultural awareness supported by a strong bilateral relationship between the countries, clearly provides these two palm oil suppliers with the logistics and freight costs advantages. Palm oil imports from Malaysia are relatively small. In 2020, Malaysia’s palm oil export to Mexico amounted to 7,415 MT, which placed Mexico as sixth-largest Malaysia’s palm oil export destination in the Americas region. Malaysian palm oil suppliers must consider that Mexican consumers are price sensitive. Price competitiveness could be one of the important factors in expanding palm oil export potential to Mexico. It is also important for Malaysian palm oil exporters to collaborate with an experienced and professional local importer or distributor in Mexico, who may assist with issues related to local import regulations and customs clearance procedures.

Prepared by Zainuddin Hassan 

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