Western Hemisphere Region

1. Western Hemisphere Region Tom Lipetzky Vice President, International Programs USMEF/Denver

2. The Western Hemisphere Region • Caribbean • Mexico • Central & South America

3. Importance of the Region & its Markets to U.S. Beef & Pork Trade • Accounted for ~30% of total U.S. beef and pork exports in 2003 and has potential to rise to ~35% by the end of this decade. • Mexico is the largest current and future market opportunity in the WH region and is second only to Japan. • Caribbean and C/S American markets are best characterized as niche markets but when viewed collectively represent a significant opportunity. • Processing and HRI in C/S America • Upscale HRI and growing retail sectors in Caribbean • Important from the view of understanding our competition (i.e., Brazil, Chile and Mexico).

4. Demographics • Population to grow from 525 million in 2000 to nearly 600 million by 2010. • Brazil (175 million growing to 200 million) • Mexico (100 million growing to 115 million) • Per capita incomes in Bermuda and Cayman Islands among the highest in the world at ~ $36,000. Mexico ~ $6,000 and average across South America ~ $4,000. • Mexico representative of regional trends. • More women entering the workforce • Young population

5. Economic Situation • Expanding GDP’s in most recent quarter • Mexico, Colombia (4%) • Southern Cone & Peru (>5%) • Venezuela (>10%) • Higher oil revenues are generating added revenues for OPEC members including Mexico and Venezuela. • Recent hurricanes will set back growth in many Caribbean markets. • Many WH markets will rise and fall with U.S. economy.

6. Political Climate • Unrest in Peru and Bolivia that has potential to topple leaders. • Presidential recall failed in Venezuela but U.S./VZ relations warming. • Leftist leaning government just elected in Uruguay. • Mexico elections slated for ’06. • Castro remains in power in Cuba.

7. Trade Policy & Market Access Environment • Trade agreements are creating an environment conducive to expanding U.S. red meat exports. • 10th anniversary of NAFTA. • CAFTA-DR Agreement formalized in August (Costa Rica, El Salvador, Honduras, Nicarauga, Guatemala & Dominican Republic). • Future FTA’s • Panama • U.S./Andean FTA (Colombia, Peru, Ecuador & Bolivia) • Free Trade Area of the Americas • Nonetheless, TBT’s continue to hamper trade.

8. Caribbean Liz Wunderlich – USMEF/Caribbean

9. General Market Situation • Ivan, Frances & Jeanne were devastating to tourism industry. • Less commodity focus, growing importance of brands, programs and value-added. • Increasing competition from Canada and Brazil & Uruguay. Old Leper Colony - Grenada

10. Caribbean-- Beef -- • All islands are at least partially open except for Jamaica. • Exports are up 30% in tonnage, making the Caribbean the third largest export market for U.S. beef. • Beef is “in” because of the low-carb trend. • Increased competition from Brazil, Canada and Uruguay. Chef Colin Lloyd Greg’s Steakhouse

11. Key Drivers With increased competition, it is imperative to keep the U.S. beef quality message forefront. Chefs & retailers are hesitant to use unfamiliar cuts. U.S. beef cuts at retail are limited. Strategic Priorities Educate importers about the wide variety of safe, low cost U.S. beef cuts. Expand the range of U.S. beef cuts bought through the end-users. Establish a presence of specific U.S. beef cuts at retail. Key Drivers & Strategic Priorities-- Caribbean Beef --

12. Caribbean-- Pork -- • Pork market is up 50% because of the tourism growth and the popularity of pork. • Movement toward brands for differentiation. • Declining self-sufficiency in meat production because of the hurricanes. • Increased competition from Brazil. Chef Oscar Orbe Melia’s Santo Domingo

13. Key Drivers Chefs & retailers need to expand their knowledge of U.S. pork cuts and get away from “commodity” mode. Need to promote more value-added products so that U.S. pork becomes more unique. Strategic Priorities Expand the range of U.S. pork cuts sold to the food service and retail outlets. Expand the presence for U.S. value-added pork products in the retail and food service establishments. Key Drivers & Strategic Priorities-- Caribbean Pork --

14. Mexico Gilberto Lozano – USMEF/Mexico City

15. General Market Situation & Trends • Per capita income from $4,282 in 97, $6,750 • Peso weaken 5.2% drop from $10.8 to $11.4 per U.S. in 10 months • Inflation in ‘03 3.5%; estimated for ‘04 4% • Importance of non-certified brands/traceability. (Spain, France) • 2/3 of the economy moved by the service sector, agriculture and manufacturing 1/3 • Mex. Economy tied to U.S. (80% of exports) • GOM provides U.S. $6 million to match industry investment on promotion of TIF plants • There is no mandatory traceability and no COOL

16. Mexico's inflation rate

18. Per capita meat consumption in México. Beef Pork Poultry Kilograms per person

19. Mexican Meat Industry Seasonality (porcentajes de la venta total anual) beef Pork Poultry 17.00% 15.00% 13.00% 11.00% 9.00% 7.00% 5.00% April July Augusts June May January October Mar December November September Feb

20. Mexico-- Beef -- • In March the market partially opened, no bone in, no> 30 months, no SRM. • 3 months closed, down 60% by July, real recovery trend, turn to different protein sources: Canada, C/A, Chile, Australia, NZ. • Mex. 82% self-sufficient, 1% yearly growth, high $ for feeder, heifer depletion

21. Mexico-- Beef -- • Mexican grain finishing expanding slowly, high feed cost limits growth, export • US holds 86% share of imported beef mkt. • Anti-dumping duties continue • NAFTA panel determination has been published (carcass, 30 days) BSE. • Non-tariff barriers, regulations change constantly. • Confidence on U.S. Beef high 57% vs 47% • Decrease in consumption, due to price and health concerns • Freshness misperception • 44.6% of women between 15 and 64 work

22. Beef and variety meats Export from USA to Mex. Source : Compiled by MEF Mex with data from USDA 348,000* Estimado 314,000 283,000 251,000 218,000 208,000 187,000

23. Key Drivers Expanded HRI sector due to tourism growth and income improvement. New generations joining the working force. Consumption rapidly growing in large cities in middle, upper classes High Meat price elasticity on Mexico Strategic Priorities Show price range availability, versatility of U.S. beef products to importers and distributors. Teach consumers of U.S. beef high quality attributes. Educate, promote and demonstrate to retailers the value of identifying and positioning U.S. beef as wholesome, safe and nutritious. Teach the HRI sector of less expensive U.S. beef cuts, and how to incorporate them to their meal plans. Key Drivers & Strategic Priorities-- Mexico Beef --

24. Key Drivers Consumers are increasingly safety and nutrition-conscious Strategic Priorities Educate media, government, and industry on benefits of trade and quality attributes of U.S. beef Key Drivers & Strategic Priorities-- Mexico Beef --

25. Mexico-- Pork -- • Mexican production vertically integrated, (1.1 million mt.) • 1.5% growth per year, Yucatan , Sonora, Jalisco • Small producers hurt because high costs • U.S. pork has 80% of the Mexican pork import market • 45% forecast vs 70% growth in 7 months, (185,102 mt), due to BSE & high prices of beef. • Pork has faced several dumping cases (current case on hams and picnics). • Canada and Chile are the closest export competitors

26. Mexico-- Pork -- • 1st dumping case dropped in June 04, a new one was filed for hams and picnics. • Imports of U.S. pork were driven by avian influenza and BSE, plus high beef prices • Small growth in pork variety meat imports is expected as Mexican processors increase their usage of poultry products • Population growth is causing an increase in consumption of processed meats (low-priced protein) • Mexican pork exports to Japan are expected to grow steadily for ham & sausage manufacturers. • Mexico holds many free trade agreements.

27. U.S. Pork & Pork Variety Meat Exports to Mexico By June 04 Units : thousand Metric Tons Source : Compiled by MEF with USDA data.

28. Key Drivers Political pressure to protect domestic producers. Expanded HRI sector due to tourism growth and improved per capita GDP. Strategic Priorities Foster relationships among the industry to share information that diminish political pressures and shows profitability of U.S. pork. Educate all HRI sectors on profit potential availability, and versatility of U.S. pork. Key Drivers & Strategic Priorities-- Mexico Pork --

29. Key Drivers Consumers are increasingly safety and nutrition conscious. Concerns among consumers about eating a healthy diet. Strategic Priorities Educate media, government, and industry on benefits of trade and quality attributes of U.S. pork. Sustain effort to position U.S. pork as tasty, nutritious and fresh, among the consumers. Key Drivers & Strategic Priorities-- Mexico Pork --

30. Key Drivers Resistance by retail sector to introduce new cuts and differentiate the products, fear of discovering resistance from consumers due to old misperceptions about pork in general. Strategic Priorities Demonstrate profit potential to retailers of a range of U.S. pork cuts and show the value of identifying U.S. pork to their clients. Key Drivers & Strategic Priorities-- Mexico Pork --

31. Central & South America Tom Lipetzky -- USMEF/Denver

32. General Market Situation & Trends • South American beef and pork production increasing at ~3% annually. • Eco-tourism is driving growth in the number of hotels and restaurant operations in Central American markets. • Retail is taking on a more modern face and expanding outlet numbers. Int’l retailers making a presence. Consumers increasingly purchasing at modern supermarkets.

33. Central & South America-- Beef -- • Most Central American markets, where the majority of U.S. exports to the region are destined, have re-opened (i.e., Costa Rica, Honduras, Guatemala, Belize, El Salvador and Nicaragua). • Competition is primarily from expanding domestic production – little of which is grain-fed. • Herd health issues in South America continue to limit ability of South America producers to supply Central America markets. • Consumers have a long history of beef consumption. • May take until ’06/’07 to regain pre-BSE export levels.

34. Key Drivers Tourism is driving expansion in HRI sector, particularly in Costa Rica, Guatemala and Panama. Retail is transitioning from more traditional outlets to more modern and western outlets. As most beef is grass-fed, opportunity exists to create differentiation for U.S. grain-fed beef. Strategic Priorities Educate importers and HRI operators of the positive attributes of U.S. beef. Demonstrate sales potential of high-quality U.S. beef to retailers. Position U.S. grain-fed beef as being the highest-quality with importers, HRI operators and retailers. Key Drivers & Strategic Priorities-- Central & South America Beef --

35. Central & South America-- Pork -- • Brazil supplies more than 50% of regional import demand. Chile becoming a competitor too. • Most Latin America import policies favor domestic production. • High import tariffs • Unclear import procedures • At present, a $40 million annual market for U.S. Pork with the best opportunities being in the processing and HRI sectors. • Primary target markets are Costa Rica, Guatemala, Panama and Honduras.

36. Key Drivers Consumption of processed meats is growing. HRI and retail sectors continue to develop and expand. Strategic Priorities Assist processors in identifying opportunities to expand utilization of U.S. Pork. Educate HRI operators and retailers of the range of products and versatility of U.S. Pork. Key Drivers & Strategic Priorities-- Central & South America Pork --

37. ?? Questions ?? Liz Wunderlich – Caribbean Tom Lipetzky – Central & South America Gilberto Lozano -- Mexico