An economist’s view on US and Mexico’s dairy trade

A trade war between the US and Mexico could present significant challenges for the US dairy industry, warns Corey Geiger, lead economist for dairy at CoBank. This is especially concerning given that Mexico remains the largest dairy export market for the US.

Geiger explains: “We know for certainty that dairy exports definitely matter to US dairy farmers and processors. These days, 16%, or 1 in 6 tankers, of milk gets turned into dairy products destined for customers around the globe.”

Corey Geiger, lead economist for dairy at CoBank. Photo: CoBank

Earlier this month, President Donald Trump introduced 25% tariffs on Canada and Mexico. “Topics such as tariffs, immigration and deportation came up frequently on the campaign trail,” Geiger says. “And this situation will impact future trade opportunities.”

Exports to Mexico

Geiger highlighted the critical role free trade agreements have played in driving the expansion of US dairy exports. Before the implementation of the North American Free Trade Agreement (NAFTA) in 1994, the US exported just US$211 million in dairy products to Mexico. By 2011, Mexico had become the first billion-dollar US dairy export market, with exports surpassing US$2 billion in 2022 under the United States-Mexico-Canada Agreement (USMCA).

Geiger sees continued potential for growth in dairy product sales to Mexico. “Looking to the future, dairy product sales to Mexico have great room for more growth as more Mexican consumers enter the middle class and seek higher-quality proteins and fats. To that end, Mexico’s average citizen consumes just 45% of the dairy products of the average American.”

Strong growth prospects

“The upside potential for growing US dairy sales to Mexico continues to be strong. Mexico currently purchases 4.5% of America’s milk production in the form of dairy products and ingredients. As the industry collaboratively works together on both sides of the border to lift dairy demand, Mexico may eventually purchase more dairy products from the US,” said Geiger.

Strong growth prospects for US dairy, both domestically and internationally, have led to an US$8 billion investment in new processing plants set to increase production over the next 2 years. By mid-2025, nearly 20 million pounds of additional milk will be flowing through these facilities, increasing the supply of cheese, whey, and other dairy proteins. With this growth, exports are expected to play a key role in absorbing increased production.

“Top markets include Mexico, Canada, China, the countries of Southeast Asia, the countries of Central America, and the Middle East and North Africa,” Geiger notes. “While China was the top purchaser of US agricultural products at US$34 billion in 2023, Mexico and Canada tied for second place at US$28 billion each in 2023, according to USDA trade data.”

US dairy exports

In 2023, Mexico purchased US$2.32 billion in US dairy products. “That represented one-fourth of all US dairy exports, according to data from USDA’s Foreign Agricultural Service,” Geiger says. “By contrast, China, a top-3 US dairy customer, purchased US$607 million of US dairy products. For the US, the China dairy export market was just 26% of the size of Mexico in 2023.”

“Even though China is the world’s largest dairy product importer, New Zealand is its largest supplier. The US is Mexico’s largest supplier, and that relationship grew considerably in 2024. By September, Mexico’s purchases grew to 29% of all US dairy product exports, according to data from USDA-FAS. Overall, the US supplied Mexico with over 80% of its imported dairy products.”

A recent report from CoBank’s Knowledge Exchange reinforces the strong potential for increasing US dairy sales to Mexico. Geiger explains that Mexico faces an annual dairy product deficit ranging between 25% and 30%, with the US supplying more than 80% of that shortfall. Beyond Mexico, the US is well-positioned for growth in the global dairy export market, which will become increasingly important as new dairy processing capacity comes online.

Currently, the European Union and New Zealand lead the world in dairy exports, but production in both regions has stagnated. In the EU, greenhouse gas reduction policies have placed restrictions on production, while in New Zealand, land constraints have likely capped the country’s dairy cow population.

Growing dairy demand in Mexico

A growing domestic dairy industry is also driving increased dairy product consumption in Mexico, a recent report from CoBank states. From 2011 to 2023, milk production in Mexico grew at an annual rate of 1.8%, reaching 13.3 billion kg (29.4 billion pounds) in 2023. In comparison, US milk production grew at a rate of 1.3% annually over the same period, reaching 102.7 billion kg (226.4 billion pounds).

On a per capita basis, Mexican dairy farmers produced 102 kg (224 pounds) of milk per person, while American farmers produced 307 kg (677 pounds). In Mexico, 48% of milk production is allocated to fluid milk, compared to just 20% in the US. Despite this, Mexico has significant potential for increased fluid milk consumption, as the average Mexican consumer drinks 49 kg (107 pounds) annually, compared to 61 kg (135 pounds) in the US.

While Mexico’s dairy farmers have increased production, domestic demand continues to outpace supply. Between 2011 and 2023, per capita dairy consumption in Mexico grew by 20%, compared to 8.3% in the US. Over this 12-year period, per capita dairy product consumption in both countries increased by 23 kg (50 pounds) of milk equivalent. In Mexico, consumption rose from 111 kg (244 pounds) to 133 kg (293 pounds), while in the US it increased from 274 kg (603 pounds) to 300 kg (661 pounds).

As noted, dairy product sales to Mexico have substantial growth potential with the average Mexican citizen currently consuming only 45% of the dairy products that the average American does. Milk equivalent measurements use fluid milk as the basis for comparison. Liquid milk is either sold as a beverage or processed into cheese, non-fat dry milk, or other dairy products. For reference, 45 kg (100 pounds) of liquid milk yields approximately 5.1 kg (11.24 pounds) of cheese or 2.3 kg (5 pounds) of butter, based on the solids content of US farmgate milk.