Mexico Has Become America’s Most Reliable Dairy Customer

Corey Geiger and Abbi Prins

December 19, 2024

U.S. dairy has entered an historic moment: Domestic dairy product consumption has climbed to the highest levels in over six decades and dairy exports are close to record levels.

This bullish sales data is boosting confidence that U.S. dairy will be a long-term growth industry. That’s not the only factor, as the European Union’s growth potential has stalled due to production constraints imposed by greenhouse gas reduction policies. Likewise, New Zealand is reaching its peak cow population bound by land constraints. The EU and New Zealand rank first and second for global dairy exports, with the U.S. standing as a strong third.

Those market perceptions have led to an historic $8 billion investment in new dairy processing assets coming online across the country through 2026. Of that generational investment, $4 billion will go into new cheese plants and whey facilities. The first of three large-scale cheese plants began production in the fall of 2024. By the middle of 2025, nearly 20 million lbs. of new milk is expected to flow through those plants. This investment means more cheese and high-quality dairy proteins will seek a new consumer home, and industry observers expect exports to be a major destination for those dairy products.

Recently, the American people voted a new administration into the White House. Issues such as tariffs, immigration, and deportation came up frequently on the campaign trail. Political action on any one of these topics could impact future trade opportunities and could greatly impact U.S. dairy export prospects.

Prior to the mid-1990s the U.S. dairy industry was a nonplayer in the global export market, but today dairy exports are more significant to U.S. dairy farmers and processors than ever. These days 16% or 1 in 6 tankers of milk is processed into dairy products destined for customers around the globe. Mexico ranks as the top destination purchasing 1 in 4 pounds of dairy products that leave the United States. Trade disputes between these two countries could significantly impact U.S. dairy markets.

Milk production grows in both Mexico and the U.S.

Many instances around the world show a growing domestic dairy industry also lifts dairy product consumption in that country, and this is certainly the case in Mexico. From 2011 to 2023, milk production in Mexico grew 1.8% annually to reach 29.4 billion lbs. in 2023. In contrast, U.S. milk production grew 1.3% annually during that same time span to reach 226.4 billion lbs. Per capita, Mexican dairy farmers produced 224 lbs. of milk while American farmers produced 677 lbs. In Mexico, 48% of production goes to fluid milk compared to just 20% in the U.S. Even with these percentages, the Mexican market has more upside for fluid milk consumption as its consumers drink 107 lbs. annually versus 135 lbs. in the U.S.

Mexico has a growing appetite for dairy

While Mexico’s dairy farmers have increased milk production, domestic demand is outstripping it. From 2011 to 2023, Mexico’s per capita consumption grew 20% while U.S. consumption grew 8.3%. Per capita dairy product consumption in both Mexico and the U.S. grew by 50 lbs. of “milk equivalent” during the 12-year window. In Mexico, consumption grew from 244 lbs. to 293 lbs.; in the U.S., consumption grew from 603 lbs. to 661 lbs.

It's important to note these milk equivalent examples use fluid milk as their basis for comparison. Liquid milk is either sold as beverage milk or manufactured into cheese, nonfat dry milk or other dairy products. For reference, 100 lbs. of liquid milk makes 11.24 lbs. of cheese or 5 lbs. of butter based on solids in U.S. farmgate milk.

Dairy demand growing faster than production

Mexico faces a dairy product deficit ranging between 25% to 30% annually. U.S. exports cover over 80% of that deficit, predominantly in the form of milk powders such as nonfat dry milk, cheese and whey proteins.

U.S. dairy exports to Mexico totaled 1.22 billion lbs. on a milk solids basis in 2022 and climbed to 1.38 billion lbs. in 2023. The largest category was nonfat dry milk and skim milk powder, increasing from 793 million lbs. in 2022 to 919 million lbs. last year, according to U.S. Trade Monitor Data. Mexico purchased 51.5% all U.S. nonfat dry milk and skim milk powder exports in 2023. These products enhance the protein content in cheese and other dairy-product applications.

Cheese also is a major growth category as the U.S. exported 272 million lbs. to its southern neighbor in 2022, and that number grew to 327 billion lbs. in 2023. This year, U.S. exports to Mexico are growing at a record pace at 352 million lbs. through October and represent 37.4% of all U.S. cheese exports.

USMCA fostered even more dairy trade

Free trade agreements have been instrumental to export growth for agricultural products, including dairy. One must look no further than the first of its kind, North American Free Trade Agreement. NAFTA went into effect in 1994 and gradually eliminated all tariffs by 2008 — the U.S. exported $211 million in dairy products to Mexico. By 2011, Mexico became America’s first $1 billion dairy export market. In 2018, NAFTA was enhanced and updated into the United States-Mexico-Canada Agreement, helping U.S. dairy exports surpass the $2 billion threshold by 2022. The U.S. is Mexico’s largest supplier, and the relationship has grown considerably over time.

In the last couple of years, U.S. dairy exports to Mexico did dip from $2.44 billion in 2022 to $2.32 billion in 2023, as dairy product values declined. By October 2024, Mexico’s purchases grew to 29% of all U.S. dairy product exports, according to data from the USDA’s Foreign Agricultural Service. The growth trajectory in U.S. dairy sales to Mexico is clear, with a 10-year growth rate for dairy product purchases at 42%, according to USDA-FAS. Based on dollar value, dairy products represent the fourth-largest U.S. agricultural export market to Mexico overall, behind corn, soybeans and pork products.

In contrast, China, a top three U.S. dairy customer, purchased $803 million of dairy products and ingredients in 2022 and $607 million in 2023. Presently, the U.S. dairy export market to China is just 26% of the size of Mexico’s purchases. China is the world’s largest dairy product importer, and New Zealand is its largest supplier.

America’s top dairy customer

A generation ago, almost all the milk and resulting dairy products manufactured in the United States stayed within the borders. Today the milk from 1 out of 6 tankers leaving American farms is processed into products and ingredients sold to other countries. Mexico is America’s No. 1 market, accounting for over one-fourth of all U.S. dairy product exports. On the dairy trade front, the relationship between the U.S. and Mexico continues to grow for three important reasons: a modern free trade agreement, geographic proximity, and most importantly, growing dairy product demand.

Free trade agreements have proven to grow U.S. exports to Mexico and could help grow other markets. Among America’s top 10 dairy export markets, half are lacking free trade agreements: China, Japan, the Philippines, Indonesia and Vietnam. We see great potential growth in these countries for the U.S. dairy industry.

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