Beset by drought and hard economic times, Mexican cattlemen battle to compete.

Today's Mexican cattle industry can be characterized by two factors - persistent drought and a strangling domestic economy. These conditions play heavily on the ability of Mexican ranchers to produce beef - not only for domestic markets, but also for international ones.

Yet last year, Mexican ranchers exported nearly a million cattle - mostly lightweight feeder steers - to the U.S. In addition, Mexican meat packers exported 4,788 metric tons of beef products to the U.S. While exports to this country have been steadily increasing over the past several years, Mexico remains in a $202 million (1999) beef/cattle trade deficit with the U.S. (See table.)

Drought most affects the day-to-day ranching business in Mexico. Most rangelands in Northern Mexico are denuded of grazeable vegetation. More widespread and long-term though, are the effects of the 1994 devaluation of the peso. When money is available, Mexicans pay up to 30% to borrow money.

Meanwhile, soaring energy prices hit every phase of production. And, as the population moves to the cities, cheap rural labor is becoming a thing of the past.

Because Mexicans are finding it nearly impossible to obtain financing, the cattle industry as a whole can't modernize and is losing ground every day to the U.S., according to Antonio Proto, Jr., Hermosillo, Sonora, who works for the State of Arizona as a policy and trade attache. "That's the reason the meat packing companies, for example, have not been able to re-tool or expand to compete against the U.S."

Last winter, some sectors of the Mexican beef industry began claiming unfair beef trading practices and filed an anti-dumping lawsuit against U.S. meat packers. Late in April, SECOFI - the Mexican trade agency - ruled U.S. beef imports are "injuring" Mexican producers and announced a complicated structure of punitive duties on most U.S. carcasses and cuts. (See sidebar.)

Some See Optimism Many Mexican cattlemen are enthused about the future and are nervous about the dust being raised during this trade skirmish. And, even in the face of tough times, the mood among rank-and-file producers appears to be more of cooperation than confrontation.

Roberto Zambrano is one Mexican cattleman who has not only expanded his cattle feeding business, but also integrated his operation into a successful branded beef program. He's grown from feeding 300 head in 1991 to 8,500 head today and wants to be Mexico's leading beef producer by 2004. With his "Rancho 17" label, Zambrano is marketing about 70 head/day through supermarkets, meat shops and restaurants centered around Hermosillo.

"We want people to buy one beef brand, not a generic product - our competitive advantage is in the quality of our beef," explains Zambrano. "When you sell a quality branded product, price is not as much a marketing factor."

Zambrano views trade with the U.S. from two angles that affect his business.

* Imported beef, especially high-end products that compete directly with the Rancho 17 label, are a burden.

* Also, Mexican ranchers tend to export their best feeder animals, making it harder for feeders like Zambrano to obtain a steady, year-round supply of cattle. Ironically though, this forces him at times to import fed cattle from the U.S. to fill the gaps in his own supply pipeline.

Another example is the Hurtado brothers - Carlos, Sergio and Francisco. The trio can't remember the last soaking rain that fell on their farming and ranching operation located west of Hermosillo. Still, they're optimistic about their future.

They've installed a high-tech irrigation system that saves on precious groundwater supplies. And, by producing several commodities, they're able to bridge many of the market cycles. Along with a herd of 400 cows, the Hurtados grow grapes, chickpeas, pecans, wheat, oranges, peaches and sorghum.The Hurtados know that quality products are the keys to their success - espe cially when competing in export markets.

"We want to improve the quality of our cows so we can do a better job of marketing," says Francisco. "But, it takes time and money to do that. We have to be very selective in building our breeding herd."

Recently, the Hurtados purchased more than a dozen Red Angus bulls from breeders in the U.S. They're so pleased, they're looking for more.

Cross-Border Opportunity The Hurtados may be looking to purebred breeders like Leonard and Mary Rice. The Hobbs, NM, couple was encouraged with what they saw in Mexico on a recent visit to Sonoran ranches, including the Hurtados' operation. They're considering exporting Red Angus seedstock, which they feel would open the door to more business with Mexican cattlemen - on both the buying and selling ends.

"We can definitely benefit by selling them bulls and heifers; but we can also work at building relationships so we can buy their feeder cattle," says Leonard. He envisions buying calves back from Mexican ranchers who use their breeding stock.

"That way we will know the genetics and the growth potential of the calves we import," he says. "Things will turn around for Mexican ranchers, and we want to be in position to do business with them when that happens."

Building relationships is what it's all about according to Raul Tellez, a marketing specialist for the New Mexico Department of Agriculture. Tellez has helped U.S. and Mexican ranchers put together deals for more than 20 years.

"The important thing is to get to know these people," says Tellez when speaking of Mexican ranchers. "Conditions may be tough for them now, but they will survive and provide great opportunity for business with U.S. cattle producers."

On April 28, the Mexican government issued its final decision on an antidumping case against exporters of U.S. beef and beef variety meats. They imposed punitive duties that vary depending on exporter, product and grade. The duties, which began May 29, are as high as 36 cents/lb.

For certain beef products to receive lower tariffs, they must go through a complex certification process. The duty rates are biased against ungraded U.S. beef and beef from animals slaughtered more than 30 days after the export certificate is issued. Product graded Prime and Certified Angus Beef is exempt from duties.

"The problem is that a lot of beef is coming into Mexico from the U.S., and the cattlemen are already having a hard time," says Antonio Proto, a U.S./Mexico trade attache. The trade official says the size and economics of ranching in the U.S. clearly favor cattlemen north of the border.

"Grain is cheaper in the U.S., they can produce more efficiently and there is better financing in the U.S.," Proto points out. "Mexican cattlemen are trying everything they can to protect their industry."

But, Dana Hauck, chairman of the National Cattlemen's Beef Association's (NCBA) international markets committee, says increased beef exports to Mexico are due to increased demand - demand that's outstripped Mexican production capacity.

"U.S. cattle breeders have helped Mexican producers restock their herds after devastating droughts and poor economic conditions," says Hauck, a cattle producer from Delphos, KS. "Measures such as this will go much further to help the Mexican cattle industry than will restrictive tariffs, which could drive up costs in Mexico for both domestic and imported beef products."

The NCBA says that if allowed to stand, these actions by Mexico establish a dangerous trade and protectionist precedence. The organization is appealing for intervention by U.S. agriculture and trade officials.

"Mexico has been our fastest growing beef market," concludes Hauck. "Trade is being affected and we need immediate action."

The duties on U.S. beef are to remain in place for five years with provisions for annual appeal.

The antidumping decision may be more political than economic as some observers have hinted that once this year's Mexican presidential elections are settled, the mood against the U.S. beef industry could soften and sanctions may be reviewed. Others say the suit was brought in retaliation against U.S. ranchers who brought antidumping charges against Mexican live cattle imports last year.