July, 2014
MEXICO: FOOD TRENDS AND OPPORTUNITIES
MEXICO: FOOD TRENDS AND OPPORTUNITIES This publication is a valuable reference for Swiss companies wanting to enter or expand into the Mexican food market. It includes information about the market potential, regulatory environment, the most important players in the food retail sector, potential partners, trade fairs and an analysis of opportunities and challenges. For the convenience of Swiss readers, all currencies are expressed in CHF using exchange rate of USD $1.12 per CHF 1. Language: English Number of Pages: 61 Author: Market Intelligence Latin America, S.C. Other Reports: If you are interested in other sectors or countries, please find more reports here: www.sge.com/study
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Contents 1.
INTRODUCTION ____________________ 3
1.1.
GENERAL COUNTRY INFORMATION _____ 3
1.1.1.
Key figures ________________________ 3
1.1.2. Traditional sectors ___________________4 1.1.3. Emerging sectors ____________________ 5 1.1.4. Foreign direct investment attraction _______6 1.2.
OVERVIEW OF THE FOOD MARKET _____6
4.1.3. Low purchasing power _______________ 35 4.1.4. Poverty _________________________ 35 4.2.
RETAIL: market size, market structure,
players, competition, challenges. _____________ 35 4.2.1. Size, structure and key players _________ 35 4.2.2. Retail Trends _____________________ 38 4.2.3. Convenience store trends _____________ 39 4.3.
FOODSERVICE / HoReCa ____________ 39
4.4.
EXPORT MARKET _________________ 41
1.2.3. Trade balance _____________________ 8
5.
OPPORTUNITY AREAS _____________ 43
1.2.4. Market priorities ___________________ 11
5.1.
ORGANIC FOODS _________________ 43
5.2.
BIOTECHNOLOGY/ GM CROPS ________ 44
5.3.
FUNCTIONAL/ FORTIFIED AND DIET
1.2.1. National key figures __________________6 1.2.2. Food sector FDI attraction ______________ 7
2.
REGULATORY ENVIRONMENT _______ 14
2.1.
AUTHORITIES INVOLVED ___________ 14
2.2.
NATIONAL REGULATIONS ___________ 15
2.2.1. Export documents __________________ 16 2.2.2. Product labeling requirements __________ 17 2.3.
ESTABLISHING A COMPANY IN
MEXICO _____________________________ 18
FOODS ______________________________ 45 5.4.
DAIRY__________________________ 46
5.5.
Confectionary _____________________ 47
5.6.
SNACKS ________________________ 49
5.7.
OTHER OPPORTUNITY SUB-
SECTORS ____________________________ 49
3.
FOOD INDUSTRY __________________ 21
5.7.1. Beverages: _______________________ 49
3.1.
AGRICULTURAL SECTOR ____________ 21
5.7.2. Frozen Processed Foods ______________ 50
3.1.1. Agriculture _______________________ 21
5.7.3. Other – Export Opportunities __________ 50
3.1.2. Animal origin products _______________ 23 3.1.3. Success case: Syngenta _______________ 26 3.2.
PROCESSED FOODS ________________ 27
3.2.1. Key figures and players _______________ 27 3.2.2. Product segmentation ________________ 28 3.2.3. Industry trends ____________________ 29
4.
DEMAND _________________________ 33
4.1.
MEXICAN CONSUMER PROFILES ______ 33
4.1.1. High purchasing power _______________ 34 4.1.2. Moderate purchasing power ___________ 34
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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6.
Challenges and Opportunities for
Swiss Food Suppliers____________________ 52 6.1.
FOOD DISTRIBUTION ______________ 52
6.2.
PRICING ________________________ 52
6.3.
EXPORT CHECK LIST _______________ 53
7.
CONCLUSIONS ____________________ 55
Appendix: Trade Shows and Associations. __ 57
1. INTRODUCTION 1.1.
GENERAL COUNTRY INFORMATION
With close to 120 million inhabitants Mexico is the 11th most populated country in the world and third in America (only surpassed by United States and Brazil). Its large and diverse domestic market, its geographical closeness to the United States – one of the largest consumer markets in the world –, its touristic attractive, its openness for international business and highly competitive manufacturing costs have positioned Mexico as a strong player in the global food industry. In 2010 Mexican cuisine was honored with UNESCO’s intangible cultural heritage for humanity status. No other nations’ food has received this honor and this is largely due to the incredible variety of Mexican flavors, its long history - the use of corn in the national diet dating back some 7,000 years ago-, the combination of unique flavors such as corn, beans, squash, chile, agave and chocolate among many others, and to its global expansion. Mexico is one of the most open economies worldwide, having twelve free trade agreements with 45 countries (FTA’s), 28 agreements for reciprocal investment promotion and protection (APPRI’s) and nine partial trade agreements. Thanks to its commercial opening, Mexico is positioned as an entry point to a potential market of more than one billion customers and 60% of the world’s GDP. Since July 2001 Switzerland, as part of the European Free Trade Association (EFTA) has benefited from the free trade agreement signed with Mexico allowing practically all of EFTA’s exports to enter duty-free into Mexican territory. 1.1.1.
Key figures WORLD RANKING
Population
a
119.4 million (2014 est)
11th
112.3 million (2010 census) Area
a
GDP (nominal)
b
GDP (PPP) GDP Per Capita GDP Growth
Inflation
b
c
a
Exports Imports
d
Main Exports
CHF 1,184 billion
14th
CHF1,648 billion
11th
CHF 10,021
63rd
51.48 million (Dec, 2013)
Unemployment d
14th
1.1% 2013 2.5% 2014 forecast 4.1% 2015 forecast 3.97% 2013
c
Labor Force
1,946,375 km2
a
5.1% (Dec 2013) CHF 339.3 billion CHF 340.3 billion
d
Oil, gas, lubricants, gold, silver, copper, aluminum, agri-foods, vehicles, televisions, cell phones, computers, electrical generators and transformers, refrigerators and medical and optical instruments. d Main Imports Fuel and gasoil, auto-parts, vehicles, monolithic circuit boards, electronic circuits, parts for monitors and projectors, other electronic components and grains. Sources: a INEGI, b IMF, c Mexico’s Central Bank and d Secretariat of Economy. USD$ based figures converted to CHF using USD$1.12 per 1 CHF exchange rate. President Enrique Peña Nieto took office December 1st, 2012 for a 6-year term. During his first year in office, the administration efforts focused in developing and passing structural reforms that aim making Mexico a faster growing and more competitive country. Among the reforms passed are energy, telecommunications, fiscal, financial, education and political. These reforms are expected to boost Mexico’s global competitiveness, create conditions for wider investment attraction, lower unemployment and promote faster GDP growth.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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The first year of the Peña administration was characterized by very low government spending, a steep slowdown of the construction industry and slow industry output growth due to slower demand in the U.S. and declining customer confidence, especially by the end of the year when lawmakers approved tax hikes and new taxes to consumer products such as soft drinks and high-calorie snacks. While the impact of the reforms will take some time to be perceived and their effects are expected to translate into economic growth by late 2014, the overall economic outlook is positive, with stable inflation, increasing exports and employment but still far from the desired goals of 6% annual growth. Mexico's % GDP Growth 2003-2015/f 5.1%
5.0% 4.3%
4.0%
4.1%
3.9%
3.1%
3.0%
2.5%
1.4%
1.4%
1.1%
-4.7%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014/f 2015/f
Source: Mexico’s Central Bank, 2014 Since NAFTA, Mexico’s economy has been diversifying and the country is transitioning from being a developing country to a more developed economy; still activities such as oil and gas, agriculture and mining remain together with the automotive industry the largest pillars of the economy. Important as well are tourism and remittances sent from Mexican workers who immigrated to the U.S.A. Mexico’s industrial sector has evolved and matured having highly competitive companies contributing to make Mexico a recognized global industrial player. The strongest industries can be divided in two main groups: traditional and emerging sectors as follows: 1.1.2.
Traditional sectors
The energy sector has been of extreme importance to Mexico’s economy contributing with 10% of GDP, this sector until now controlled exclusively by the State trough PEMEX (Oil & Gas) and CFE (Electric Power) is undergoing a structural reform that will open the doors to private investment and competition beginning in 2015. Mexico ranks 10th as global oil producer, 13th in natural gas production and 18th worldwide in proven crude oil reserves. The opening of the sector to private investment is expected to boost foreign investment, employment and economic growth in the coming years.
The automotive industry has been for many years the engine of Mexico’s manufacturing sector. In 2013 vehicle production reached 2.93 million units making Mexico the eight largest vehicle manufacturer and fourth largest exporter in the world. 2013 vehicle exports accounted for more than CHF 36.16 billion or 10.7% of total exports and including auto parts, the industry represents over 25% of Mexico’s exports.
The agri-food sector represents 7.6% of Mexico’s GDP and employs 14% of Mexico’s workforce. (6.7 million people in agriculture and 815 thousand in food industries). There are over 22 million people who directly depend on agricultural production as their main household income. While the agricultural sector in Mexico is still considered largely underdeveloped and the country has a negative agri-food trade balance of CHF 2.05 billion, strong efforts are being conducted to bringing technology, equipment and knowledge to Mexican fields and increase their production yields and quality. Mexico’s territorial extension and climate diversity combined with its geographical position
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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neighboring the U.S. market, make it a privileged location for agricultural and agri-food production and exports. Mexico ranks #1 worldwide in production of organic coffee and in exports of tomato, avocado, guava, mango and papaya and #2 in melon, watermelon, lemon, lime, and asparagus. Other exported produce includes onions, garlic, cucumber, strawberry, lettuce, cabbage and broccoli. Most of Mexico’s agri-food trade deficit is due to grain imports. Mexico has highly competitive food companies producing for the local and export markets. In 2013 Mexico reached for the first time since NAFTA a positive trade balance on processed foods.
Tourism is among the largest contributors of foreign income to the Mexican economy; in 2013 the industry attracted the equivalent of CHF 11.7 billion in foreign currency income. Mexico ranks 10th worldwide and 2nd in America as most visited countries with over 24 million visitors.
While Remittances are not an industrial sector itself, they have considerable impact in Mexico’s economics, as funds sent by Mexicans working abroad, mostly from the United States, are Mexico’s second largest foreign currency income source. In 2013 Mexico received the equivalent to CHF 19.29 billion. Income from remittances decreased 3.8% compared to 2012. Remittances income is expected to continue its downtrend in future years, one additional reason for Mexico to boost its manufacturing and export base.
The mining sector contributes with 4.9% of GDP. Mexico is the largest producer of silver in the world and ranks among the top 10 producers of gold, led, zinc, copper, graphite, salt, chalk, cadmium among other minerals. Mexico is the largest destination for mining exploration in Latin America and fourth worldwide.
1.1.3.
Emerging sectors
Mexico is fast consolidating an important aerospace industry that has almost tripled in size just in between 2009 and 2013 reaching over CHF 4.46 billion in exports in 2013. In recent years, Mexico ranked as the sixth supplier of aerospace products from the European Union (Eurostat) and the ninth to United States (U.S. Census Bureau). The Mexican Federation of the Aerospace Industry (FEMIA) forecasts that by 2020 the sector will reach over CHF 10.73 billion in exports and will employ 110,000 workers.
The technology industries are also fast developing and Mexico is transitioning form being an assembler of electronic components and appliances to become a strong player in design, research and development. The technology industries represent 4.7% of GDP. Mexico is the largest producer of flatscreen T.V.’s, fifth exporter of laptop computers and 10th largest producer of cellular phones. The sector employs over 250,000 workers and multinational companies such as Intel, IBM, Schindler, LG, and Samsung among others have strong investments in Mexico.
The medical devices industry has also seen great dynamism in Mexico over the last decade and has doubled in production size from less than CHF 3.62 billion in 2002 to CHF 7.1 billion in 2012. Exports of Medical equipment and supplies were valued at CHF 5.62 billion in 2012 of which 91% was exported to the U.S.
Due to its geogtaphical and weather conditions, Mexico is an ideal market for the development of renewable energies, a sector that has attracted strong investments in wind power but has remained underdeveloped in solar and other technologies mostly due to the regulatory framework that inhibited private participation inthe power sector. With the recently passed energy reform this sector is expected to boom in the coming years. By the end of 2013 Mexico had 2,000 MW of wind turbine installed capacity and in 2014 an additional 714 MW will be added. Over 12,032 MW of additional wind power capacity expected from 2014-2026 according to the Wind Power Association (AMDEE).
Mexico has also strong and fast growing services market. Financial and insurance services represent 4.3% of GDP and have grown 139% in the last decade. The creative and software industries are also among the top priority sectors for the Mexican government and strong incentives are being injected to foster their growth. Mexico ranks #1 worldwide in the development of software, digital and media content in Spanish. Mexico is graduating over 120,000 engineers per year who will demand jobs in the coming years.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Key Industries in Mexico
Source: MILA with information from PROMEXICO. 1.1.4.
Foreign direct investment attraction
In 2013, Mexico attracted the equivalent to CHF 31.41 billion of foreign investment, an historical high record and positioning Mexico as the tenth largest FDI recipient in the world and third in America after the U.S. and Brazil. It is important to mention that in 2013 the Belgian Ab Inveb finalized the acquisition of Grupo Modelo, Mexico’s largest brewery contributing with CHF 11.82 billion or 38% of the total FDI, without this transaction Mexico’s FDI attraction would have accounted for CHF 19.59 billion, near its 10-year average.
FDI in Mexico 2000-2013 (In billion CHF) 35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Secretariat of Economy, 2014.
1.2.
OVERVIEW OF THE FOOD MARKET
1.2.1.
National key figures
Mexico is the 8th largest producer of food products worldwide and third largest in America. Mexico is the world’s largest producer of organic coffee, avocado and concentrated citric juices; ranks second worldwide in the production of corn flour, lemon and concentrated lemon juice, lime and sorghum; and is the third largest global producer of orange juice, chiles, pepper, alfalfa and frozen vegetables.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Mexico’s agri-food and beverages industry is one of the most promising opportunity sectors of the economy contributing to 7.6% of the country’s GDP. The sector is valued in CHF 125.6 billion. Despite of its moderate growth averaging 3.6% yearly in the last five years, the sector is expected to gain dynamism due to the characteristics of Mexican demographics, stronger economic growth and expected middle class expansion. PROMEXICO estimates food consumption will increase at a compound annual growth rate (CAGR) of 7.4% between 2012 and 2020 and Business Monitor International forecasts Mexico’s food consumption will increase an average of 4.4% per year or 17.2% in local currency from 2014 to 2018. While forecasts differ the constant is that there is strong optimism about future demand. Mexico is entering into very favorable demographics that will last for the next 15-20 years and where the working age population will outpace the number of dependents. The key challenge will be creating enough jobs to employ the growing working age population. These demographics are expected to boost not exclusively the agricultural and manufacturing sectors, but also the services sectors, which have already seen higher growth than the overall economy in recent years.
Mexico’s Population Pyramid, 2010
Source: INEGI, 2010 Another factor driving food consumption and particularly processed food demand is the migration from rural to urban areas. Back in 1970 41.3% of Mexico’s population lived in rural communities being agriculture their primary activity. By 2010 the share decreased to 22.2% and migration trends are expected to continue over the next decade. Forecasts indicate that by 2016 over 100 million people will live in urban areas, this is 3.7 million people more than the 2010 urban population. In 2013, Mexico’s agri-food industry employed 7.5 million people, 6.7 million in the agricultural sector and 815,229 in food and beverage processing. By year-end 2012 the processed food industry was formed by 156,815 economic units, located mainly in central Mexico and the States of Jalisco Sinaloa and Nuevo León. 98.5% of these are small and medium sized companies with less than 250 employees. 1.2.2.
Food sector FDI attraction
Between 2000 and 2013 Mexico’s food processing sector attracted CHF 21.1 billion in foreign direct investment. Mexico’s beverage sector attracted CHF 20.5 billion and the agricultural sector received CHF 503 million in the same period. The largest investors in Mexico’s food sector include United States, Switzerland, Netherlands, and the United Kingdom while in the beverage sector the leading investment sources have been Belgium, Netherlands and United States.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Nine of the ten largest international food processing companies have strong investments in Mexico: Nestlé, Danone, PepsiCo, Unilever, General Mills, Grupo Bimbo, Mondeléz International (Formerly Kraft Foods), Mars and Kellogg’s. In recent years Mexico has strengthened its position in the global food market attracting investments from both, large multinational players and medium sized companies entering the North American market. In mid 2014 the President of Coca-Cola México announced that between Coca-Cola and its affiliate companies in Mexico that include Coca-Cola, eight bottling groups, Jugos del Valle and Santa Clara will invest CHF 7.3 billion in new productive infrastructure between 2014 and 2020. In early 2014 PepsiCo announced investments in Mexico worth CHF 4.46 billion for the next five years. These new investments will create 4,000 new jobs and will strengthen its position in Mexico, which according to its CEO is considered a key strategic market. Also in early 2014 Nestlé announced investments worth CHF 893 million for the construction of two new plants and the expansion of an existing cereal factory. These investments will generate 700 additional jobs. Mars announced a CHF 178 million investment in May, 2014. CHF 143 million will be destined to build its 5th manufacturing plant in the country, which will be located in the State of Guanajuato for the production of chocolates and the remaining will be invested in increasing production capacity at two of its existing pet-food plants. Other representative recent investments include a CHF 535 million plant by Mondeléz International announced in mid 2013. This plant, currently under construction in Monterrey will generate 1,300 direct jobs and will be one of the largest cookie plants in the world. The Italian chocolate candy maker Ferrero, completed in early 2014 a new plant in Guanajuato with an investment of CHF 178 million creating 500 jobs. Hershey’s, Danone and Nestle also completed expansion investments in 2013 for a combined amount of CHF 175 million creating an additional 1,500 jobs. Nestlé is Switzerland’s largest investor in the Mexican food sector; it has had market presence for 84 years, has 12 manufacturing plants across the country and employs 16,000 people. Other Swiss companies with presence in Mexico’s food sector include Barry Callebaut, who in 2008 established its first production factory in Mexico in the city of Monterrey. In 2012 the company signed long-term outsourcing/partnership agreements with Unilever, committing to supply 70% of the global cocoa needs and with Grupo Bimbo committing to supply 32,000 tons of chocolate yearly. As a result of these negotiations Barry Callebaut expanded its presence in Mexico with the opening and later expansion of a state-of-the-art chocolate factory in Toluca México followed by the acquisition of a cocoa plant in Mexico City as part of the acquisition of Petra Foods cocoa ingredients division in 2013. In mid 2013 Swiss juice beverage maker Capri Sun signed a production licensing agreement with Mexican juice maker Grupo Jumex. Under this agreement Jumex will manufacture and co-brand Capri Sun for the Mexican market. According to Capri Sun as approximately one third of Mexico’s population are children; this makes it a market with enormous growth potential for the brand. Early 2014 Emmi acquired a 50% stake in in Mexideli Holding, S.A. de C.V., headquartered in Mexico City and with operations in six cities as well as in the foodservice market in Cancun, Mexideli is Mexico’s leading importer of specialty cheeses. The company employs 250. With this transaction, Emmi strengthened its presence in Mexico and is moving ahead to reach its goal of 50% of sales originating in international markets. Swiss investors have also realized the potential found in Mexico’s agricultural sector. Zeneka established a seed nursery plant in San Luis Potosí that later, after the fusion of AstraZeneka and Novatris agribusiness became part of Syngenta. In 2001 Syngenta established a research center in Culiacan and since then has expanded its presence and distribution in Mexico which today is formed by over 1000 people in Mexican fields. 1.2.3.
Trade balance
Despite of being the 2nd largest supplier of food products to the United States, in 2013 Mexico had a negative trade balance of CHF 2.05 billion. Mexico imports a large variety of grains, fruits, vegetables and meat mostly from the United States and Canada, being these commodity imports the main cause of the trade deficit.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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In 2013 Mexico exported CHF 11,518 million in agricultural products and imported CHF 13,760 million having a deficit of CHF 2,242 million. Processed foods exports accounted for CHF 9,968 and imports totaled CHF 9,773 resulting in a surplus of CHF 195 million. It’s worth mentioning that 2013 was the first year since NAFTA was signed that Mexico had a positive trade balance in processed food trade.
Agri-food Trade Balance 2013 (in million CHF) EXPORTS TOTAL
21,488
100.0%
23,535
100.0%
TOTAL TRADE 45,022
NAFTA
17,035
79.3%
19,085
81.1%
36,120
-2,050
953
4.4%
1,332
5.7%
2,286
-379
53
0.2%
29
0.1%
82
24
3,447
16.1%
3,116
13.2%
6,564
358
Euro Zone Switzerland* Rest of World
IMPORTS
TRADE BALANCE -2,047
Sources: MILA with information from Secretariat of Economy, 2014.*Swiss Federal Customs Administration Exports The top consumers of Mexican agri-food products are the United States with 77% share (CHF 16,623 million), Japan with 3% (CHF 685 million) Canada with 2% (CHF 412 million), Venezuela with 2% (CHF 368 million) and Guatemala with 2% (CHF 292 million) of Mexico’s 2013 exports. In Europe the largest importers of Mexican agri-food products are Netherlands (CHF 193 million), United Kingdom (CHF 157 million) Germany (CHF 142 million) and Spain (CHF 119 million). In 2013 Switzerland imported CHF 53 million of Mexican agri-food products, from those CHF 11 million were agricultural products, CHF 30 million were finished processed foods and the remaining CHF 11 million were food ingredients destined to food processing plants. Mexico is among the top three global exporters of tomato, avocado, frozen vegetables, onions, asparagus, cucumbers, chiles, broccoli, and organic honey. Among Mexico’s top agricultural export products, the most relevant include:
Top Agricultural Exports 2013 HS CODE 0702 0709 080440
DESCRIPTION
VALUE MILLION CHF 1,657.71
2012-2013 CHANGE 9%
Green Vegetables
1,603.87
15%
Avocado
1,097.25
25%
Tomato
0810
Other Fruit (berries)
787.82
4%
0807
Melon and Watermelon
429.12
10%
0707
Cucumber & Pickles
389.84
6%
0703
Onion and Garlic
335.59
6%
0805
Citrics
265.63
-49%
080450
Mango
244.19
16%
Source: MILA with information from Secretariat of Economy, 2014
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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The top 10 processed food export products in 2013 were:
Top Processed Food Exports 2013 HS CODE 1701
DESCRIPTION Sugar and sugar cane
VALUE MILLION CHF 1,164.64
2012-2013 CHANGE 58.5%
1905
Bakery products and cookies
673.27
3.2%
1806
Chocolate
534.32
-1.2%
1704
Confectionary without cacao
504.95
8.6%
Coffee
436.88
-36.5%
Malt extract
354.82
19.7%
23029
Processed swine meat
351.43
22.6%
2106
Other food preprations
299.36
7.8%
2008
Conserved fruits
288.98
7.2%
Almonds and other dried fruits
254.86
2.3%
901 1901
802
Source: MILA with information from Secretariat of Economy, 2014 Mexico is also an important beverage exporter and is global leader in beer exports. In 2013 beer exports accounted for CHF 1.97 billion, equivalent to 16% share of world beer exports. 78% were exported to the U.S. Mexico is recognized worldwide for its Tequila; its exports continue growing at double-digit rates and in 2013 represented CHF 890 million, 16% more than in 2012. While in very early stages of internationalization, Mezcal, a distilled alcoholic beverage made from maguey plant attempting to follow the global success of Tequila. Mezcal exports in 2013 accounted for only CHF 6.7 million, however exports were 10 times larger than a year before. Today, tequila and Mexican beers are among the most famous Mexican products around the world and Mezcal producers are making strong efforts to add this beverage to the list. Imports Mexico’s largest agri-food suppliers are United States with 74% share (CHF 17.4 billion), Canada with 4% (CHF 1.4 billion), Chile with 2% (CHF 476 million); Spain (CHF 284 million), France (CHF 255 million) Guatemala (CHF 221 million) and United Kingdom (CHF 191 million) with 1% share each. In 2013 Switzerland supplied Mexico with CHF 29 million, out of which CHF 9.9 million were food ingredients and CHF 9.8 million were prepared edible fats, both supplied mainly to processing plants in Mexico. Teas and infusions represented CHF 4.3 million, beverages accounted for CHF 2.5 million and cheese and fondue preparations CHF 1.1 million. Chocolates represented CHF 391 thousand. Mexico also imports a variety of Swiss food products manufactured in third countries. For example, all Lindt & Sprüngli’s chocolates sold in Mexico are imported from the U.S. and a great variety of Nestlé products are imported from third countries as well as exported from Mexico, mostly to the U.S. and Latin America. Mexico’s largest agri-food imports include:
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Top Agri-food Imports 2013 DESCRIPTION
VALUE CHF MILLION
2012-2013 CHANGE
Corn
1,833
12%
Soybeans
1,599
4%
Pork
1,061
20%
Other Hort Products
1,011
9%
Wheat
988
22%
Broiler Meat
811
23%
Beef & Veal
785
0%
Fruits and Preparations
774
16%
Non-Fat Dry Milk
737
36%
Soybean Cake & Meal
733
7%
Vegetables and Preparations
699
6%
Feed, Ingrd & Fod 626 10% Source: MILA with information from Secretariat of Economy, 2014
Selected Top Processed Food Imports 2013 HS CODE
DESCRIPTION
VALUE CHF MILLION 760.7
2012-2013 CHANGE 6%
0402
Non-Fat Dry Milk
1702
Lactose, maltose, glucose, fructose and syrups
678.8
-15%
2106
Other food preparations
555.6
5%
0406
Cheese
428.7
18%
1806
Chocolate
404.8
0%
1502
Animal Fats
284.4
-19%
1901
Malt extract and cereal prep
248.6
12%
2103
Sauces and mustards
203.3
14%
1507
Soy Oil
202.1
4%
2104
Soup preparations
186.7
5%
0407
Egg preparations
163.5
186%
Source: MILA with information from Secretariat of Economy, 2014 1.2.4.
Market priorities
Increasing agricultural productivity The Mexican Government forecasts population will reach 151 million inhabitants by 2050, and as a developing country, the middle class share is expected to grow, demanding greater food volumes and wider product variety. Demand for animal proteins, fruits, vegetables and value-added processed foods are expected to increase way above GDP growth in the coming years.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
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Following global trends, food prices in Mexico have suffered considerable increase in recent years. During the period 2002-2012 the FAO global food prices index increased 136% and in Mexico a similar pattern has occurred. While Mexico has successfully increased the production and export of processed foods and has reached a slight positive trade balance; Mexico’s agricultural sector continues lagging behind, creating important deficits in the supply chain and creating a wider dependence on basic products imports such as corn, soybean, wheat, rice, meat and several fruits and vegetables. In 2012 Mexico imported 93% of oil seeds consumed, 82% of yellow corn, 79% of rice and 58% of wheat total demand. Meeting with Mexico’s future food demand requires transforming its agricultural sector and this is among the top priorities for the current administration. During the first year in office, the Peña administration through SAGARPA developed a comprehensive plan that identifies the weaknesses of the sector and develops specific policies, plans, training aids and subsidies aimed to address those and increase productivity, especially among small and medium sized producers who under association models could become marketable and competitive. Fighting obesity and diabetes Mexico’s National Institute of Public Health published the National Survey on Health and Nutrition 2012. This document shows that Mexico is global leader in overweight with 73% of adult woman, 69% of male adults and 30% of children having overweight while the prevalence of obesity in adult population reached 32.8%, the second highest in the Americas. The survey also states that 14% of Mexico’s adult population suffers from type II diabetes, making it the leading country among OECD members with prevalence of the disease. Diabetes is the number one cause of death in Mexico, responsible for 24% of all deceases in 2013. There are numerous factors contributing to Mexico’s obesity and diabetes problems, among the most relevant is sedentarism and lack of exercise among the population but also several of Mexican’s diet habits contribute to the problem. Mexico is among the leading soft drink consumers in the world with an average per-capita consumption of 163 liters per year. Between 1989 and 2006 soft drinks consumption increased 60% and the greatest increase is within the 12 to 29 years old population groups. It is estimated that adolescents in Mexico source over 20% of their energy intake from drinks and over 12% comes from soft drinks. In most parts of Mexico tap water is of poor quality and despite authorities claim to pump clean water into the supply system and report very low contamination problems in national supply, there is great skepticism among the population to drink it, making the alternatives bottled water and soft drinks. In both, Mexico has among the highest per-capita consumption volumes worldwide. In addition to high sugar intake from soft drinks, Mexico’s population consumes large quantities of confectionary products, pastries and snacks. The country’s young population is high demanding of these products as their relatively low prices and wide distribution make them accessible for most of the population. Over the past years, some efforts have been conducted to create awareness among young Mexican population on the importance of nutrition. Schools have reduced the offer of high sugar content snacks and beverages and have introduced or increased healthy option snacks. Companies and government have worked on using legends such as “consume fruits and vegetables” in snack advertisement and healthier or “lighter” options have been launched to the market in order to meet with school-snack requirements. In a further effort to reduce soft drinks and sweet snacks consumption, the Mexican Government introduced a new tax on sugar-sweetened beverages and high-caloric content snacks beginning in January 2014. This new tax applies an 8% rate to high caloric content foods (over 275 kilocalories per 100 grams) that have low nutritional values and 1 peso per liter on high-sugar content beverages. These new taxes have been translated completely to the consumers who have seen prices of candies and snacks increase between 8 and 10% while refreshment prices have increased between 12% and 18%. Based on January-June 2014 results and trends, it is expected that sugar refreshment consumption will decrease some 5-7% by year-end but most of the consumption loss is being compensated by increases in water and non-sugar content soft drinks and teas. Beginning in July 2014, food companies are banned from advertising high-sugar and high-calorie content products in television during cartoon and other children’s programs schedules. Increasing investment attraction to the processed foods subsector: PROMEXICO, Mexico’s federal agency responsible for export promotion and foreign direct investment attraction, selected the agri-food sector and particularly processed foods as one of the eleven most promising
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key industries for investment attraction. Mexico offers excellent conditions; access to raw materials, labor availability, and ease of doing business that translate into very competitive costs to manufacture and export processed foods. Sources: www.inegi.gob.mx www.imf.org www.bancodemexico.gob.mx www.sagarpa.gob.mx www.salud.gob.mx www.economia.gob.mx www.promexico.gob.mx www.amia.org.mx www.mexicanbusnessweb.mx www.swissworld.org www.ezv.admin.ch www.syngenta.com.mx www.barry-callebaut.com www.nestle.com.mx www.pmmi.org http://group.emmi.com/uploads/media/140103_Emmi_MR_Mexideli.pdf https://www.cia.gov/library/publications/the-world-factbook/ Mexico Food and Drink Report Q2 2014 – Business Monitor International Alimentos Pricesados – ProMéxico
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2. REGULATORY ENVIRONMENT 2.1.
AUTHORITIES INVOLVED
Three Secretariats regulate Mexico’s food sector and are the main responsible for food safety and ensuring consumers protection.
Secretariat of Agriculture, Livestock and Fisheries (SAGARPA) Secretariat of Heath Secretariat of Economy (SE)
The main public institutions that assess, prevent and protect food and feed risks are COFEPRIS or Federal Commission for the Protection Against Sanitary Risks and SENSASICA or National Service for Sanity, Food Safety and Quality. COFEPRIS was established in 2001 as a decentralized agency dependent of the Secretariat of Health and is the main responsible for regulating, controlling and promoting sanitary practices established in the General Health Law in areas such as medicines and health technologies; toxic or dangerous substances; food, beverage and tobacco; health in workspaces; basic sanitation and risks derived from environmental factors. Within the food sector, it is the main authority responsible for regulating and establishing sanitary control for the production, commercialization, import, export and advertisement of foods and beverages. Among its most relevant duties within the food and beverage sectors are issuing free sale certificates for exports, product analysis certifications, good sanitary practices certificates, only export certifications and conducts verification visits to any establishment manufacturing food products for the export markets. COFEPRIS is also responsible authorizing permits and verifying advertisement. SENASICA is the institution responsible for implementing the regulations set by SAGARPA related to food safety and quality. SENASICA is responsible for overseeing that all animal and plant products imports comply with SAGARPA’s regulations. It is also the certifying agency for export products and issues the “TIF” or Federal Inspection Type certificates to facilities where animal products or byproducts are processed and/or packed. These facilities have permanent verification so their processes and facilities meet with SAGARPA’s standards. SENASICA is also responsible for regulating, implementing and granting organic food certificates in Mexico. In October 2013 the agency published the “Organic production guidelines” following the publication of the rules and regulations for the organics foods law in 2010. The guidelines set forth the characteristics and authorized pesticides and fertilizers for products to be considered organic and set the requirements and procedures for obtaining and using the organic certificate logo in marketing materials and product labels. Other institutions playing important roles in the development of Mexico’s agri-food sector are: The SECRETARIAT OF ECONOMY (SE) through its International Trade Division is responsible for promoting the integration and competitiveness of Mexico in global supply chains through the negotiation of treaties and agreements for trade and investment; and through its Industry and Commerce Division is responsible for promoting industrial growth, strengthening the internal market, promoting innovation and protecting the economy of Mexican families. The Secretariat of Economy plays an important role in Mexico’s food sector working closely with the Secretariats of Agriculture and Health as well as PROMEXICO. In the supply side SE works in developing and implementing programs to improve the competitiveness across the supply chain while in the demand side, the Secretariat implements policies for the protection of consumers such as price verification, labeling and information requirements and develops specific programs to ensure sufficient and quality supply when basic product shortages occur in the local market as a result of contingencies. PROMEXICO as the governments main exports and foreign direct investment attraction promoter, develops a wide array of activities to promote Mexican foods and beverages in the world as well as attracting international food companies to manufacture in Mexico. PROMEXICO hosts national pavilions showcasing Mexico’s food and beverage products and supports producers subsidizing part of their travel expenses and advertisement so they successfully participate in these international trade fairs and expos. Each year PROMEXICO hosts national pavilions in over a dozen leading international food and beverage events. PROMEXICO also supports international investors with specialized studies, business trips, specialized advise
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in Mexico, printed advertising, procedures and paperwork. For additional information on these supports please visit: http://www.promexico.gob.mx/en/mx/pasos-invertir-mexico/_rid/9?language=en&lng_act=lng_step2 ( (Available in Spanish/English) MEXICO CALIDAD SUPREMA, is an association of producers, packers and sub-sector organizations who work with the Mexican Government for the development and strengthening of Mexico’s agricultural activities through training, consulting, coordination of certifications, and national and international promotion of the brand “Mexico Calidad Suprema” (Mexico’s Supreme Quality). The certification systems of Mexico’s Supreme ® Quality are: Contamination Risk Mitigation from SENASICA, MexicoG.A.P. and Safe Quality Food (S.Q.F.). The products labeled meet the HACCP food safety criteria as well as environmental protection and labor wellness criteria.
2.2.
NATIONAL REGULATIONS
The most important laws and regulations related to Mexico’s food and beverage sectors are:
General Health Law Animal Health Federal Law Plant Health Federal Law Mexican Mandatory Standards (NOM’s)
General Health Law: Sets the main guidelines related to the protection of human health including food safety. For imported products it grants the Secretariat of Health authority to require documentation and expedite authorizations on health risks prior importing a food product or require a sanitary certificate issued by the competent authorities in the exporting country. The law also authorizes the Secretariat through COFEPRIS to issue specific regulations and perform random product sampling and inspection to ensure compliance with health regulations (NOM’s). The Animal Health Federal Law: Has the main purpose of preventing pests and diseases introduction to Mexico by establishing zoo-sanitary requirements and sets SAGARPA as the responsible for those as well as for regulatory harmonization with international standards. Establishes the main guidelines for establishing equivalence agreements with other countries for animal and animal-products trade. The law also establishes best practices on livestock production, animal feed, slaughter and processing The Plant Health Law is designed to protect plant health and mitigate risks of pests, bacteria, or contamination of crops as well as to protect Mexico’s soils against diseases or microbiological agents not present in the country and which imported fruits, vegetables or seeds, could introduce. The law calls for phytosanitary certificates for most fresh produce and plant materials imports. Depending on the product, phytosanitary, packaging and labeling requirements can vary. Mexican Mandatory Standards (NOM’s): The General Directorate of Regulations of the Secretariat of Economy is responsible for issuing standards in Mexico. This Directorate works with other Secretariats and issues mandatory (NOM’s) and voluntary (NMX’s) regulations. A listing of all NOM’s is available in Spanish at http://www.economia-noms.gob.mx/noms/inicio.do The most relevant mandatory requirements for the food sector are:
Relevant Standards and Regulations for the Food Sector NOM NAME NOM-114-SSA1-1994
DATE ISSUED 22/09/95
NOM-130-SSA1-1995
21/11/97
NOM-086-SSA1-1994
26/06/96
NOM-116-SSA1-1994
10/08/95
NOM-117-SSA1-1994
16/08/95
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DESCRIPTION Goods and Services - Method to determine salmonella in foods and food products. Goods and Services: Packaged foods with seal closing and under heat treatment. Provisions and health specifications. Goods and services. Food and drinks with changes in the composition. Nutritional specifications. Goods and services. Determination of moisture in foods by heat treatment. Methods by sand or cloth. Goods and services. Testing method for the determination of cadmium, arsenic, lead, tin, copper, iron, zinc and mercury in food, water and water purified by atomic absorption spectrometry.
NOM-111-SSA1-1994
13/09/95
NOM-115-SSA1-1994
25/09/95
NOM-110-SSA1-1994
16/10/95
NOM-143-SSA1-1995
19/11/97
PROY-NOM-109-SSA11994 NOM-142-SSA1-1995,
04/11/94
NOM-051-SCFI/SSA12010 NOM-247-SSA1-2008
05/04/10
NOM-131-SSA1-2012
10/09/12
NOM-251-SSA1-2009
01/03/10
NOM-002-SSA1-1993
14/11/94
09/07/97
27/07/09
Goods and services. Method for the account of mold and yeast in food. Goods and services. Method for determining staphylococcus aureus in food. Goods and services. Sample preparation and dilution of food for microbiological analysis. Goods and services. Methods of test for microbiological food. Determination of Listeria monocytogenes. Goods and services. Procedures for collecting and transporting handling food samples for microbiological analysis. Alcoholic Beverages: Sanitary specifications, sanitary and commercial labeling. General labeling for food and non-alcoholic beverages. commercial and health information. Products and services. Grains and products. Cereals, flour cereals and meals. Based foods cereals, edible seeds, flour, meals or mixtures. Bakery products. Specific sanitary and nutrition provisions Products and services. Formulas for infants, and continuing special needs nutrition. Food and drinks for infants and young children. Health and nutritional requirements and specifications and labeling Sanitary practice for the process of food, drinks or food supplements.
Environmental Health. Goods and services. Metal containers for food and beverages. Specifications of the seam. Health requirements. Source: Secretariat of Economy, General Directorate of Regulations. 2014 Genetically Modified Organisms (GMO) Law and Regulations: Issued in February, 2005 The GMO Law sets the main guidelines for activities related to the use of GMO’s, authorities responsible, registry and certifications. The Law requires companies developing, testing or selling GMO’s to be registered and requires authorizations from the Mexican government through the Inter-secretarial Commission for Biosafety of GMO’s -“Comisión Intersecretarial de Bioseguridad de los Organismos Genéticamente Modificados – CIBOGEM” for use in confined environments, pilot projects, field tests and commercial application as well as imports and exports. Through its regulations, the law requires companies active in the development of commercialization of GMO’s to be registered and authorized and sets the geographical areas, crops and uses where they are authorized. To the end of 2012 there were 421,000 hectares authorized for GMO use in crops such as cotton, corn, soy and wheat. 2.2.1.
Export documents
Previous to any export operation into Mexico, it is necessary to have an in-country importer who is registered in the Importers Registry at the Tax Administration Service (SAT). Only companies registered in this database are allowed to import products into the country. The main customs entry document in Mexico is an “import petition” which is usually filled by a customs broker handling the transaction or in fewer cases directly by the importing company. The import petition has to include the customs procedure under which the merchandise will be imported; its value; added costs (transport, handling, insurance, etc.) and must have attached the merchandise commercial invoice (in Spanish or a translation), invoices for added costs, a packaging list, a bill of lading, documents demonstrating guarantee of payment of additional duties for undervalued goods, if applicable, and documents demonstrating compliance with Mexican product safety such as phytosanitary or sanitary certificates as applicable. a) Commercial invoice: Can be the sellers invoice and its translation to Spanish, or a document obtained from a customs broker which transcripts the merchandise value, description and quantity (weight or units) as well as its valuation when applicable. Commercial invoices should include at least the following information:
Shippers invoice number and customer order id. Issuance place. Date. Name, address and Tax ID of the importer. Name and address of exporter. Product or merchandise description. Quantity. (In weight or units as applicable)
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Product origin. Unit value and total invoice value. Signature, name and position of the shipments responsible. Traceability information (Lot Number) for animal products and vegetables.
b) Packaging list: When more than one package is sent, a packaging list matching the quantities in the commercial invoice should be attached. Including information on number of packages, content, volume, net and gross weight of each package. c) Bill of lading: Applies only to maritime shipments and the information should match the commercial invoice and packaging list. d) Certificates: Phytosanitary or sanitary certificates as applicable. Sanitary certificates in Switzerland are obtained from the Federal Office for Agriculture (FOAG), or Agroscope. e) Import permits: Some agricultural products such as grains, corn, sugar, eggs, milk, seeds, cocoa and some fruits, require and import permit from SAGARPA as there are import quotas and allowances for some. Copy of the import permit documents should be attached to the import petition when applicable. f) Certificate of origin: Due to the trade agreement with the European Free Trade Association (EFTA) most goods made in Switzerland can enter Mexico free of duties or with preferential duty treatment. Certificates of origin are available from the Swiss Customs Authority or from cantonal chambers of commerce. A certificate must be issued for each individual consignment. Products entering Mexico are subject to the following taxes: a) Value-added tax (IVA) 16% for processed foods, 0% for agricultural products. b) Special tax on production and services (IEPS) 8% of high calorie content foods. c) Customs processing fee. d) Warehousing and movement fees. Swiss companies should work in close communication with their local importers and customs brokers to ensure copies of all documentation are properly filled and submitted prior the arrival of the merchandise to a customs inspection point. If a document is missing or mistakenly filled this can represent delays and inside of Mexican customs warehousing and movement costs are usually very high. Products in wood pallets or containers should also include information certifying wooden packages meet with environmental regulation NOM-144-SEMARNAT-2004, which sets the internationally recognized phytosanitary measures for wood packaging used in international trade. Pallets or wood packaging products entering Mexico need to receive heat or chemical treatment to avoid pests introduction. Commercial products exported into Mexico need to comply with labeling regulation NOM-051-SCFI/SSA12010. 2.2.2.
Product labeling requirements
Food and non-alcoholic beverages need to comply with labeling regulation NOM-051-SCFI/SSA1-2010 (Aka NOM-51) for their import and sale in Mexico. COFEPRIS and the Secretariat of Economy, through the Federal Agency for Consumer Protection (PROFECO), enforce this regulation jointly. Swiss companies are encouraged to work with Mexican consultants or with their importers and customs brokers to ensure products meet with this regulation prior their import and sale in the country as a mistake in labels can represent delays in customs and incurring in high costs. Imported products usually meet with NOM-051-SCFI/SSA1-2010 by attaching Spanish language labels to original product package; and only when volumes are representative, a special package meeting the requirements for the Mexican market is developed. The NOM states that all the commercial and nutrition information has to be in Spanish and metric system; as nutrition facts have to follow the “nutritional values of reference for the Mexican population” if a nutrition box appears on the package, the label with the required Mexican values should cover the original nutrition box to avoid consumer confusion.
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NOM-051 requires the following information in Spanish on retail product packages:
Generic product name or product description. Net content (in font larger than 6 mm). Ingredients Country of origin. Exporter's name and address, if different from the manufacturer, both have to be named. Importer's name, address and Tax ID number Lot number Expiration or preferred consumption date. Cautions, warnings and conservation measures. Nutrition facts.
Nutrition facts or nutrition information can be presented in a box or as legend, as long as it meets with the NOM-051 minimum requirements. Examples of different recommended formats are described in the regulation. The minimum requirements are:
Serving size or serving measure in grams or ml (and when applicable equivalent in units) Number of servings in package or container.
Mandatory information per serving: Energy Content in Kilojoules and Calories (Kj, Kcal) Protein content Fat (lipids), total fat and breakdown by type. Carbohydrates, sugars and total carbohydrate count. Dietary fiber Sodium Cholesterol Additional information (recommended) includes % recommended values of daily ingest of vitamins, minerals, and other nutritional content. Those have to be expressed as % of the nutritional values of reference for the Mexican population or VNR indicated in the NOM. Multilingual labels or packages are acceptable as long as the information in Spanish is in the same font size or larger to the information in different languages. In addition to NOM-051, several products need to meet with product-specific regulations. Some of the most relevant are Alcoholic beverages - NOM-142-Salud1-1995; Fruit Juices: NOM-173-SCFI-2009; NOM-243 SSA12010 for milk and dairy formulas. Meat, cereals, eggs and honey also have special labeling requirements. It is recommended that Swiss companies initiating product exports into Mexico contract a labeling expert (private consultant) to check products before they are put on the Mexican market.
2.3.
ESTABLISHING A COMPANY IN MEXICO
Establishing a company in Mexico is a simple process, however once established the company has to meet with fiscal, labor and other legal requirements that represent expenses. The minimum requirements for establishing a company in Mexico are: Minimum of two partners. MX$50,000 (approximately CHF 3,600) A foreign company or group of shareholders will need the following to incorporate a Mexican company: 1. 2.
A lawyer who will assist in drafting the bylaws and will facilitate all the required steps across the process. I.e. Request authorization for the use of the corporate name, obtain registration at the Tax Administration Service (SAT), obtaining specific-industry functioning permits An accountant or accounting firm who will be responsible for presenting monthly and year-end tax declarations (even if those are in zero they have to be presented).
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3. 4. 5.
A Public Notary, who will protocol/ formalize all the documents and register the company in the Public Property Registry. Usually the lawyer selected recommends the public notary to use. A local address, which is usually the address where operations will be held or the address of the accountant or accounting firm selected to deal with all tax matters. A bank account, which can be easily opened by the legal representatives of the company or a third party authorized through a power of attorney.
To incorporate a company in Mexico, the shareholders have to agree on a proposed character and by-laws and must request prior authorization from the Ministry of Foreign Affairs for the use of the proposed corporate name. These documents must be protocoled/formalized by a Public Notary. Foreign shareholders shall grant power of attorney to a Mexican resident to represent them before the Public Notary. There are different forms or characters of companies in Mexico, the most common are: -
Sociedad AnĂłnima: (S.A.) this is the most common type of company in Mexico; The minimum number of shareholders is two and a sole administrator or board of directors may manage the corporation however the shareholders are the ultimate decision-making body of the corporation. The S.A. provides limited liability to its shareholders. The minimum capitalization or stock for an S.A. is MX$50,000 (CHF 3,600 approximately), additional capital can be granted if the company is registered as variable capital S.A, then would be denominated S.A. de C.V.
-
Sociedad de Responsabilidad Limitada: (S. de R.L.) Commonly used by cooperatives, it is a limited liability company where the partners’ liability is limited to the amount of their contributions. An S. de R.L. may be incorporated with a minimum capital of MX$3,000 pesos (CHF 220 approx) and is oriented towards the personal skills and capabilities of its partners, therefore to assign or transfer partnership interest, the consent of all partners representing the company is necessary and the bylaws need to be modified to accept the new partnership shares.
-
Sociedad Civil (S.C.) which is defined as the partners join their efforts and resources to achieve a common purpose, which might have an economic objective, but which should not have profits as its primary motive. Mostly services companies such as consulting firms, lawyers, accountants etc use the S.C. scheme.
-
There are other forms of companies in Mexico, but the ones listed above are the most commonly used.
To obtain corporate name authorization from the Ministry of Foreign Affairs, three alternative names should be submitted. The Ministry will conduct an International search to make sure the proposed name is not already registered. If the company name to establish in Mexico is similar to the company in Switzerland, the applicant shall demonstrate brand or name ownership. For example, if the company to incorporate in Mexico wants to be named X Swiss company de MĂŠxico, S.A., the applicant must demonstrate that they own the name X Swiss, otherwise the Ministry of Foreign Affairs will decline the application. Once the Ministry grants the name authorization it is valid for 90-days. The draft bylaws together with the name authorization are presented to a Public Notary to sign the incorporation document. Foreign partners can sign either directly in front of the Public Notary or prior to incorporation, stakeholders who will not be present at the incorporation act must execute powers of attorney. The powers must be legalized through the Apostille procedure or by a legalization process at the nearest Mexican embassy or consulate. At the moment of signature, the entity becomes legally established and is sent for registration in the commerce registry. Once established, the company has to comply with tax regulations, so the immediate next step is to register the company in front of the Tax Administration Service. SAT will give the company a tax identification number (RFC), which is required to open a bank account, issue invoices, obtain government permits, etc. Since the moment of incorporation, the Mexican company will have to present tax declarations monthly, even if no operations are carried, the declarations have to be presented in zero, otherwise the company will be required by the SAT and can be fined. For this reason, hiring an accounting firm is necessary so they present these monthly declarations in zero and make sure the company is not subject to other taxes, etc. Tax declarations have to be presented either at the SAT website or through a bank Internet system. Additionally, if the new company is engaged in the import and export of products, registration at the Importers Registry will be needed, while the process is simple usually it takes over 90 days until the registration is complete.
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The new subsidiary must be registered at the Foreign Investment Registry (FIR) within 40 days after incorporation. The questionnaire to be filed with the FIR calls for specified, basic disclosures about the foreign investor and the foreign investment. The disclosures must be updated if and when changes occur. In addition, FIR registration must be renewed annually by filing a completed economic/financial reporting questionnaire. These reports are not available to the public. At this point, the Mexican company will be established and will be able to operate, invoice in Mexico and operate without employees. if the company wants to have own employees further requirements are needed, such as registering at the Social Security Institute, and Institute for Worker’s Housing, etc. It is important to note that Mexican Laws require a surveillance payment to employees that are dismissed equivalent to three months of salary + 20 days per year worked for the company. Companies establishing manufacturing or own distribution are encouraged to work with ProMéxico and State economic development secretariats who can assist with permitting, utility contracting and federal and local permits. Sources: www.inegi.gob.mx www.sagarpa.gob.mx www.salud.gob.mx www.sat.gob.mx www.aduanas.gob.mx www.senasica.gob.mx www.cofepris.gob.mx www.conacyt.mx/cibiogem/ www.economia-noms.gob.mx/noms/inicio.do www.mexico-usda.com.mx/home/media/NEW_NOM-051-SCFI-SSA1-ENGLISH.pdf www.promexico.gob.mx Alimentos Pricesados – ProMéxico
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3. FOOD INDUSTRY Analyzing Mexico’s agri-food sector requires splitting agricultural activities apart from industrial food and beverage processing as both segments have different development stages, challenges and opportunities.
3.1.
AGRICULTURAL SECTOR
Primary activities - agriculture, livestock and fisheries – contribute with 3% of Mexico’s GDP. In 2013, the production output of these sectors was valued in CHF 48.7 billion. Between 2000 and 2012 the agricultural sector grew below the overall Mexican economy with an average yearly growth of 1.4% (Agriculture 1.4%, livestock 1.8% and fishery and aquaculture 0%) vs 2.1% of average national growth. PRIMARY ACTIVITY
% CONTRIBUTION 65.90%
2000-2012 GROWTH 1.4%
Livestock
28.80%
1.8%
Forestry
2.60%
N/A
Fisheries and aquaculture
1.50%
0.0%
Services related to primatry activities.
1.20%
N/A
Agriculture
Source: INEGI In 2012 primary activities employed 6.7 million people, from those 5.8 worked in agriculture activities, 679 thousand in livestock and 198 thousand in fisheries and the remaining in related services. 3.1.1.
Agriculture
Mexico can be considered a rich country in terms of resources for agricultural activities; with 197.8 million hectares of territory of which 13% is arable land, 64% pastureland and 23% forest and jungle. Mexico has weather conditions that would allow for year-round production in most of the territory using adequate technologies, however the bulk of agriculture performed in the country is still temporal relying on a rainy season that last on average six months. Currently Mexico has 26 million hectares of land suitable for agricultural activities, yearly an average of 22 million are planted, however only 22% has irrigation while the remaining 78% depends on rainfall. The 4.8 million hectares of irrigation land produce over 60% of the total agricultural output value and there are huge technological gaps between productive commercial farms and most of Mexico’s agricultural fields. Mexico imports 77% of the fertilizers used, there is very low use of high-quality seeds. Water availability and its inefficient use are common problems found in the sector. Large part of the problem is the high marginalization indexes in Mexico’s rural areas (61.1% of rural population lives in poverty) and the segmentation of Mexico’s agricultural lands as close to 80% of the agricultural producers has less than 5 hectares of production each, thus not reaching production scales nor technological or financing access. There are 5.3 million rural economic units in the country, from those 72.6% are characterized for being for selfconsumption or have limited market ties and each produces less than CHF 1,185 per year. Another 442 thousand units are catalogued as being in transition, meaning they are passing from being self-consumption production lands and are entering the market, these produce an average of CHF 5,147 per year. 9.9% of the agricultural production units or 528,000 have fragile entrepreneurial activity and produce a yearly average of CHF 10,603. Another 448 thousand, equivalent to 8.4% develop adequate commercial activities and generate an average yearly income of CHF 36,691 per unit, and less than 18 thousand are dynamic companies, producing at comparable of higher yields than average OECD agricultural companies. This last segment produces 41% of the total agricultural value output, devotes important part of their production to the export market, invests in technology, seeds, fertilizers and conducts R&D efforts.
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The main challenge for increasing productivity is organizing small producers so under association models (clusters), they can achieve production scale and access to support programs, financing, technology and quality seeds. Approximately 60% of Mexico’s territory is semiarid and production in these areas largely depends on rainfall as very few producers have irrigation systems. The National Water Commission (CONAGUA) estimates that agriculture consumes 77% of the water used in Mexico and the lack of adequate infrastructure and technologies makes this sector the most inefficient water user. The Peña administration has set the transformation of Mexico’s agricultural sector among the top priorities of the political agenda. For this purpose, the Secretariat of Agriculture (SAGARPA) published the Development Program for Mexico’s Agricultural Sector, setting specific goals and actions by subsector. This plan is available at SAGARPA’s web page www.sagarpa.gob.mx in Spanish language. The program has the main vision of transforming Mexico’s agricultural sector by making it productive, competitive, profitable, sustainable and fair so it guarantees the food safety of the country. This program has the following main goals:
Achieve at least a 3% average yearly growth rate for the agricultural sector between 2013 and 2018. Increase national oilseed/ grains production from 63% (in 2012) to 75% of total consumption by 2018. Increasing labor productivity in the sector by 5.3%, from the equivalent of CHF 4,168 per worker/year in 2012 to CHF 4,623 in 2018 Increase the production volumes covered from market risks from 81% of the eligible commercial production in 2013 to 88% by 2018. Measure water use savings by the use of irrigation technologies. 1 hectare of irrigation saves on average 2,000 m2 of water. 2012 water savings will be the base line the 2018 goal will be to increase savings in 24% Increase corn production yields in rainfall-based production areas from 2.26 tons/ha in 2013 to 2.9 tons/ha by 2018.
To do so, the program has set 10 main guidelines: 1.
Increase productivity of small agricultural producers by introducing association models and integration of the productive chain. 2. Modernize and expand irrigation, so through the use of technologies the use of water becomes optimal and sustainable. 3. Promote national production for strategic supplies: fertilizers and improved seeds. 4. Drive innovation, applied technology development and technical assistance. 5. Management and prevention of climate and market risks. 6. Promote the production of healthy and safe food. 7. Promote competitive financing offering. 8. Promoting regional development, agro-parks and strategic projects 9. Planning the offer-demand balance 10. New organization model at the Secretariat of Agriculture
Agricultural Development Program 2012-2018 Highlights CHALLENGE Stagnant productivity
-
Large number of small producers
-
-
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MAIN ACTIONS Better prices for seeds and fertilizers by consolidating procurement by clusters. Know-how sharing. Through association, improve warehousing, packing and distribution chains creating economies of scale. Apply best practices in production, innovation and applied technology. Create association and cluster models. Promote associations between large and small producers to bring technology, know-how and financing access to small production fields. Incentives for financing, supplies (fertilizers and seeds), commercialization, technology and training.
Lack of financing access
-
Dependency on imported fertilizers
-
-
Inefficient water use and resource scarcity
Source: MILA with information from SAGARPA
Development of government supported liquid guarantee funds for producer associations. Mix of government incentives with credit to increase financing feasibility among financial agents. Joint project financing with participation from Federal and Local governments. Increase financing access through the creation of new financial intermediaries. Strengthen the use of price coverage and insurance for strategic products. Promote strategic projects in collaboration with PEMEX to re-activate fertilizer production in Mexico. The energy reform is expected to promote the development of natural gas and reduce its price and import dependency. Promote the development and use of bio fertilizers. Develop new and supplementary irrigation districts in coordination with CONAGUA Subsidize and provide financing for irrigation among small production associations or clusters Promote “harvesting” of rainfall. Impulse productive and technology reconversion for crops requiring less water and higher productivity. Promote activities for aquifer recharge.
The program sets specific production goals by 2018 (end of the Peña administration term) as follows:
Agricultural Production Goals 2018
Product
PRODUCTION (MILLION TONS) 2012 2018
CHANGE Volume
%
White corn
20.2
25
4.8
24%
Yellow corn
1.8
3
1.2
67%
Wheat grain
3.3
3.6
0.3
9%
Bean
1.1
1.3
0.2
18%
7
8.2
1.2
17%
RIce
0.18
0.27
0.09
50%
Soy
0.25
0.39
0.14
56%
Tomato
2.8
3.4
0.6
21%
Sugar
5
7
2
40%
Coffee
1.36
1.8
0.44
32%
Sorghum grain
Source: SAGARPA 3.1.2.
Animal origin products
Due to the strong integration between livestock production and processing, this sub-sector has greater development degree than agriculture. Mexico is the 7th largest producer of animal protein and fourth largest producer of balanced food in the world. The following table shows Mexico’s production global rank by segment.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
23
Mexico’s Animal Protein Production 2012 PRODUCT
GLOBAL RANKING 2012 4th
PRODUCTION 2012 2.8 million tons/year
Eggs
5th
2.3 million tons/year
0.63
Beef
6th
1.8 million tons/year
579
Honey
6th
N/A
100
Milk
15th
11 billion liters
9.8
Pork Meat
16th
1.2 million tons/year
397
Poultry
2013 EXPORT VOL. (MILLION CHF) 4
Source: MILA with information from SAGARPA and the Trade Information System of the Secretariat of Economy (SIAVI). 2014 In 2013 Mexico exported CHF 444 million in live animals and imported CHF 166 million, resulting in a positive balance of CHF 278 million. Mexico receives feedlot cattle from the U.S., which is grown and fattened in the country and then returned to the U.S. for milk production or slaughtering. Mexico has a negative trade balance in meats (HS 02). In 2013 Mexico exported CHF 1.05 billion and imported CHF 3.54 billion. Meat imports increased an average 8% per year between 2003 and 2013. Last year imports were 11% higher in value and 8% higher in volume than those of 2012. Beef imports obey to the local supply deficit but also to the superior quality of imported beef in comparison to local production.
Mexico's Meat Trade, 2013 1'200 Exports 1'000
Million CHF
Imports 800 600 400 200 0 Beef 0201 0202
Pork 0203
Poultry 0207
Lamb 0204
Horse, mules Eddible oafals 0205 0206 0208 0209 0210
Source: MILA with information from the Trade Information System of the Secretariat of Economy (SIAVI). 2014 Despite of its high global ranking in poultry and egg production and as a result of the avian flu outbreaks in 2012 and 2013 that resulted in over 4.2 million chicken sacrifices, prices and imports of both products have shown important increases, overall during 2013. Average egg prices increased 77% from June 2012 to April 2014. Just in 2013 imports increased 318% reaching CHF 163.5 million. Poultry meat imports maintain a continuous increase since 2009 and despite of government efforts to diversify imports by removing all duties even from non-FTA countries, the U.S. continues supplying almost the total import amount. Poultry and egg supply is of extreme importance for Mexico as they are the main source of animal protein for a large share of the population due to their low prices compared to other products such as meat and fish.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
24
Chicken Meat Imports 2009-2013 1200
1088.0 979.2
1000 872.0 Million CHF
800
733.4 628.1
600 400 200 0 2009
2010
2011
2012
2013
Source: MILA with information from the Trade Information System of the Secretariat of Economy (SIAVI). 2014
Egg Imports 2009 - 2013 180
163.5
160 140 Million CHF
120 100 80 60 40 20.9
23.8
2009
2010
39.1
42.3
2011
2012
20 0 2013
Source: MILA with information from the Trade Information System of the Secretariat of Economy (SIAVI). 2014
SAGARPA has set ambitious production growth goals during the current administration, among the main strategies to achieve those, SAGARPA announced incentives and support programs in areas such as R&D and training, economic incentives to improve production infrastructure, incentives for the treatment and exploitation of manure as biofuel, and promotion of reproductive biotechnologies.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
25
Livestock Production Goals 2018
Product
PRODUCTION (MILLION TONS) 2012 2018
CHANGE Volume
%
Poultry
2.79
3.33
0.54
19%
Beef
1.82
2.03
0.21
12%
Pork
1.24
1.47
0.23
19%
Eggs
2.32
2.79
0.47
21%
Milk
10.56
11.8
1.2
12%
Source: SAGARPA In fisheries and aquaculture, SAGARPA’s main focus will be in organizing, evaluating and modernizing infrastructure and developing mechanisms to combat illegal fishery activities at the same time of supporting legal fishers with access to subsidies for fuels and technological advances. Special emphasis will be placed in promoting sustainable and productive aquaculture by providing training and access to biotechnologies and genetic improvement with a focus in productivity.
Fisheries and Aquaculture Production Goals 2018
Product Fisheries Aquaculture
PRODUCTION (MILLION TONS) 2012 2018
CHANGE Volume
%
1433.5
1500
66.5
5%
254
390
136
54%
Source: SAGARPA Low levels of human development and education and almost no social and productive capitalization characterize rural areas in Mexico. This has prevented rural population from increasing their productivity and income. The rural sector in Mexico offers a wide array of opportunities; the key challenge is gaining the trust of producers and educating them on the potential benefits of association with piers and with technology companies. 3.1.3.
Success case: Syngenta
Swiss company Syngenta is a clear success example and proof that Mexico’s agricultural sector offers opportunities for profitable business at the same time of contributing to social and economic development in Mexico’s highly marginalized rural areas. The company has a leading position in Mexico for sustainable agriculture, assisting producers to increase their yields and output quality while consuming fewer resources. The company also collaborates in reducing pests, developing improved seeds, increasing the nutritional quality of products and collaborates as a liaison between agricultural producers and industrial customers offering benefits to both sides. Syngenta has 200 direct employees and over 1,000 people in its distribution network in Mexico and its growth has been continuously above market average. The company has adapted its processes to the needs of Mexico’s agricultural sector, where small producers learned agricultural practices from past generations and generally they lack of resources to invest even in the most basic agricultural supplies. Farmers in Mexico are in general skeptical to change and gaining their trust can be a challenging task. Syngenta had to begin by educating even the most basic commercial practices; demonstrating farmers that their production can be translated into income and that associating with other producers can translate into mutual benefits. Syngenta has learned that change has to be conducted with patience. For example a producer who has 5 hectares is first invited to change one per year and see the results, after seeing results and perceiving income those farmers begin to trust.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
26
Syngenta has conducted extensive work in creating producer associations, supporting them with financial schemes, providing consulting and advisory to access government programs, financing, insurance, risk protection and environmental practices. The company has also become a “broker” to assist in allocating production in the market. The Mexican Government has recognized Syngenta’s efforts. In April 2014 Syngenta was granted with the distinction ESR2014 (Socially Responsible Company 2014). This is the second consecutive year the company has received this distinction. Syngenta has trained over 500,000 people in rural areas in environmental care, work safety and best agricultural practices. Has also educated over 25,000 rural children on environmental topics showing them quality of life improvement by valuing and preserving the environment. Syngenta has also been a key player in the development and application of the program New Vision for the Development of Mexico’s Agri-food Sector (VIDA), supported by the World Economic Forum and SAGARPA. VIDA is a program where producers, food processing companies and government work together in developing projects to bring technological innovation, training, supervision, financing, technical support, organizational development, financing, subsidies and infrastructure to improve the productive process and value chain of the sector. The program began in 2011 with the participation of 15 Mexican and 17 global companies as well as eight industrial associations. The VIDA program is developing projects and alliances in areas such as grains, fruits, vegetables, coffee and cacao. Several of the concepts introduced by the VIDA program were included in SAGARPA’s Agricultural Development Program.
3.2.
PROCESSED FOODS
3.2.1.
Key figures and players
The Mexican food-processing industry was valued in CHF 76.88 billion in production value or 4.7% of GDP in 2013. It generated over CHF 20 billion in value added. According to Euromonitor, Mexico is the 10th largest consumer of packaged food products. The industry is highly developed and multinational companies such as Nestlé, Danone, PepsiCo and Unilever, coexist with large Mexican food processors whose brands benefit form customer loyalty and recognition. A number of leading Mexican food companies such as Bimbo, Gruma, Sigma Almentos, Maseca, Herdez among other, have also expanded internationally and are leaders in their categories in several of the markets where they have presence.
Top Food Companies in Mexico 2013 TOP 500 RANK 9 12 27 36 40 42 44 45 49 55
63 71
COMPANY MAIN PRODUCTS
COUNTRY
SALES (million CHF)
SALES GROWTH (2012-2013)
GRUPO BIMBO Bakery, Confectionary, Snacks COCA-COLA FEMSA Beverage GRUPO MODELO (AB INVEB) Alcoholic Beverage CUAUHTÉMOC MOCTEZUMA Alcoholic Beverage GRUPO LALA Dairy ARCA CONTINENTAL Beverage PEPSICO DE MÉXICO Beverage, Snacks GRUMA Tortillas (Bakery) SIGMA ALIMENTOS Meat processing, Dairy GRUPO NESTLÉ MÉXICO Dairy, Canned Products, Beverage, Baby Food INDUSTRIAS BACHOCO Meat Processing ORGANIZACIÓN CULTIBA Beverage
Mexico
12,376.34
1.7%
125,416
Mexico
10,968.15
5.6%
84,922
Mexico (Belgium)
6,229.17
-10.8%
32,934
Netherlands
4,814.26
3.5%
18,000
Mexico
4,577.90
4.5%
35,000
Mexico
4,243.48
7.3%
39,273
United States
3,896.53
6.6%
40,000
Mexico
3,803.87
-15.9%
19,202
Mexico
3,444.11
7.7%
30,498
Switzerland
3,084.24
-1.3%
16,000
Mexico
2,791.88
0.9%
24,486
Mexico
2,351.88
4.6%
40,752
MEXICO: FOOD TRENDS AND OPPORTUNITIES
27
EMPLOYEES
88 121 124 133 137 146 149 157 170 178 181 182 202 220 237 238 242 274 287 290 311
319 328 346 373 389
SUKARNE Meat Processing DANONE MÉXICO Dairy, Beverage UNILEVER Dairy, Canned Products, Beverage GRUPO INDUSTRIAL MASECA Tortillas (Bakery) TYSON DE MÉXICO Meat Processing ALPURA Dairy, Beverage MONDELÉZ (KRAFT FOODS) Dairy, Various Groceries. Cold Cuts GRUPO HÉRDEZ Canned Products PILGRIM'S PRIDE Meat Processing GRUPO BAFAR Meat Processing COCA-COLA DE MÉXICO Beverage MARS MÉXICO Confectionary KELLOGG'S COMPANY MÉXICO Milling, Cereals GRUPO LA MODERNA Milling, Pasta GRUPO PINSA Fish preparation and packign GRUPO MINSA Tortillas (Bakery) XIGNUX ALIMENTOS Meat processing, Snacks GRUPO PEÑAFIEL Beverage KUO CONSUMO Canned Products YAKULT Dairy, Beverage MEAD JOHNSON NUTRICIONALES DE MÉXICO Baby Food DIAGEO Alcoholic Beverage CANEL'S Confectionary FERRERO DE MÉXICO Confectionary BROWN-FORMAN TEQUILA MÉXICO Alcoholic Beverage DULCES DE LA ROSA Confectionary
Mexico
1,857.88
1.9%
7,635
France
1,268.99
2.4%
15,000
UK/Netherlands
1,255.34
-0.7%
5,600
Mexico
1,155.57
-6.5%
4,397
United States
1,124.12
16.3%
5,400
Mexico
1,018.92
9.8%
5,002
United States
1,007.66
1.3%
9,229
Mexico
926.60
17.5%
8,790
USA
818.90
2.1%
5,639
Mexico
777.87
10.5%
10,471
United States
775.52
0.4%
542
United States
770.25
-0.7%
2,733
United States
620.08
-4.2%
2,736
Mexico
540.32
2.9%
5,091
Mexico
493.39
12.5%
3,300
Mexico
485.48
16.8%
1,758
Mexico
475.67
7.9%
11,512
United States
372.00
8.8%
3,000
Mexico
343.15
-47.4%
12,155
Japan
334.65
-17.6%
N.A.
United States
294.19
0.3%
6,000
United Kingdom
281.21
22.0%
N.A.
Mexico
261.74
25.8%
2,300
Italy
238.96
13.6%
1,011
United States
203.52
-13.0%
1,000
Mexico
188.24
-3.0%
2,320
Source: Expansión Magazine, Mexico’s Top 500 companies, 2013. Sales figures converted from Mexican Pesos to CHF using MX$14.22 per CHF exchange rate. In addition to these large players, there are hundreds of small food processors producing niche products or focusing on regional markets. Trends show that when these companies begin expanding or their brands earn market recognition they become targets for acquisition. In 2012 there were 1,642 companies exporting processed foods, from those 539 exported food preparations or sauces, 336 frozen, canned or prepared fruits and vegetables, 271 exported flours and cereals, 254 were candy exporters, 136 exported chocolate and 106 coffee. 3.2.2.
Product segmentation
By product segment and using 2011 figures available, bakery and tortilla had the largest share with 30.7% of the total production value. Bimbo, Mexico’s largest food company, Gruma and Minsa are the largest players in this segment.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
28
Meat processing and packing represented 21.5% of processed foods production; in this category the leading companies include Sigma Alimentos, Industrias Bachoco, Sukarne, Tyson and Grupo Bafar. Dairy production ranks third in share with 14% with companies such as Grupo Lala, Sigma Alimentos, NestlĂŠ, Danone, Unilever and Alpura leading in the category. Other representative segments include the milling industry, confectionary, prepared canned foods and fish and seafood preparations.
Production Share per Industry Segment (2011) Bakery and tortillas 4% 1%
Meat processing and packing
8%
Others 31%
10%
Dairy products Grains and seeds milling Confectionary Prepared/canned foods
11%
Fish and seafood preparation
14%
22%
Source: PROMEXICO with data from INEGI. 3.2.3.
Industry trends
Mexico’s processed food sector has been a dynamic industry compared to the overall economic performance with average growth rates of 5% per year over the past 5-year period. The industry had great dynamism between 2010 and 2012 growing over 7% each year, however factors such as slower economic growth, the avian flu outbreak, tax increases limiting disposable income and affecting consumer confidence, and the fact that Mexico climbed to the top global ranking in overweight population, slowed down growth and in 2013 the industry grew 2%. Analysts and government agencies remain positive about its future development and forecast yearly growth rates ranging from 4.4% to 7.4% per year in the coming years. Besides positive economic forecasts and a large domestic market with favorable demographics, there are other factors driving industry growth. Some of the most relevant include: Positive export growth trends Since the signature of NAFTA and following with other 11 free trade agreements, Mexico has become one of the most open economies in the world. Mexican and global food companies benefit from accessing a large and young domestic market as well as export opportunities to supply the U.S. market from production facilities south of the border taking advantage from low labor and logistical costs. Mexico is source of 11% of the imported processed foods consumed in the U.S. and stands as its second largest supplier. While Mexico has been diversifying its processed food and beverage exports, the U.S. remains by far the largest export destination. In 2013 the U.S. received CHF 7.2 billion of processed foods manufactured in Mexico, equivalent to 72% of the total sector export value.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
29
Processed Foods Trade Balance (CHF million) 12'000.00
500.00 0.00
10'000.00
-500.00 8'000.00 -1'000.00 6'000.00 -1'500.00 4'000.00 -2'000.00 2'000.00
-2'500.00
0.00
-3'000.00 2006
2007
2008 Exports
2009
2010
Imports
2011
2012
2013
Trade Balance
Source: MILA with information from the Secretariat of Economy, 2014. 2013 was a landmark year for Mexico’s processed food sector as for the first time since the signature of NAFTA, Mexico had a positive trade balance. The positive export growth trends are expected to continue into the future. The U.S. is home to over 10 million Mexicans who have preference for the brands and flavors that they had prior immigrating. This niche market named “the nostalgic market”, has been for many Mexican food brands the entry door to the U.S. market to later win acceptance among American consumers. An increasing number of international companies are finding convenient establishing manufacturing facilities in Mexico to serve the U.S. market. Besides having duty free access due to NAFTA, production facilities established in Mexico can source duty-free raw materials from all free trade partners. Highly competitive manufacturing costs A recent report on entitled “The Shifting Economics of Global Manufacturing” published by The Boston Consulting Group (BCG) positions Mexico as one of the most attractive export platforms in the world. The report puts Mexico in third place among countries offering the lowest manufacturing costs. Mexico is only ranked below Indonesia and India while Thailand and China rank in the fourth and fifth position respectively. Manufacturing costs in Mexico are 9% lower than those of the U.S. and 34% lower than in Switzerland. The report points that Mexico has seen a “significant improvement” in manufacturing competitiveness, increasing 53% in the last decade vs a 27% average improvement among the worlds top 25 exporters. Moderate wage growth, sustained productivity gains, stable currency and energy advantages are among the main competitive advantages. The report however does not rank Mexico among the top 10 most competitive countries for manufacturing as it is disadvantaged by the World Bank’s negative rankings in topics such as corruption perception (106 rank), ease of doing business (53), logistics performance (47), and overall business environment (29).
MEXICO: FOOD TRENDS AND OPPORTUNITIES
30
Manufacturing Cost Competitiveness Among Top 25 Export Economies Manufacturing-cost index, 2014 (U.S. = 100)
Source: Boston Consulting Group. “The Shifting Economics of Global Manufacturing” Mexico is a profitable country to manufacture food products. In 2012, industry profits reached approximately CHF 25,305 million, significantly higher than those reported by comparable economies such as Brazil and Canada.
Food Processing Industry Net Operation Profits 2012 (CHF million) 30'000 25'000 20'000 15'000 10'000 5'000 0 Mexico
Brazil
Canada
Indonesia
Turkey
Chile
South Korea
India
Source: Promexico with data from Global Insight. USD$ based figures converted to CHF using USD$1.12 per 1 CHF exchange rate. Increasing investment inflows In recent years, Mexico’s food sector has been attracting wider investments from multinational and local groups. Just in the first seven months of 2014, companies such as Coca-Cola, PepsiCo, Nestlé, Mars, Moléndez and Unilever have announced investments worth more than CHF 13 billion and the construction of six new
MEXICO: FOOD TRENDS AND OPPORTUNITIES
31
processing plants. Mexican food companies are also keeping pace, as companies such as Alfa, Kuo, Hérdez, Lala and Sukarne have also announced investments in new plants or expansion of their existing production infrastructure with investments superior to CHF 2 billion. The Mexican Government selected the food-processing sector as a key industry for growth and investment attraction and in combination with State and local governments; they are providing incentives and conditions to favor investment growth. An example is the announcement of the Food Cluster Jalisco, an initiative that will involve over CHF 70 million in investments for the establishment of an industrial park specific for the food industry in Zapopan, Jalisco. Sources: www.sagarpa.gob.mx www.aduanas.gob.mx www.economia.gob.mx www.economia-snci.gob.mx www.ers.usda.gov www.eleconomista.com.mx www.elfinanciero.com.mx www.promexico.gob.mx www.euromonitor.com Expansión Magazine, “Mexico’s Top 500 companies”, 2013. Boston Consulting Group. “The Shifting Economics of Global Manufacturing” ProMéxico “Alimentos Procesados”, 2013
MEXICO: FOOD TRENDS AND OPPORTUNITIES
32
4. DEMAND 4.1.
MEXICAN CONSUMER PROFILES
Analyzing Mexico’s consumer habits has to be done necessarily segmenting its population by income groups. Mexico is the second OECD member country with the widest income inequality only surpassed by Chile. In 2012, 52.2 million Mexicans lived in poverty, not being able to cover even their most basic shelter, dress and alimentary needs; from those 10.4 million lived in extreme poverty, follwoing definitions from the World Bank.
Socioeconomic Levels in Mexico 2010 MONTHY FAMILY INCOME CHF 54,901.72
2010 POPULATION 685,253
2010 HOMES 224,750
1.89%
10,431.39
2,123,161
648,343
C+
3.36%
3,294.16
3,774,508
1,096,646
Cm
6.19%
1,756.94
6,953,632
2,004,791
C-
8.67%
1,222.73
9,739,578
2,604,468
D+
11.98%
878.50
13,457,917
3,294,639
Dm
14.90%
549.11
16,738,144
3,702,208
D-
21.41%
329.46
24,051,253
4,915,830
E
30.99%
205.36
34,813,093
5,940,190
112,336,538
24,431,865
SOCIOECONOMIC LEVEL A
% OF POPULATION 0.61%
B
Source: MILA with data from AMAPI and INEGI, 2010
Income Levels % of population 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% A
B
C+
Cm
C-
D+
Dm
D-
E
Source: MILA with data from AMAPI and INEGI, 2010 In recent years, Mexico has made significant improvements fighting extreme poverty resulting in a 12.2% reduction from 2008 to 2012, however the composition of socioeconomic levels only had marginal changes as most of the population leaving the extreme poverty status remains in the lowest income levels while the proportion of middle and upper classes has slightly increased.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
33
For analysis purpose, we can group income levels A and B as the high purchasing power group; C as moderate purchasing power, D+ and Dm as low while D- and E are considered as being in poverty. Regardless of the income segment, Mexicans are used to have three meals per day: Breakfast at the beginning of the day; lunch between noon and 3:00 pm, being the main meal of the day and dinner at night, usually being a lighter meal than lunch. Mexicans also have custom of snacking between meals. 4.1.1.
High purchasing power
High purchasing power consumers in Mexico represent a market of close to three million people. They source their food from high-end mass grocery retail stores and gourmet shops and they frequently eat in restaurants or home. While in population share this segment is the least representative, in purchasing power and expenditure habits, they are a large contributor to retailers grocery income with an estimate 12-15% and they are the main reason for retailers to increase the number of premium stores located in high-end neighborhoods, carrying a wide variety of imported and premium products. This segment is becoming more concerned about their general health and wellness so they seek for alternatives that are attractive, healthy, fresh and fun when visiting selling points. They are the largest consumers of organic products, premium cold cuts, imported carbonated beverages and high-end confectionary and chocolates. Despite of seeking for healthy foods, they are also a segment consuming large volumes of alcoholic beverages, including wines, liquors and beers. They look for products that are unique, different and symbol of status. Consumption of ready to eat meals within this segment is very low as the majority has service at home that cooks for them. When they eat out of home they visit premium or casual dining restaurants. They use the web to search for options and learn about new products and trends and referrals from friends and family are also important. Within this group family mothers and young woman who look at the nutrition of their families and are willing to pay a premium for foods that are healthier, acquire the majority of the family groceries. Products reduced in greases and fats, with nutritional additives and lower sugar content is finding increased demand in this segment. 4.1.2.
Moderate purchasing power
Represents a market of more than 20 million people and is a growing segment. They source most of their food from mass grocery retailers and convenience stores but they also purchase some of their food, especially fruits and vegetables from street markets, seeking lower prices than those offered by the mass merchants. The fact that Mexico reached the top world ranking in overweight and obesity, has created more consciousness about healthy eating habits, however in general this segment has preference for convenience and low prices over nutrition and health. This segment is the largest responsible for Mexico’s 10 th global ranking for packaged food sales and a large contributor to the country’s obesity problems. Within Mexico’s middle class there is an increasing number of working woman as households depend on double income and family lunches are becoming a weekend habit. Long working hours are another factor contributing to demand growth for fast foods, pre-cooked or ready to eat meals and snacks. Middle class eats at the workplace, in fast food restaurants or in street food stands, which generally serve high fat and calorie meals and practically no healthy food while the younger eating home, rely of pre-cooked meals or prepared dishes from the night before, including animal protein, rice, beans, soups but very few vegetables. Snacking is very popular among Mexico’s middle class. Chips, tortillas, pastries, cookies and sweet bread products together with sugary sodas are a common habit, either as a snack or complement to a poor meal or for some, they are the main mid-day meal. The middle class is also a large contributor to Mexico’s top ranking in consumption of bread products and sodas.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
34
Protein intake comes mostly from chicken and eggs while meat and fish consumption is low due to their higher prices. Consumption of fresh produce is low, however due to the government efforts, including information campaigns and banning of unhealthy foods from public schools, per-capita consumption indexes are growing. Food manufacturers are responding to the obesity problems and alimentary habits of Mexico’s middle class by reformulating products, issuing healthier and fresher ready-to-eat dishes, substituting ingredients and reducing individual packages of high calorie or sugar content products in order to continue offering products in schools. Consumption of imported products among Mexico’s middle class is occasional and considered a treat or “luxury”. Most of the imported products consumed by this segment are those imported by retailers and sold under their private labels. 4.1.3.
Low purchasing power
Composed by over 30 million Mexicans, this segment is largely formed by the blue-collar working class and a high portion of the huge informal economy. This segment sources their food mainly from street markets, centrales de abasto (wholesale markets), hypermarkets and convenience stores. Food habits are based in a diet rich in carbohydrates and grains, fewer proteins and very low consumption of fresh products. This segment eats tortillas, pastries, sweet bread and in fewer cases eggs or tamales (corn based starchy dough filled with protein or chile) for breakfast, in many cases acquainted by a milk product or soda. – Coffee consumption is very low due to its high cost – For the working class lunch is served at the work place by a foodservice company hired by their employer and is provided either at no or a very low cost. Lunches served at the workplace are the main source of protein for this segment of the population. People working in the informal economy usually eat in street posts and stands or purchases some food or snack at a convenience store to hold until the night. Dinner consists of tortillas, beans and protein (usually chicken). They don’t purchase practically any imported food other than grains. For this group a visit to a mass grocery retailer is a luxury and they are very cautious with their spending as purchasing only basic food products already represents a large portion of their income. Nutritional values are secondary to food cost. Within this segment the consumption of sodas and sweet bread is also very high due to their relatively low-cost and the energy provided by their high sugar content. 4.1.4.
Poverty
Over 52 million people live in poverty, approximately 40% live in rural areas where they grow large part of the food they consume and either trade or sell the excess to be able to source other products. The diet of Mexico’s poor population is based in corn, tortillas, beans and rice. In rural areas vegetables consumption is variable, depending on the area and what self-consumption can satisfy. Protein consumption is usually very low. In urban areas diet is also based in corn, tortillas, beans and rice.
4.2.
RETAIL: market size, market structure, players, competition, challenges.
4.2.1.
Size, structure and key players
Mexico has a well-developed retail sector formed by five major players who control approximately 50% of the grocery sales value nationwide. As consumption habits vary significantly by income level and region, mass retailers have multiple format stores ranging from small or medium sized premium stores focused in the highincome segment to large hypermarkets focused on low prices and high-volumes for the middle and low purchasing power segments. Among Wal-Mart, Soriana, Chedraui and Commercial Mexicana control 59% of the retail units and 83% of the total retail surface in Mexico (excluding convenience stores).
MEXICO: FOOD TRENDS AND OPPORTUNITIES
35
Top Mexican Retailers Key Figures, 2013 RETAIL UNITS 1,740
FLOOR SPACE SQ/M 4,214,208
2013 REVENUE* MILLION CHF 29,337
SORIANA
605
3,177,281
7,326
80,907
CHEDRAUI
198
1,158,129
4,629
41,081
COMERCIAL MEXICANA
182
1,289,331
3,283
29,129
SAM´S CLUB
142
1,012,293
6,669
28,413
COSTCO
32
408,050
2,605
9,800
COMMERCIAL NAME WALMART DE MEXICO
EMPLOYEES* 243,842
Sources: MILA with information from ANTAD, 2014. * Expansión Mazazine, Mexico’s top 500 companies, 2014 Additional to the large players, there are regional retailers spread mostly in Mexico’s northern and south regions. These retailers target the middle class and primarily carry local products, however many are increasing their offering of imported and premium brands to differentiate from competitors.
Medium Sized Mexican Retailers Key Figures, 2013 RETAIL UNITS 446
FLOOR SPACE SQ/M 115,061
WALDOS DOLAR MART
304
219,594
CASA LEY
199
636,599
SUPER WILLY'S
155
31,755
MERZA
105
39,087
DUNOSUSA
93
28,805
SUPERMERCADOS SANTA FE
86
92,505
SU BODEGA
58
36,638
GRUPO SCORPION
54
30,684
S-MART
54
204,620
ALSUPER
52
106,200
CALIMAX
49
106,649
HEB
43
220,391
SUPER DEL NORTE
42
36,003
MZ
41
66,166
SUPER SAN FRANCISCO DE ASIS
40
60,463
GRUPO PUMA ABARROTERO
38
13,965
ZORRO SUPERMERCADO MAYORISTA
36
15,420
ARTELI
31
33,824
SUPER KOMPRAS
20
25,836
MERCO
19
36,063
SUPER ALAN
18
6,359
SUMESA
17
16,859
COMMERCIAL NAME TIENDAS NETO
MEXICO: FOOD TRENDS AND OPPORTUNITIES
36
SUPER GUTIERREZ
15
53,030
SMART & FINAL
13
16,295
SUPER AHORROS
8
14,655
PITICO
5
3,021
SU PLAZA
5
3,900
SUPERMERCADO GUTIERREZ RIZO
3
4,698
SUPERMERCADOS ARAMBURO
3
2,750
CENTRO COMERCIAL CRUZ AZUL
3
7,266
Source: MILA with information from ANTAD, 2014. After mass retailers, convenience stores play an important role distributing Mexico’s processed foods. Convenience store chains have over 20,000 retail outlets and they are fast expanding in units, coverage and revenue, representing increased competition to mass retailers and to the traditional and highly fragmented segment of small mom-and-pop shops. Practically all the food sold in Mexico’s convenience stores is processed foods from companies established in Mexico and only a few imported confectionary products.
Top Convenience Store Chains, 2013 COMPANY NAME CADENA COMERCIAL OXXO, CONTROLADORA DE NEGOCIOS COMERCIALES 7-ELEVEN MEXICO
11,721
FLOOR SPACE SQ/M 1,087,905
5,974
119,526
1,458
146,526
EXTRA
980
97,132
Circulo K
186
N//A
COMMERCIAL NAME OXXO CUAUHTEMOC MOCTEZUMA RETAIL 7 ELEVEN
TIENDAS EXTRA* ALIMENTACION COUCHE-TRAD**
UNITS
Sources: MILA with information from ANTAD, 2014 **Alimentación Couche-Trad. * Tiendas Extra was acquired in early 2014 by Alimentación Couche-trad. Most department stores in Mexico have a gourmet section offering premium products such as liquors, wine, canned foods, confectionary, cold cuts and cheeses among others. Most of the products offered are imported, however local manufacturers are increasing their shelf spaces with premium selections that seek to compete in quality and offer lower prices to those if imported options. These stores compete mostly with liquor store chains and stand-alone liquor and gourmet shops but also represent competition to the premium store formats of the largest retailers.
Top Department and Gourmet Store Chains, 2013
EL PUERTO DE LIVERPOO
LIVERPOOL
68
FLOOR SPACE SQ/M 1,011,726
LA EUROPEA MEXICO
LA EUROPEA
43
22,692
BODESA
LA MARINA
33
28,079
OPERADORA COMERCIAL LAS NUEVAS FABRICAS EL PALACIO DE HIERRO
FABRICAS DE FRANCIA
23
169,629
EL PALACIO DE HIERRO
18
327,813
COMPANY NAME
COMMERCIAL NAME
UNITS
Source: MILA with information from ANTAD, 2014 Finally, in Mexico there are over 85,000 mom-and-pop shops selling groceries and food products across the country. These are usually stand-alone family operations and are highly variable in size, product offering and revenues. They serve a specific small area or neighborhood and are seeing increasing competition from convenience stores and small supermarket chains. The common products found in these stores are sodas, beer, bread products and pastries, snacks and confectionary products and some also sell basic produce and dairy.
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4.2.2.
Retail Trends
The Mexican Association of Retail and Department Stores (ANTAD) groups Mexican retailers in three main segments: Supermarkets, Department stores and Specialized Stores. The last segment includes convenience stores as well as other retailers including electronics shop chains, drugstores, spots shops among others. The following table shows revenues by segment and growth in revenue and retail surface during 2013.
ANTAD Members Total Sales per Store Type (2013) SALES (CHF billion) 48.13
Revenue 3.3%
Retail Surface 6.1%
Department Stores
14.50
9.7%
8.6%
Specialized Stores
16.04
6.3%
9.0%
TOTAL
78.68
5.1%
7.2%
Supermarkets
GROWTH
Source: INDICANTAD 2013, ANTAD. Figures converted to CHF using exchange rate MX$14.33 per CHF
ANTAD Members Total Sales by Product Line (2013) SALES (CHF billion)
SALES’ GROWTH
Groceries and Perishables
39.97
4.6%
Clothing and Shoes
8.72
6.8%
General Merchandises
29.99
5.2%
TOTAL
78.68
5.1%
Source: INDICANTAD 2013, ANTAD. Figures converted to CHF using exchange rate MX$14.33 per CHF
Total Sales per Stores’ Type 2010-2013 (CHF billions)
Supermarkets
2010 39.90
2011 43.11
2012 46.94
2013 48.13
Department Stores
10.46
11.86
13.32
14.51
Specialized Stores
12.83
13.67
15.35
16.04
TOTAL
63.20
68.64
75.61
78.68
Source: ANTAD, 2013. Food products represent 50% of the total sales of ANTAD members and between 2010 and 2013 had an average growth rate of 7%. Growth slowed down in 2013 and especially during the first months of 2014 as a result of tax increases that reduced disposable income and lowered customer confidence among Mexico’s high and middle classes. ANTAD is optimistic about the future development of the retail sector, they consider that as Mexicans get used to the new taxes and economic growth begins translating into wealth for the population, its members will return to see revenue growth rates ranging from 7 to 10% as early as 2015. The largest mass retail chains continue with expansion plans and share the optimism of ANTAD. Wal-Mart is the largest retailer and investor in the retail sector. Between 2006 and 2012 Wal-Mart grew its revenue in the country at an average rate (CAGR) of 12.9%, significantly higher than the 8% average growth of the sector. Wal-Mart slowed down investments after a corruption scandal in 2013 but announced that in 2014 it would invest CHF 1 billion in new stores. Most of Wal-Mart investments will be destined to build new hypermarkets under the Bodega Aurrerá name; Wal-Mart’s format targeting the low and low middle-income population segments.
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Soriana, the second largest retailer is investing 279 million in 26 new stores, modernization of existing locations and improvements in its distribution centers. Soriana is also devoting considerable resources to launching an on-line supermarket service and apps to serve the home delivery market. Chedraui and Comercial Mexicana announced plans to open 10 stores each during 2014. Chedraui’s investments in recent years have aimed the high-income segment through its Selecto store model, which consists of an elegant, wooden floor grocery and gourmet store carrying unique and distinctive product selections from around the world. Chedrauis’ Selecto stores claim to have the wider selection of imported beers, liquors, and imported dairy and cold cut selections in Latin America. With the exception of Wal-Mart and Casa Ley (who has partial ownership by American retailer Safeway), all other retailers are owned and operated by Mexican families. European retailers have been practically absent from Mexico’s retail sector; the only relevant participant has been Carrefour, who had operations for 10 years since the mid 90’s and until 2005 when it sold its business to Chedraui. In early 2014 Comerical Mexicana made public it was exploring a possible sale. There were strong rumors that Chedraui was the interested buyer but after several months no announcement has been made. Sector analysts consider that Comercial Mexicana could represent an entry opportunity for foreign retailers to the Mexican market, naming companies such as Target (USA) as possible buyers. Mexican retailers are beginning to expand internationally, mainly to the U.S. in order to target the large Mexican and Latin immigrant population. Chedraui has 44 grocery retail stores in the U.S. under the name El Super. These stores are located in areas with high concentration of Latin population in California, Arizona and Nevada. 4.2.3.
Convenience store trends
The convenience store segment has grown faster than the overall retail segment and FEMSA’s Oxxo have distanced from the rest by opening an average of 900 stores per year since 2009 and will exceed its goal established five years ago of reaching 12,000 stores by the end of 2014. The sale of Cervecería Cuahutemoc to Heineken, gave considerable free cash flow to FEMSA, large part of the proceedings are being invested in retail, including the expansion of the Oxxo store network as well as purchasing other retail businesses. Besides increasing the number of units by nearly 1,000 per year in 2012 and 2013, FEMSA is diversifying its income sources. Oxxo stores began in the 80’s with the main task of increasing FEMSA’s revenue through having exclusive outlets for its beers and Coca-Cola products, complemented by snacks, candies and basic groceries. Today Oxxo stores are the number one location for cell phone recharges (There are over 77 million active pre-payment cellphone lines in Mexico) and cigarette sales; The stores are an increasingly important financial services center, taking payments for major credit cards, utilities and services as well as deposits and transfers for major banks. Many locations have ATM machines. They are also a location to make cash payments for MercadoPago, a Latin-American version of PayPal, and are becoming the leading selling point for lottery. Oxxo’s have also become a unique version of fast-food restaurants, selling hotdogs, sandwiches, croissants coffee, juices, smoothies and other ready-to-eat foods. More recently some Oxxo’s have began offering basic fruits and vegetables such as bananas, apples, onions, tomatoes and lettuce. Smaller convenience stores are following the steps of Oxxo, adding services and product variety to become more attractive to consumers. In many locations, especially small and mid sized cities convenience stores are the alternative to the absence of mass grocery retailers. It is expected that convenience stores in Mexico will continue expanding their product offering particularly in the ready-to-eat meals section. The number of people eating away from home continues rising and being a highly price-sensitive market, inexpensive mid-day meals find good demand. Convenience stores are aiming to capture the market currently eating in informal street stands and offering similar cost but healthier and cleaner alternatives.
4.3.
FOODSERVICE / HoReCa
Mexico’s demographics with a considerable proportion of young adults reaching working age, increasing number of woman working and smaller families are driving changes in consumption habits towards eating
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away from home. Mexicans eat in restaurants on average 1.2 times per week, among the working class this percentage goes as high as 4 times per week and trends show these numbers will continue climbing. Besides work motives, Mexicans use restaurants as a place to socialize with friends and family. According to the reprt “FoodService Profile – Mexico” from Euromonitor, the sector, including hotels, restaurants, fast food, and coffee shops was valued in CHF 31 billion in revenue in 2013. The restaurant sector is Mexico’s second largest formal employment source with 1.2 million direct and an estimate 3.25 million indirect jobs. According to the National Restaurant Chamber Restaurants (CANIRAC), the sector is valued in CHF 12.7 billion. In 2012 there were 428,000 restaurants nationwide. From those 88% are small restaurants with less than 5 employees and the remaining 12% are medium size or large restaurants. The following are Mexico’s largest restaurant chains:
Top Mexican Restaurant Chains, 2013 REVENUE GROWTH (2012-2013) 16.30%
EMPLOYEES
Alsea
REVENUE 2013 (MILLION CHF) 1,096.44
Vips
513.02
1.60%
19,723
Premium Restaurant Brands
275.42
8.80%
10,438
Toks Restaurantes
191.18
11.80%
7,900
Corporación Mexicana de Restaurantes
148.77
8.00%
5,891
COMPANY
31,309
Source: Expansión Magazine, Mexico’s Top 500 companies, 2013. Sales figures converted from Mexican Pesos to CHF using MX$14.22 per CHF exchange rate. The segmentation of the industry makes restaurants source their raw materials mostly from independent distributors or foodservice companies that deliver at the restaurant sites. This is also a highly fragmented segment with a couple of large players such as Beard and Food Service Solutions and a large number of small players specialized in certain food types such as produce and vegetables, meats, fish and seafood, refrigerated products and dry groceries. These companies’ often import products; have their own warehouses and distribution fleets. Club stores such as Sam’s and Costco are playing an increasingly important role serving the HoReCa market and have been aggressively pursuing market share by offering delivery services. Approximately 80% of the fresh produce and 50% of meats and seafood distributed in Mexico are sold through central wholesale markets (centrales de abastos). These are large wholesale markets concentrating the agricultural and livestock inputs to Mexican cities into a single location. From centrales de abastos, foodservice companies deliver food products to restaurants but a large proportion of small stand-alone restaurants and street food stands purchase directly at the wholesale markets to avoid intermediary margins. Large food companies such as Nestlé, Unilvever, Mondeléz and Danone are also active suppliers to the foodservice sector selling directly to large restaurant and hotel chains and through alliances with foodservice companies. In addition of supplying products, these companies offer training to Mexican chefs sharing recipes and processes that involve their products. The restaurant sector offers great opportunities for imported and gourmet food products, especially those targeting the high income segment. Restaurants seek to diversify their offering and increasing the average ticket value by offering unique products and flavors. International restaurant chains are increasing their market presence in Mexico, either through opening locations directly or through partnering with large Mexican restaurant operating groups. Between 2010 and 2013 over 12 casual dining chains, mostly American and Asian expanded into Mexico. The catering and industrial dining segment has also found a fast growing niche in Mexico, several States have issued regulations requiring employers to offer food alternatives to their employees and most manufacturing companies in Mexico with 100+ employees have diners within their facilities. The industrial dining segment is highly fragmented with a large number of small regional companies and few large players. Industrial diners offer food to employees at no or very low cost, most receiving subsidies from employers. Usually employees pay between CHF 0.70 and 3.40 to receive a complete lunch in the workplace.
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While the industrial dining segment does not offer market potential for imported products as food offered has to maintain price competitiveness, they are among the main drivers for functional foods or ingredients of high nutritional values. Industrial kitchens in Mexico are evaluated by nutritionists who have to demonstrate employers that the foods served offers a balanced and highly nutritional diet. Among the largest industrial dining companies in Mexico are:
Eurest, Aramark, Skyone Food, Sodexo, Aia Mexico, La Buena Mesa, Comedores industriales de México Co Integradora de eventos y servicios del Bajío
Companies who serve meals in public facilities such as hospitals, jails, nurseries and day cares represent another niche market within Mexico’s foodservice sector. The Mexican government bids multi-year contracts to foodservice companies to supply those high volume facilities. Contracts are awarded to the companies meeting the nutritional and dietary requirements and offering the lower costs. Companeis such as La Cosmopolitana, Comser de Occidente and Alimentos el Agula are strong players in this niche market.
4.4.
EXPORT MARKET
Mexico is source of 16% of all food and beverage imports of the United States and is the second largest processed food supplier. In 2013 out of 104 billion of U.S. food and beverage imports, Mexico supplied 16.6 billion. Its geographical location and manufacturing costs and over 10 million Mexicans living in the U.S. make Mexico a unique location to sell into the U.S. food market. U.S. consumers have become ethnically diverse and they demand an increasing variety of food products, many of which are imported. The Mexican population in the north side of the border looks for the flavors they had prior immigrating and their purchasing power is such, that leading Mexican groups such as Grupo Bimbo and Maseca now obtain the largest share of their income from the U.S. market while others such as Sigma Alimentos are seeing important increases on their U.S. revenue shares. As the U.S. population is becoming healthier in their food consumption habits, and due to the seasonal and climatic factors, local fruit and vegetable production is not sufficient to cover demand resulting in greater imports, especially for tropical products such as cocoa, coffee and some fruits. Gourmet products and processed food imports also show dynamism driven by greater variety demand but also by lower production costs in selected foreign markets. Processed food import growth is found for finished products and also by intra-industry trade where processing companies industries in the U.S. carry out certain processing steps offshore and import products at different levels of processing from their subsidiaries overseas. Hershey’s is an example of the benefits of NAFTA, in 2008 the company decided to relocate part of its production for the U.S. market south of the border and built a huge and modern chocolate factory in Monterrey, benefiting from low prices of labor, sugar and cocoa and being able to ship production duty free back to the U.S. Hershey’s has also invested in cocoa producers in Mexico, helping them to increase their quality and yields and announced plans to strengthen this efforts and help growers quadruple production in five years. Sources: www.economia.gob.mx www.oecd.org www.inegi.gob.mx www.antad.org.mx www.amapi.org.mx www.canirac.org.mx www.femsa.com.mx www.soriana.com www.chedraui.com.mx www.wal-mart.com.mx
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www.ers.usda.gov www.eleconomista.com.mx www.elfinanciero.com.mx www.promexico.gob.mx Euromonitor “FoodService Profile – Mexico” Expansión Magazine, “Mexico’s Top 500 companies”, 2013.
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5. OPPORTUNITY AREAS Mexico offers opportunities in various sub-sectors of the food and beverage industries. Logistics costs have high impact on prices for most food product exports; shelf life, storage, temperature conditions are other adverse factors for exporting food products from Switzerland into Mexico so most players have opted for licensing or investments in the country. Export opportunities directly from Switzerland are limited to gourmet or high-value products, where the impact of logistics is not representative as a percentage of the product cost or when product differentiators and brand recognition does not limit consumers to pay a premium. There are successful cases of Swiss-made finished food product exports, including cheeses, ready-to-eat fondue, tea and spices, premium chocolates and confectionary products. Swiss food ingredients and additives have also found good export opportunities into Mexico, however due to the global presence of leading Swiss laboratories, most of the demand is either produced at the local markets or shipped from laboratories across the globe. The sizeable domestic market as well as free-trade access to international markets, including NAFTA and several central and south American countries make Mexico a highly convenient location for manufacturing food products in America. Several Swiss food companies, such as Nestlé, Barry Callebaut, and Basel Chocolates have taken advantage, establishing manufacturing presence in Mexico while others such as Emmi, have invested in distribution and continue exporting from Switzerland. Commodity traders such as Glencore and Cargill as well as pharmaceutical and chemical companies active in food ingredients and technologies have also found a profitable market in the country. Regardless of the individual product brands, the brand Switzerland or Swiss Made is synonymous of high quality to the eyes of Mexican consumers. Swiss chocolates and cheeses are among the preferred by Mexican consumers seeking for high quality options. The Swiss brand has such recognition that event Mexican companies targeting the premium or high-end markets have adapted the Swiss name as part of their identity regardless of using ingredients from Switzerland. The sub-sectors representing greater opportunity areas within Mexico’s food sector are:
5.1.
ORGANIC FOODS
Following global trends, consumption of organic foods is gaining demand between upward middle class and wealthy consumers, however the massive middle and low classes for Mexico are highly price sensitive and still not willing to pay a premium for organic products. Mexico’s importance for organic foods at present obeys more to the export opportunities offered by the huge U.S. demand than to local consumption, however in the future and as price premiums are reduced, organic products could find great local demand. Organic food demand at present is growing at double-digit rates. According to ProMéxico, in 2011 Mexico ranked among the top 20 countries in the world in terms of sales of organic food products and 4th in Latin America.
America’s Top Organic Food Sales Markets, 2012-2014 (M. CHF) COUNTRY USA Canada Mexico Brazil
10,934
11,563
12,213
AVG. ANNUAL GROWTH (20122017) 4.8%
1,271
1,336
1,397
4.2%
179
207
242
15.4%
70
81
95
14.9%
2012
2013
2014
Source: ProMexico with data from Euromonitor. Figures converted to CHF from US$ using US$1.12 exchange rate.
MEXICO: FOOD TRENDS AND OPPORTUNITIES
43
Mexico is the world’s leading exporter of organic coffee and a major exporter of similar crops including cacao. Besides exports to the U.S. Mexican organic coffee has found demand in Countries such as Germany, Belgium, Netherlands, Austria and Japan. Mexico is also increasing exports of organic fruits and vegetables, products such as tomatoes; avocados, cucumbers and peppers are being grown primarily for the U.S. market but have also found a niche in Mexico’s premium mass grocery stores. According to the Association Impulso Orgánico, A.C. the country had an extension of 352,904 hectares for organic food production in 2010, ranking as the 4th largest in Latin America and in terms of organic agricultural producers, Mexico ranked third with over 150,000 producers. While Mexico exports large volumes or organic agricultural products, the country is a large importer of organic processed foods including dairy products, oils, beverages, cereals, sauces and sweet products sold primarily in premium mass retail outlets and gourmet stores. The restaurant sector has also been a growth driver and promoter for organic foods with selected high-end restaurants including options in their menus. Aires de Campo, a company established in 2001 dedicated to source organic products in Mexican fields and commercialize production is today Mexico’s leading player in the commercialization of organic food products in Mexico. The company began selling products online and to gourmet stores and by 2011 it had revenue of CHF 2.5 million, by that time, it had began selling products to the mass retail sector and called the attention of Grupo Kuo, a leading Mexican food processor and owner of the Hérdez and Del Fuerte brands. Kuo acquired a 50% share in the company and without revealing the operation amount; the company directors indicated that it was a strategic acquisition due to the potential and demand growth of the organics sector in Mexico. Aires de campo commercializes packed groceries, seeds, oils, sweeteners, beverages, dairy products and meats, all certified organic. The Mexican government has been regulating organic production since 2006, however it wasn’t until late 2013 that Mexican authorities issued an official organic logo for labeling and commercializing certified organic products, this is another sample of the development stage and expected growth of this industry segment. Mexico offers good potential for production, commercialization and export of organic food products. Food preparations, sauces, bakery, confectionary, beverages and coffee are among other organic products that have demonstrated success in the local and export markets.
5.2.
BIOTECHNOLOGY/ GM CROPS
Agricultural demand trends; the increasing competition of agricultural products in the international markets; and the characteristics of Mexico’s agricultural sector and its low yields compared to other producing countries, makes biotechnology a strategic necessity to improve the conditions of Mexico’s rural areas. Genetically modified crops (GM Crops) have expanded worldwide and in 2012, according to the International Service for the Acquisition of Agri-Biotech Applications, for the first time developing countries produced more GM crops (52%) than industrialized countries (48%) In 2012 Mexico ranked 6th among the countries with greatest land extension available for GM crops with 421,000 hectares for the production of cotton, corn wheat, and soy. Mexico has developed a clear regulatory framework for the development, testing and release of GMO’s. Companies need to receive an authorization from the Mexican Government through the Inter-secretarial Commission for Biosafety (CIBOGEM) to release GMO’s and are required to report in a continuous basis about their use, quantities, mixes and results.
Authorized Companies for the Release of GMO’s in Mexico, 2012 AgrEvo Mexicana, S.A. de C.V. Aventis Crop Science México, S.A. de C.V. Bayer de México, S.A. de C.V. Calgene, S.A. de C.V. Centro Internacional de Mejoramiento de Maíz y Trigo (CIMMYT)
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DNA Plant Technology Co. Dow AgroSciences, S.A. de C.V. Híbridos Pioneer de México, S.A. de C.V. Monsanto Comercial, S.A. de C.V. Semillas y Agroproductos Monsanto, S.A. de C.V. PHI México, S.A. de C.V. Syngenta Agro, S.A. de C.V. Zeneca Plant Science Source: ProMexico with data from CIBOGEM Besides collaborating with improving agricultural outputs quality and yields, biotechnology companies work in close collaboration with Mexican food processors for product development covering from the planting of raw materials to the addition of nutrients, flavors or preservatives that improve their processes and final products. Due to the overweight, obesity and diabetes problems among Mexican population and to the taxes implemented since the beginning of 2014 for high calorie and low nutritional value food products as well as high sugar content beverages, food and beverage companies in Mexico have strengthened their efforts towards reducing sugars and calories, increasing nutritional values and offering healthier products. While there are no official figures available on the subject and companies keep strict confidentiality on their product development processes, several companies interviewed mentioned to be working towards launching new products meeting the desired nutrition and calorie content requirements to become tax-exempt.
5.3.
FUNCTIONAL/ FORTIFIED AND DIET FOODS
In order to attract a greater number of Mexican costumers, manufacturers are constantly innovating and improving their products. They seek to differentiate from their competitors by offering value-added ingredients and proposing food products that are rich in calcium, proteins, vitamins and other nutritional substances or those offering reduced sugars, carbohydrates or calories. Functional or fortified foods refer to those products receiving ingredients additions at some point of the manufacturing process to increase or enhance their nutritional values or health benefits. These product improvements are generally used as marketing tools in product packages as well as in advertisement. The use of additives and value-added ingredients in Mexico is not new and according to Euromonitor, Mexico is the 4th largest market in the world for functional food products. Consumers are accustomed to packaged food products enriched with calcium, vitamins and minerals so increasingly food manufacturers are seeking to differentiate by offering more sophisticated functional formulas such as probiotics, folic acid, omega-3 as well as some new and patented formulations used by leading companies such as Nestlé, Danone, Bimbo and Lala among many others. Dairy, bakery and cereal products are among the largest sub-sectors offering functional foods, however other categories such as teas, water, and canned foods are increasing the use of additives to differentiate from competitors’ products or to justify higher prices than those of direct competitive products. Every year some 600 to 800 food/beverage new products are launched or re-launched in Mexico offering new formulations or additional benefits to consumers. Among the most popular benefits offered by these new products are strengthening of the immune system, cardiovascular, digestive or skin benefits. Due to the high prevalence of overweight, obesity and diabetes and to greater awareness and concerns among the Mexican population, food companies are increasingly offering benefits related to combat or prevent these conditions. Sugar reduction or substitution, fat reduction, increase in fibers are among the most popular trends in food additions/substitutions. Although the Mexican market is highly price-sensitive, the offering of enriched and fortified processed foods is common. Increasingly customers are willing to pay slightly more for those products offering additional health benefits.
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Functional/fortified and diet foods are expected to grow above the average processed food category growth. Players such as Bimbo, Nestlé, Danone as well as snack producers and beverage manufacturers are expected to increase the use of additives to enhance their products, reduce their sugar/fat contents and offer wider health benefits in order to improve their attractive for an increasingly health-conscious market.
5.4.
DAIRY
According to the National Chamber of Dairy Products (CANILAC) In 2013, dairy products consumption reached 15,825 million liters of milk equivalent; local production supplied 10,926 million liters and imports accounted for 4,899 or 31% of total demand. Approximately 50% total dairy consumption is used by the food processing industry while human consumption accounts for 66 liters per capita equivalent to the remaining 50%. CANILAC estimates dairy products demand will continue growing at an average yearly rate of 1.7% per year to reach 18,200 million liters by 2025, which will require considerable investments to cover for trade deficit as well as the natural growth driven by population growth and higher per-capita consumption. Within the dairy sector, yogurts and cheeses are seeing the highest volume consumption increases with growth rates of 7% and 6% per year respectively. Fresh milk demand has decreased an average of 1.5% per year during the past five-year period and cream has seen a 1.7% decrease in the same period. In value terms Mexico’s dairy industry is expected to continue growing as lower demand for fresh milk is compensated by higher value added products such as yogurts and cheese. Euromonitor values Mexico’s dairy industry in CHF 10.3 billion and forecasts a yearly average growth rate of 4.4% from 2012 to 2017. Opportunities within the dairy sector range from exporting milk and milk preparations to cover the production gaps equivalent to one third of the total demand, to export opportunities for premium and specialty cheeses. Mexico’s dairy import trends show an increasing imports dependence, in 2013 Mexico imported CHF 1.7 billion in dairy products compared to CHF 227 million in exports. Imports show an average yearly increase of 9.9% over the last decade and a particularly strong increase in 2013 equivalent to 18.6% of the import value.
Dairy Product Trade 2004-2013 (million CHF) 2'000.0 1'800.0 1'600.0 1'400.0 1'200.0 1'000.0 800.0 600.0 400.0 200.0 2004
2005
2006
2007
2008
Exports
2009
2010
2011
2012
2013
Imports
Source: MILA with information from SAGARPA and the Trade Information System of the Secretariat of Economy (SIAVI). 2014 imports increased an impressive 83% in value between 2009 and 2013, half of the value growth is attributable to price as volumes increased 41%.
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in 2013 Mexico imported 103,394 tons of cheeses, valued in CHF 428.7 million. The U.S. is the largest supplier with 76% of the import value, followed by New Zealand, Chile and Netherlands. Switzerland was the 11th largest supplier with CHF 1.1 million.
Cheese Trade 2004-2013 (million CHF) 500.0 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 2004
2005
2006
2007
2008 Exports
2009
2010
2011
2012
2013
Imports
Source: MILA with information from SAGARPA and the Trade Information System of the Secretariat of Economy (SIAVI). 2014
5.5.
Confectionary
Mexico’s confectionary industry is valued in CHF 3.9 billion with chocolate products representing 52% of the sub-sector. The industry benefits from a young population in the local market and a fast growing export market fueled by investments of multinational confectionary companies in Mexico. According to research conducted by the Industria Alimenticia Magazine, Mexico is the 8 th largest consumer of confectionary products worldwide and second largest in Latin America. Per capita consumption reaches 4.7 kg and the industry is forecasted to continue with high growth rates despite new taxes on high-calorie foods, including confectionary products are expected to impact demand in the short term. Forecasts indicate that the new tax will only have an impact during the first year of implementation, in the middle term however, as consumers get used to the new prices demand will continue posting medium to high single-digit growth rates to reach a value of CHF 4.4 billion by 2017. Mexico offers excellent conditions for confectionary manufacturing with available local raw materials such as sugar and cacao, skilled and relatively inexpensive labor and strong local demand in Mexico and its trading partners. The confectionary sector in Mexico has received strong investments by local and foreign manufacturers. Hershey’s, Mars, Nestlé and Masterfoods lead in the chocolate sector and control over 75% share, international companies such as Barry Callebaut and Ferrero entered the Mexican market in recent years and local groups such as Ricolino and Joyco who are also important large players have increased production capacity by modernizing and expanding their operations. Confectionary exports have grown at an average yearly rate of 12.3% per year over the last decade, particularly strong is the growth of chocolate exports with 22.4% yearly growth in the same period and largely due to Hershey’s relocation of several production facilities to Mexico.
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Non-Chocolate Confectionary Trade 2004-2013 (million CHF) 600.0
500.0
400.0
300.0
200.0
100.0
2004
2005
2006
2007
2008 Exports
2009
2010
2011
2012
2013
Imports
Source: MILA with information from SAGARPA and the Trade Information System of the Secretariat of Economy (SIAVI). 2014
Chocolate Confectionary Trade 2004-2013 (million CHF) 600.0
500.0
400.0
300.0
200.0
100.0
2004
2005
2006
2007
2008 Exports
2009
2010
2011
2012
2013
Imports
Source: MILA with information from SAGARPA and the Trade Information System of the Secretariat of Economy (SIAVI). 2014 The sector is also characterized by consolidation; large companies are acquiring smaller players who have developed brand recognition.
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Besides local manufacturing, Swiss companies will find good opportunities in Mexico’s confectionary sector. Swiss chocolates are among the most recognized in terms of quality and flavor and Mexican consumers are willing to pay premiums. The 8% tax on high-calorie products, affecting confectionary products is forcing manufacturers to launch new low-calorie options using sweeteners and additives while the high prevalence of diabetes, makes the Mexican market and excellent location to sell sugar-free confectionary products. This last niche is at present satisfied almost exclusively with imported products.
5.6.
SNACKS
Snacking is part of Mexico’s culture and dietary habits regardless of their social/income position. The snacks industry is valued in CHF 2.8 billion and is among the fastest growing sub-sectors of the food industry. In volume, snack production reached over 460,000 tons in 2013, with a CAGR superior to 6% in the last decade. In value terms the industry tripled its value in this period. Per capita consumption has also seen important growth passing from 2.35 kilos in 2000 to an estimate 4 kg per inhabitant in 2013. There are 130 snack manufacturers registered in the National Chamber of Transformation Industries, from those 6% are large companies and 14% are medium sized. The remaining are small with a very high percentage of micro snack producers. Large companies generate over 90% of the total value. By type of snack, the industry is segmented as follows:
36% Fried wheat flour and corn. 27% Potato chips 19% Tortilla chips and toast. 11% Other inflated / baked goods. 4% Peanuts and seeds. 3% Pork rinds.
PepsiCo’s Sabritas and Bimbo’s Barcel are the leaders in Mexico’s snack industry controlling an estimate 65% and 17% of the fried snacks segment. Similarly to the confectionary sector, snacks are affected by the 8% tax on high-calorie content foods, in this sector however the impact is expected to be minimal, as while the tax has been transferred entirely to the consumers, fried snacks remain an affordable product with very low competition from other substitute products. Recent trends show acceptance of imported healthier snack products made of vegetables, and local snacks made from banana or other tropical foods. Retailers have imported these products directly and Costco has launched a line of healthy snacks under their private label.
5.7.
OTHER OPPORTUNITY SUB-SECTORS
5.7.1.
Beverages:
Mexico is the largest consumer of bottled soft drinks and water in the world. Coca Cola, Pepsico, Schweppes, Nestlé and Danone are the leading market players and control over 90% of these markets. The wide distribution networks of these companies and the relatively low prices of bottled drinks make these products find demand even in the low-income levels. The main driver behind Mexico’s huge demand for soft drinks and bottled water is the poor quality of water served by the utilities. Within the sector, which is controlled by multinationals, there are rising opportunities for healthier and premium beverages such as tea, fruit based drinks and low-calorie content drinks. According to industry experts, the 8% tax will not inhibit soft drink consumption in Mexico but is having a positive impact among consumers who are becoming increasingly aware of the health risks associates with intake of excess sugars, which is expected to translate into wider demand for light soft drink versions and water, businesses controlled by the same multinationals.
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Danone is Mexico’s leader in the bottled water sector with 38% share followed by Coca-Cola with 25% and Pepsico with 19% share.
Bottled Water Consumption per Cápita 2013 (lt.) 180
169.8
160
147.5
140 120
118.4
116.6
118.5
120.1
120.5
130.1
132.7
Nigeria
France
122.1
100 80 60 40 20 0 Argentina Dominican Hungary Rep.
Spain
Guatemala Germany
Italy
Mexico
Source: CNN International, with information from Euromonitor. 2013. 5.7.2.
Frozen Processed Foods
Mexico’s frozen foods sector was valued at CHF 1.5 billion in 2012 and is forecasted to grow at an average yearly rate of 4.6%. Mass retailers are devoting larger shelf spaces to frozen foods as demand patterns are showing preference among consumers for the convenience and time savings that those represent. 5.7.3.
Other – Export Opportunities
ProMexico conducted an analysis of the various sub-sectors of the Mexican processed foods industry, analyzing local demand but also export opportunities to the U.S. The government agency determined the most promising opportunity sectors for local manufacturing to serve both the domestic and export market to the U.S. are:
Processed Food Investment Opportunity Sub-sectors in Mexico 2012 SUB-SECTOR
Snacks
UNITED STATES Sales Avg. Growth (CHF million) 2012-2017 30,449 4.50%
MEXICO Sales Avg. Growth (CHF million) 2012-2017 2,806 6.00%
Confectionary
30,046
3.40%
3,901
5.80%
Frozen Processed Foods Condiments and Seasonings Ice Cream
25,738
3.60%
1,512
4.60%
16,638
3.00%
3,133
4.50%
11,077
2.50%
467
4.40%
Dairy Products
46,249
3.30%
10,331
4.40%
Bakery 63,457 2.20% Source: Promexico with data from Euromonitor, 2013.
19,635
4.20%
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Top Export Processed Food Opportunity Products to the U.S. 2012
U.S. IMPORTS 6,537
GROWTH (20112012) -14.60%
% OF TOTAL FOODS IMPORTS 13.80%
HS 0901
DESCRIPTION Coffee
1905
Bakery Products
3,229
6.10%
6.80%
1701
Sugar and Sweeteners
2,283
-18.20%
4.80%
2008
Fruit Products
2,248
14.30%
4.70%
1806
Chocolates
2,032
3.80%
4.30%
2106
Nutritional Preparations
1,859
7.00%
3.90%
1514
Rapeseed, Colza or Mustard Oils
1,824
-5.60%
3.80%
1704
Sweets
1,482
4.70%
3.10%
2005
Vegetables (canned or prepared) Others Total
1,062
0.66%
2.24%
24,954 47,510
-13.90%
42.60% 100%
Source: Promexico Sources: www.inegi.gob.mx www.antad.org.mx www.indusrtiaalimenticia.com www.promexico.gob.mx www.canilac.org.mx www.industriaalimenticia.com www.botanas.org.mx www.canacintra.org.mx www.eleconomista.com.mx www.elfinanciero.com.mx www.promexico.gob.mx Impulso Organico, A.C. Euromonitor Expansión Magazine, “Mexico’s Top 500 companies”, 2013.
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SUPPLIERS Brazil, Colombia, Vietnam, Guatemala and Mexico Canada, Mexico, Italy, Germany and India Mexico, Brazil, Guatemala, El Salvador and Dominican Republic China, Thailand, Mexico, Canada and Philippines Canada, Mexico, Germany, Belgium and Switzerland Canada, Mexico, Thailand, Germany and China Canada, Netherlands, Mexico, France and Uruguay Canada, Mexico, China, Germany and Spain Spain, Mexico, Peru, Greece and Canada
EXPORTS 771
% OF THE MEXICAN PRODUCTS OF TOTAL IMPORTS 7%
731
21%
823
36%
302
14%
606
25%
311
7%
4
0.11%
521
30%
132
11%
6. Challenges and Opportunities for Swiss Food Suppliers 6.1.
FOOD DISTRIBUTION
Mexico’s food sector offers a vast array of opportunities for global companies throughout all the food value chain, from agriculture to premium food or beverages to advanced food ingredients or additives. Switzerland and Mexico are located over 9,500 away, making logistics the single most important challenge Swiss food exporters need to overcome. Only high-value products that are not strongly impacted by logistical costs and those that don’t have local or imported substitutes offer opportunities for direct export. Additional to price impact, distance represents additional challenges, such as product shelf life reduction due to the time the merchandise spends in transit, increased damage potential due to movements and potential of breaking cold chains, and volume limitations for most fresh products, that could only be exported via airfreight. There are some successful direct export examples in products such as premium cheeses, chocolates, teas, candies and food ingredients and additives. All these products have as common denominator their high price vs volume ratios. Other successful products include liquors or fondue, where no substitutes are easily found neither in the local or import markets. Swiss premium food and beverage manufacturers might find export opportunities in Mexico, especially within the high income segment of the population which represents a market of nearly three million people with flows of disposable income and highly appreciative of prime or unique products. Other than premium foods and beverages, opportunities for direct export are limited to food ingredients and additives. In this segment there are also some successful players selling flavorings, omega-3 additives, proteins, and sweeteners among other ingredients to food processors. Recent trends show that large Mexican food manufacturers are increasingly seeking for advanced fortification formulas that are unique or different than those of competitors. The key in this segment is offering something innovative and having minimum impact on product cost. Being logistics a large inhibitor for direct export, Swiss companies should evaluate local manufacturing, either directly or through licensing agreements with local food and beverage manufacturers. Besides a massive local market composed of nearly 120 million people, Mexico offers the additional competitive advantage of being a duty-free entry door to other markets – especially North America - thanks to the free trade agreements that the country maintains. Distribution within the country can be performed directly or outsourced to local distribution companies. Selling to Mexico’s mass retail companies is relatively easy as they have own distribution centers where they consolidate merchandise to send to their own stores networks, usually applying a distribution discount to the merchandise. Swiss food companies should be aware of those costs prior quoting retailers as the distribution charges can range anywhere from 2 to 8% of the product cost.
6.2.
PRICING
Due to the wide income inequality, pricing should be considered depending on the targeted socioeconomic level segment. For premium food and beverage products targeting the wealthy income segments, price is not the main demand-driving factor. In these segments price is seen as an indicator of quality and exclusivity and the value proposition is more linked to product or brand recognition rather than a competitive price itself. High income Mexicans don’t mind paying CHF 10-15 for a bar of Swiss chocolate, CHF 15-20 for a pre-cooked fondue or CHF 100 for a wine bottle in a gourmet shop. They don’t mind paying 2-3 times the price for the same products in a high-end restaurant as long as the products and place where they purchase are recognized and perceived as exclusive.
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Selling to the high-income segment in Mexico requires strong investments in targeted advertisement; product placing, using spokesman or other targeted marketing techniques. In these segment traditional mass advertisement is not as effective as products need to maintain their exclusivity. The high-income segment represents a market of 3 million people, however in purchasing power they represent some 35-40% of the country’s total. Within the middle class, Mexico becomes a price sensitive market where slight price differences can make consumers prefer one product over another, however this segment is following trends of upper income levels where health and nutrition are increasingly important factors for product selection. Food and beverage manufacturers have the challenge of offering a good quality and value for money proposition, and differentiate to competitors by offering more benefits without incurring in substantial price increases. Generally within Mexico’s middle class, women are the main grocery and food buyers and they have to take care of their family expenditures. Woman constantly compare food prices, they seek for the lower price alternatives and only pay a price premium when the products show offering a value added vs. their competitors and when the brans is positioned as offering greater value. Dietary habits in Mexico are changing, increased working hours, more woman working, and work pressure leave little time for meal preparation, and this is the main driver for fast food and ready meals growth. Convenience is increasingly valued, the growth of frozen foods, ready to eat meals and pre-cooked dishes has been above the general food consumption growth. Mass grocery stores have been expanding the frozen foods space, back in the 80’s this space was almost exclusive for ice-creams, in the 90’s ice-creams represented some 50% of the freezers while the remaining 50% was filled with frozen vegetables and a few ready to eat meals. Today ice-cream represents some 20% of the freezers space, 30% of frozen vegetables and the 50% remaining is pre-cooked foods such as pizzas, lasagna, tacos, burgers, French fries, cakes, etc. Although many of these products have substantially higher prices than those of their comparable fresh options, consumers are willing to pay a premium for convenience.
6.3.
EXPORT CHECK LIST
Previous to any export operation into Mexico, it is necessary to have an in-country importer who is legally established, registered in the Importers Registry at the Tax Administration Service (SAT). Only companies registered in this database are allowed to import products into the country. All Mexican retailers are registered as importing companies and they are direct buyers for a wide number of imported products. Selling directly to retailers offers the benefit of avoiding intermediary margins, however market penetration can be limited to one or few customers who won’t conduct proactive brand or product promotion other than placing it in their shelves. Some international food companies have found success by combining direct sales to retailers with investments in promoters and advertisement while others have found opportunities manufacturing under the retailers private labels. Prior to selling directly to Mexican retailers it is highly recommended to perform store checks to identify competitive products, compare pricing, packaging, presentations, flavors and nutritional values. Identify your products key differentiators and competitive advantages prior to meeting with retailer’s buyers. In Mexico there is a considerable number of food importers and distributors. Most of these companies specialize in one or few product categories (i.e. wines and liquors, dairy, confectionary, food ingredients, etc) and in addition of handling logistics and local inventories, they conduct marketing efforts usually with the financial support of their represented brands. Swiss companies can identify importers of their specific product category through Swiss Business Hub México; through Mexican consulting firms or by participating in industry trade shows. In the last case it is highly recommended to conduct prospection prior the show as this multiplies chances of success. As mentioned previously, logistical costs are an important inhibitor for a wider penetration of Swiss food products into Mexico. If logistical costs represent loosing competitiveness vs other alternatives in the Market, Swiss food companies should explore licensing or manufacturing agreements with local companies.
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The following are recommended steps for exporting into Mexico: 1.
Company Preparation:
2.
Exploring the market.
3.
Make sure to allocate a budget for studying the market, identify opportunities and interested prospects (potential importers). This budget should include components for market research, traveling into Mexico and if applicable, exhibiting in trade shows. Devote at least one sales person or C-level official within your team to the market entrance process. This person has to be fluent in English and highly desirable proficient in Spanish. Most businessmen in Mexico and retail buyers are fluent in English. Prepare your back-office to receive orders from Mexico, including managing communications in Spanish or English, dealing with logistics, samples, following up with clients’ requests. Develop an export price list to Mexico including logistical costs and delivery FOB at a Mexican entry port. Depending on individual product characteristics this list can be by box (consolidated cago) or container load.
Prior a first trip to Mexico, use the resources offered by Swiss Business Hub to understand market opportunities and local/imported competition for your specific products. If necessary, contact the services of a local consultant to perform in-depth market research, competitive analysis, distribution channel identification, prospects identification, importing samples and evaluating opportunities and threats. Once initial prospection is completed, conduct a trip to Mexico and have face-to-face meetings with interested prospects. Being acquainted by a local person - Swiss Business Hub official or local consultant - is highly recommended. In addition of conducting meetings with interested prospects, this initial trip can serve as an opportunity to visit retailers and other local selling points as well as visiting trade shows. (Check trade shows dates in Appendix).
Becoming export ready.
Have your trademark, logo, recipe and other intellectual property registered and protected in Mexico. Evaluate conducting focus groups with targeted buyers to ensure your product meets Mexican consumer expectations (taste, color, packaging, size, etc). Packaging must comply with NOM-051 regulation, it is highly recommended to contract a local packaging consultant to ensure packaging (or labels affixed to original packaging) meet with local regulations prior shipping product into Mexico. Together with the interested importer or distributor, develop a budget for product launching campaign and a local price list. Evaluate shipping from Switzerland vs. local manufacturing or licensing. Make sure your production can follow up with future orders and can incorporate labeling processes. Make sure your and your distributors’ cash flow is enough to finance retailer orders. Mexican retailers usually pay net 30, 60 or even 120 days depending on the product category. Pricing must include financial leverage for negotiation. Retailers usually ask for a 2-4% distribution discount, special discounts for category promotions or marketing campaigns.
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7. CONCLUSIONS Mexico offers a wide variety of opportunities for Swiss food companies, most of which are only being tapped by selected large companies. Due to its distant geographical location and to Mexico’s income demographics, most of the opportunities are for manufacturing in country while export opportunities are restricted to products with a high value/volume ratio. Mexico offers the following advantages for manufacturing in country: -
A domestic market nearing 120 million people. A growing middle class with increasing disposable income. Favorable age demographics, with a young population where the number of dependents will be smaller than the working class in a few years from now. An undeveloped and marginalized agricultural sector offering extensive opportunities for partnerships and wealth creation. Natural export market to the U.S., Canada and Central American countries. Free trade agreements with 45 countries representing over 60% of global GDP allows for duty-free raw materials imports and finished product exports. Low manufacturing costs. High profit margins compared to other OECD member countries.
Despite of these strong advantages, Mexico also offers challenges that Swiss investors will need to overcome, among the most relevant we can mention: -
Disorganization or “organized chaos”: Mexico is a country transitioning from being a developing country to a more developed economy. This transition has been in several occasions harmed by economic crisis, poor management of public finances, political and corruption scandals. The country is also in early stages of becoming a true democracy as power shifts have only occurred two times between two political parties in over a century. Doing business in Mexico requires patience. Government red tape and permitting processes usually take longer than initially expected and in many cases costumes or uses have even stronger weight than what regulations indicate.
-
Labor unions can be helpful or hurtful and in many cases they can shift fast from one position to the other. Swiss companies entering Mexico should carefully evaluate the structure of their collective work contracts and unionized labor agreements. The use of specialized labor lawyers is highly recommended even before establishing a local company.
-
Water availability: Mexico has water supply problems in many urban areas, especially in the northern and central areas of the country which are the most logistically favored to conduct export operations to North America. In many areas water supply in intermittent, lacks of high quality and water restrictions apply during the dry season of the year, which can be harmful for food companies who are intensive water users. It is recommended that Swiss companies establishing manufacturing in Mexico secure constant water sources with local utilities or through wells directly from the National Water Commission.
-
Insecurity in Mexico is a strong and constant concern of international investors, the government combat to drug trafficking and the violent combats between cartels have spun Mexico as a violent country in international media. The drug-related violence is contained in specific areas – mostly in north Mexico – and most of the violence is within people involved in the drug business, but unfortunately their violence levels have created a very negative international perception of the whole country. Companies investing in Mexico should consider that security measures have to be implemented to protect the company’s people and assets and those investments are usually larger in Mexico than in other OECD countries but following basic security measures, most of Mexico’s territory can be considered a safe place to invest.
-
Competition in Mexico’s food and beverage sectors is strong. In addition to the large multinational companies there are world-class Mexican companies operating in the sector with extremely high efficiency levels and stat-of-the-art technologies and equipment. Competing in this market requires high efficiency levels and competitive cost structures. Mexican competitors have demonstrated they can fast react to new market entrants or competitors and especially the large players have sufficient power and resources to protect their brands and shelf spaces.
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-
Mass retailers commercial practices are also a challenge that both, local and international market entrants have to deal with. Credit, discounts, promotion and shelf spaces need to be negotiated individually with each retail chain and new entrants are generally required to invest more in distribution, advertisement and promotions than long-time players. Payment terms are variable between 20 to up to 120 days with the most common being 60 or 90 days for food products. Mexican retailers have significantly improved their commercial practices in recent years and especially the larger players are increasingly becoming partners of their suppliers, however initial negotiations and adequate pricing schemes are basic elements to ensure long-term success.
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Appendix: Trade Shows and Associations. Trade Shows Date Location Website Description
Date Location Website Description
Date Location Website Description
ABASTUR 2014 September 1st to 4th, 2014 Centro Banamex Mexico City Mexico www.abastur.com Abastur is the largest trade show for the HoReCa supply chain market. 57% of the visitors are searching for specific products or services to purchase, being restaurant owners (38%) the main attendees group. Chefs, hotel food and beverage managers and buyers are also representative attendees. During the last day, Abastur opens its doors to culinary students. 28,000 attendees 800 exhibitors According to show organizers - USD$ 220 million sales during the show
FOOD TECHNOLOGY SUMMIT & EXPO 2014 October 1st and 2nd, 2014 Centro Banamex Mexico City Mexico www.foodtechnologysummit.com This trade show brings together the ingredients, additives, solutions and services suppliers with food and beverage manufacturers. It is a highly specialized niche show and conference where leading researchers, ingredients companies and consultants talk about trends, new products and where the industry is heading in terms of additives. Product development managers and purchasing officials as well as high-level executives visit the show. Over 150 exhibitors Over 7,800 visitors estimated for 2014
EXPO ANTAD 2015 March 2015 Expo Guadalajara Guadalajara, Jalisco Mexico www.expoantad.net Is the largest retail trade show in Mexico, and brings together the national and regional suppliers with the retailers and other selling points. One of this trade show most developed areas is agricultural products and foods, both processed or not. Through Expo Antad the suppliers and producers are able to directly treat with large retail chains, such as Wal-Mart, or regional supermarket chains. 40,000 attendees 2,200 exhibitors USD$ 960 million sales during the show
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Date Location Website Description
ALIMENTARIA 2015 June 2015 Centro Banamex Mexico City Mexico www.alimentaria-mexico.com Alimentaria is a trade show dedicated to the food and beverages sector, including its distribution and commercialization, bringing together the largest players of the restaurants, catering, food services and hostelry sectors. It is divided in two main areas: foods and beverages distributors and HoReCa. Courses, workshops and culinary contests are offered and performed as well during the trade show. 9,500 attendees from 33 countries 244 exhibitors from 21 countries Alimentaria takes place concurrently with the trade show “Expo Tecno Alimentos”, same days, same location. It is more focused on the best ingredients and processes offered by the market, and bringing together its suppliers with local and foreign foods and beverages producers. 2,200 attendees 96 exhibitors
Date Location Website Description
Date Location Website Description
PMA FRESH CONNECTIONS 2015 May 2015 Centro de Congresos de Querétaro Querétaro, Querétaro Mexico http://www.cvent.com/events/fresh-connections-mexico/event-summaryddfa3a621aff47e6af0ce237b0862315.aspx?lang=es The Produce Marketing Association’s trade show for Mexico, brings together the full fresh fruits and vegetables supply chain aiming commercial agreements and business development. Conferences about the best practices within the industry take place as well. Over 30 companies from the sector exhibiting, from Monsanto, to Washington Apple. Retail buyers attend this show and conference.
EXPO AGRO SINALOA 2015 February 2015 Campo Experimental del Valle de Culiacán Culiacán, Sinaloa Mexico www.expoagro.org.mx Is a key trade show for the agricultural and fresh foods in Mexico, that takes place in the north of Mexico, near to the main agricultural areas. Besides the conferences and workshops and its related technologies, this trade show also enforces meetings with purchasing managers from the main retail chains and distribution channels. 4,500 exhibitors from 500 companies 54,000 attendees from 25 countries
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Chambers BAKERY INDUSTRY CHAMBER CÁMARA NACIONAL DE LA INDUSTRIA PANIFICADORA Y SIMILARES DE MÉXICO (CANAINPA) Website www.canainpa.com.mx Contact Mr. Jonás Murillo González General Director jonasmurillo@canainpa.com.mx Assistant: Ms. Isabel Mejía Phone (52 55) 5134 0500 X: 108 Description It is an Institution established since 1945, which brings together and represents the bakery industry in Mexico. The main purpose of the Chamber is being a representative body, with updated services, contributing to economic and social development sector.
CANNED FOODS INDUSTRY NATIONAL CHAMBER CÁMARA NACIONAL DE LA INDUSTRIA DE LAS CONSERVAS ALIMENTICIAS (CANAINCA) Website www.canainca.org Contact Mr. Juan Carlos Lorenzo Leboreiro President canainca@canainca.org Phone (52 55) 5203 3886 Description Brings together and represents companies dedicated to the production and packaging of processed food in Mexico. It is the only national organization representing this sector.
Website Contact Phone Description
WHEAT MILLING INDUSTRY NATIONAL CHAMBER CÁMARA NACIONAL DE LA INDUSTRIA MOLINERA DE TRIGO (CANIMOLT) www.canainca.org Mr. José Luis Fuente Pochat President harinadetrigo@canimolt.org (52 55) 5523 2387 It is an organization that was created to represent and defend the interests of the industrial millers, millers and wheat semolina. It was founded in 2005 with the aim of promote, guide, encourage and serve the miller wheat industry, allowing the development of the industry. It represents more than 80% of the domestic wheat milling industry, serves 75 industrial plants of flour integrated in 33 companies located throughout the national territory.
Website Contact Phone Description
COFFEE INDUSTRY NATIONAL ASSOCIATION ASOCIACIÓN NACIONAL DE LA INDUSTRIA DEL CAFÉ (ANACAFE) www.anacafe.com Mr. Jorge Cisneros Salas General Director Jorge.cisneros@anacafemexico.com (52 55) 5596 7905 It is a Private institution of public service, autonomous, with its own assets, founded in 1960. Its main objective is to strengthen the national economy through production and export of coffee. Represents more tan 90 thousand farmers across the country, looking after their interests and is responsible of providing effective services for sustainable, competitive and quality coffee production.
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Website Contact Phone Description
BEEF MEXICAN COUNCIL CONSEJO MEXICANO DE LA CARNE (COMECARNE) www.comecarne.org PHD Macarena Hernández General Director consejo@comecarne.org (52 55) 5589 7771 It is a leading national organization integrated with companies related to the meat industry, slaughterhouses, bakeries cutting and deboning, packing of fresh and processed meat. It has more than 26 years of experience representing and defending the common interests of the industry.
CHOCOLATES, CANDIES AND SIMILAR MANUFACTURERS NATIONAL ASSOCIATION ASOCIACIÓN NACIONAL DE FABRICANTES DE CHOCOLATES, DULCES Y SIMILARES (CONFIMEX) Website www.confimex.org.mx Contact Mr. Gustavo González Hernández Commercial Director Gustavo@aschoco.org.mx Phone (52 55) 5546 0974 Description Its a national association which represents more than 45 companies of the confectionary sector. The national and international companies that they represent are small, medium and large. The intention of the Association is to integrate all related companies of the sector, so it works as follows: Foreign Manufacturer, Domestic Manufacturers and Suppliers of machinery, equipment and services. Allowing the relationship customer-supplier as a platform to new alliances. NATIONAL CHAMBER OF SUGAR AND ALCOHOL INDUSTRIES CÁMARA NACIONAL DE LAS INDUSTRIAS AZUCARERAS Y ALCOHOLERAS (CNIAA) Website www.camaraazucarera.org.mx Contact Mr. Humberto Jasso Torres General Director hjasso@camaraazucarera.org.mx Phone (52 55) 5062 1380 X: 1384 Description It is an organization established in 1942, has 36 national affiliated mills in operation, which are located in 15 states. The main purpose is to represent the interest of all the mills in the country.
NATIONAL ASSOCIATION OF INDUSTRIAL EDIBLE OILS AND FATS ASOCIACIÓN NACIONAL DE INDUSTRIALES DE ACEITES Y MANTECAS COMESTIBLES AC (ANIAME) Website www.aniame.com Contact Mr. Amadeo Ibarra General Director aibarra@aniame.com Phone (52 55) 5533 2847 Description It represents and defends the interests of the manufacturers of oils, edible fats and proteins, supports the national integration agro-industrial of oils, achieves the sustainable development of the sector through communication services, consultancy and trading
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