May 8, 2007

United States Department Of Agriculture (USDA) Forecasts That Meat Consumption in Mexico Will Rise By an Additional 75% Between 2007 And 2015, Moving Further Ahead Of National Production

Research and Markets ( has announced the addition of Mexico Food And Drink Report Q1 2007 to their offering.

The Mexico Food & Drink Report provides independent forecasts and competitive intelligence on Mexico's food & drink industry.

The 2007 growth forecast for Mexico has been revised downwards, from 3.5%, to 3.3%, because of anticipated lower growth in North America and price declines for many of its primary export products, including coffee and soy beans. This would represent zero growth for the economy in 2007, for the author's expect GDP growth for 2006 to be confirmed at 3.4%, up slightly from the 2005 figure of 2.7%, but below the Latin American average of 4.7%.

Inflation, meanwhile, we forecast will remain within the 3% - 3.5% band, its lowest level for thirty years. This comes despite January's spike in tortilla prices, blamed by many on the increasing global demand for corn on the part of ethanol (alcohol made from sugar or corn) producers. The effects of this are, for the moment, uncertain. Producers agreed on price caps with the government in January, which will be reviewed at the end of April. If these price agreements were to beak down, we may, in the second quarter, revise our inflation forecast for the year, considering the relative weight that the tortilla staple carries in the consumer price index.

Mexico's stagnant GDP figure should not be read in isolation. It did not grow noticeably in 2006 because, as is invariably the case, growth was lower than expected in the US, on whom the Mexican economy remains dependent. The domestic economy, by contrast, is advancing strongly. In fact, in common with Brazil, there is something of an investment boom taking place in the country at the moment, the majority of it coming from foreign sources.

Investors into the retail segment seek to tap the increasing purchasing power of the younger (16 -- 24) generation, which makes up almost 55% of the population, the highest percentage of any upper-middle income country in the world. Wal-Mart de M©xico (Walmex) is a prime example of such an investor: when announcing its plans for expansion for 2007, it emphasized that its number one goal is to capture 14mn of these new, younger generation customers 'over the coming years'.

This first quarter of the year has seen a plethora of announcements from mass grocery retailers (MGR) on their impending expansion projects, which will, for the first time, focus more on towns and cities outside the largest metropolitan areas of Mexico City and Monterrey. Each of Walmex, Soriana, CCM and Gigante -- the top four retailers -- are set to inaugurate outlets in areas hitherto untouched by the large, modern supermarket concept. Walmex, for example, has put aside US$985mn for expansion this year, and Soriana US$350mn.

Equally, however, the start of the year has been characterized by retailers taking dramatic steps to lower costs, implying that the increasing competition in the sector is putting margins under pressure. The way was led, in January, by second-largest retailer Soriana -- with estimated sales of US$4.8bn in 2006, and still largely family owned -- when it announced that it intends to invest, along with four partners, US$300mn to construct a wind-farm with a generating capacity of up to 396 megawatts in San Dionisio de Mar, in the southern state of Oaxaca. Wind speeds in Oaxaca reach up to 70kph. The plant is due to be operational 'sometime in the second half of 2009'.

With electricity prices now representing 15% of Soriana's overall operational costs, and with the price of electricity continuing to climb above inflation, the percentage could rise to almost 20% by the end of the decade. This would cause even more food and drink price rises than Soriana says it was forced to implement in 2006. Soriana's partners in the project are Vientos de Istmo, based in Oaxaca, Spanish firm Preneal, the consulting group IG Expansiòn, and German financial services group Deutsche Bank. The author understands that Walmex, not to be outdone, is about to announce the construction of a wind-farm in the southern state of Oaxaca as well, with a capacity of 67.5 megawatts.

On the food and drink front, two of the fastest growing segments this quarter are meat and noncarbonated beverages. In the case of meat, Mexico is becoming much less self-sufficient. Currently producing less than 65% of the meat it consumes, with herd sizes that have decreased by 40% over the last few years, the country will need to increase its meat imports significantly in the coming years. The United States department of Agriculture (USDA) forecasts that meat consumption in Mexico will rise by an additional 75% between now and 2015, moving further ahead of national production. Soft-drinks producers continue to tilt their portfolios towards non-carbonates, a segment that offers far more growth prospects than that of the traditional carbonated beverage.

Foreign interest in the segment is intense, reflected by Nestl© Waters' efforts in 2006 to link up with Mexico's Grupo Modelo in a joint venture to sell bottled water in Mexico, already the second-largest bottled water market in the world. The venture, legally finalized in 2007, aims to utilize Modelo's distribution network to ramp up sales of Nestl© Waters' brands, which include Santa Maria, San Pellegrino, and Perrier.

Content Outline:

Executive Summary

Chapter 1 -- Business Environment.

Chapter 2 -- Retail.

Chapter 3 -- Food & Drink.

Chapter 4 -- Tobacco.

Chapter 5 -- Competitive Landscape.

Companies Mentioned:

- Cadbury Schweppes

- Cencosud

- Coca-Cola FEMSA

- Controladora Comercial Mexicana SA de CV (CCM)

- Gruma SA de CV

- Grupo Bimbo SA

- Grupo Herdez Sa de CV

- Grupo Modelo

- Industrias Bachoco

- Kraft Foods

- Wal-Mart de M©xico Sa de CV (Walmex)

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