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Mexico Food and Drink Report Q1 2010
Business Monitor International, Nov 2009, Pages: 76
Business Monitor International's Mexico Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Mexico's food and drink industry.
In September 2009, politicians in Mexico outlined plans for new food and drink taxes designed to offset declining revenues, while at the same time encouraging consumers to opt for healthier options. The proposals cover products across the food and drink industry and could impact the results of Mexico's biggest food and drink companies, including bakery giant Grupo Bimbo and drinks producer Femsa.
The problems associated with obesity are increasing throughout Latin America due to dietary changes brought about by increased wealth, urbanisation and the growth of supermarkets. Mexico has been particularly affected, with figures from the World Health Organisation suggesting that the country has one of the highest prevalences of obesity for both males and females anywhere in Latin America. This is partly due to the fact that processed food and drink products from multinational firms have been available for many years thanks to the close proximity of the US and is reflected in the fact that per capita consumption of soft drinks is the highest anywhere in Latin America. The issue is now firmly in the sights of politicians and with government tax receipts under pressure from the global economic downturn, the ruling party has seen an opportunity to raise revenues while also being seen to take action to the problem.
Luis Enrique Mercado, a member of the ruling National Action Party, has announced that his bloc would support taxes on soft drinks, increased duties on beer and removal of tax exemptions for food with high calories and low nutritional value. These measures will be felt across the food and drink industry. As the current market leader in the soft drink sector Femsa is likely to feel the biggest impact from new taxes in this area. With local press reports indicating that a 10% tax will be proposed, the impact on a soft drink market already showing signs of maturity could be significant. As one of country’s major brewers Femsa in fact faces a double whammy with the firm’s head of corporate affairs at the Mexican unit revealing that the additional proposed taxes on alcohol could raise the average cost of beer by 11%. Genaro Borrego called the plan ‘excessive’ and suggested that it would mean that taxes would represent 50% of the cost of beer. The proposal comes at a time when the beer industry is already suffering due to the economic downturn, with volumes down particularly sharply in the industrial north of the country.
Among the domestic food firms that could feel the impact is Grupo Bimbo, which is Mexico's largest bread maker but also derives a significant proportion of its revenues from cake and snack products that are likely to be hit by the elimination of value-added taxes on unhealthy foods. On the other hand, with many health-focused products selling for a premium, the obesity epidemic in Mexico actually presents opportunities for revenue growth for food firms that are prepared to tackle the issue head on and modify their portfolios accordingly.
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