FEMSA invests in the dairy industry of Mexico and Panama

A few weeks ago, Fomento Económico Mexicano SA de CV (FEMSA)acquired the Mexican firm Santa Clara, where approximately 200 thousand liters of milk are processed daily, 75 per cent of which are applied to fluid milk.

Last year, FEMSA became part of the dairy industry in Latin America as it acquired the group Grupo Industrial Lácteas (Estrella Azul), the greatest dairy group in Panama, which in 2010 accounted for 140.9 million dollars in revenue.

México ranks eighth in worldwide milk consumption and has yearly sales of approximately 7,000 million dollars. The market is held by a controlled by a reduced number of competing companies: in ten glasses of milk consumed in the country each day, five come from the firm Lala, three from Alpura, and the other two from other companies.

As per the National Livestock-raisers and Dairy Producers Association (the ANGLAC), the yearly production of milk in México is 10,700 million liters, and imports -mainly from the U.S., where production is subsidized-   represent approximately 31 per cent of the national consumption.

According to the ANGLAC, the yearly demand amounts to 13,500 million liters and the imports of powder milk amounted to 226,779 tons only in 2011.

The NAFTA and the dairy industry

As it happens in other countries, dairy producers in Mexico are working at a loss. “The return obtained by producers in this sector as compensation for supplying the federal government and manufacturers is not enough. The highest possible figures only reach 5.62 Pesos per liter, whereas the cost of production is 6.30 Pesos”(1).

México currently faces an atrocious drought and needs to import a significant portion of the raw material applied to feeding cattle. The cost of fodder represents 70 per cent of the total.

As per Armando Paredes Arroyo Loza, President of the APAL Group (a milk producer), “Years ago, the ton of wheat rounded 3 thousand Pesos, while in the past three years the increase has reached 200 per cent”.

The crisis is so profound that from the estimated 200 thousand production units existing in the country around 50 thousand will disappear by the end of 2012, and as a result of the drought, between 500 thousand and one million less liters will be produced daily(2).

What has caused this situation?

Álvaro González, leader of the National Movement of Milk Producers and Consumers, has informed that “Mexico’s food crisis started 18 years ago with the subscription of the NAFTA which granted privileges to the dairy industry benefitting it with the waiver of taxes of over 4 thousand million dollars, for the 14-year deregulation period. There was also the authorization of imports of milk subsidized in the country of origin.”

“The fact is that Mexico is the country with the highest level of dairy imports in the world, as a result of the North American Free Trade Agreement” expressed the President of ANGLAC, Vicente Gómez Cobo.

Concerning FEMSA and its latest acquisition -Santa Clara-, the 200 thousand liters of milk produced daily should not be a matter of concern to competitors, though it is also true that the Group is extremely powerful in the art of getting control of other companies.

Another possible scenario would be FEMSA importing dairy products from the U.S., the country of origin of 72.9 per cent of all imports during the first six months in 2012(3). This would allow for the supply of the almost 10 thousand branches of OXXO that it owns, Mexico’s largest convenience store chain (with an area of less than 500 m², and business hours exceeding 18 hours a day). Surely time will tell.

Reality has shown that upon saturated markets, the leading trans-national companies are in search of new segments and are gradually taking over the whole spectrum.

The eggs are now in several baskets, and this will continue to happen until all eggs and all baskets become the property of a single trans-national company. Apparently this will be happening sooner than later. 

Gerardo Iglesias
Rel-UITA
October 9, 2012