""

Required Report - public distribution

**Date:** 8/28/2003

**GAIN Report Number:** MX3317

MX3317

**Mexico**

**Food Processing Ingredients Sector**

**Report**

**2003**

**Approved by:**

![](media/image1.wmf)Bruce Zanin

#### ATO Mexico City

**Prepared by:**

John Leonard, Condessa Consulting

**Report Highlights:**

Mexico offers very good opportunities for U.S. suppliers to the
processed foods sector. The demand for processed foods is increasing and
the Mexican industry is keeping pace; the sector grew about 25 percent
from 1999 - 2002. U.S. suppliers already dominate the imports into this
market and are well-positioned to capitalize on the growing demand for
high-quality ingredients.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Mexico ATO \[MX2\]

\[MX\]

# MEXICO'S FOOD PROCESSING SECTOR

Mexico offers very good opportunities for suppliers to the processed
foods sector. The demand for processed foods is increasing and the
industry is keeping pace; the sector grew by an average 8.1 percent
annually from 1999 to 2002. U.S. suppliers dominate Mexican imports of
raw materials for the sector and are well-positioned to capitalize on
increased demand for high quality food ingredients.

##### SECTION I. MARKET SUMMARY

According to the Mexican Secretary of Commerce business registry (SIEM),
there are 7,065 food manufacturing companies processing a wide range of
products including red meat, poultry, fish and dairy products, baked
goods, snack foods, prepared fruit and vegetables, oilseed products,
beverages, dry goods, condiments, specialized food ingredients and
prepared meals. The industry produced \$38.3 billion in 2002.

From 1999 to 2002, the industry grew by an average 8.1 percent per year
in production value. The following sub-sectors experienced the highest
growth in this period: Beverages (41.1 percent), Baked Goods (38.4
percent), Confection, (27.9 percent), Snack Foods (26.9 percent), Canned
Foods (25.6 percent), Dairy (24.5 percent), Meat and Poultry (21.4
percent), Other (coffee, gelatins, yeast, syrup, concentrates, etc.)
(17.3 percent), Sugar (14.7 percent), Animal Feed (13.7 percent), Fish
and Seafood (12.4 percent), Flour and Grains (7.5 percent), Vegetable
Oil (0.9 percent). The sector is expected to produce \$41.3 billion in
2003.

Production Value of Mexico's Food Processing Industry (USD Millions)

  ---------------------------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
  Industry                     Number of   Total Inputs 1999 (3)     2000         2001         2002         Growth
                               Firms (1)   (2)                                                              99-02

  Meat and Poultry             526         1,400        2,117        2,440        2,555        2,571        21.4%

  Dairy                        426         2,600        3,198        3,684        4,005        3,982        24.5%

  Canned Foods                 100         715          2,037        2,216        2,505        2,559        25.6%

  Fish and Seafood             59          198          275          279          292          309          12.4%

  Flour and Grains             337         778          1,301        1,284        1,366        1,399        7.5%

  Baked Goods                  3,963       703          1,605        1,853        2,090        2,222        38.4%

  Vegetable Oil                75          1,200        2,001        1,951        2,008        2,020        0.9%

  Sugar                        61          1,100        1,908        1,848        2,368        2,188        14.7%

  Confection                   280         250          727          861          861          930          27.9%

  Snack Foods                  163         341          1,612        1,949        2,106        2,045        26.9%

  Other (coffee, gelatins,     263         1,400        2,891        3,198        3,327        3,390        17.3%
  yeast, syrup, concentrates,                                                                               
  etc.)                                                                                                     

  Animal Feed                  163         1,200        1,561        1,599        1,775        1,775        13.7%

  Beverage Industry            649         2,500        9,122        11,030       12,006       12,870       41.1%

  **Total**                    **7,065**   **14,385**   **30,355**   **34,192**   **37,264**   **38,260**   **26.0%**
  ---------------------------- ----------- ------------ ------------ ------------ ------------ ------------ -----------

Source: 1. SIEM; 2. INEGI Encuesta Industrial 2000; 3. INEGI Encuesta
Industrial Mensual 2002

Trade statistics paint a favorable picture for U.S. suppliers to the
food processing sector. Mexico imports from the United States almost
five times as much raw material[^1] for the industry as it exports.
Moreover, imports rose 22 percent while exports fell almost 30 percent
between 2000 and 2002. Although a strong peso during the period may
account for some of this imbalance, the figures indicate a strong and
growing dependence on foreign suppliers to the industry.

The following imports of raw materials for the food processing sector
experienced the highest rates of growth from 2000 to 2002: Cloves (660
percent); Cereal grains, germs (490 percent); Vanilla beans (450
percent); Soybean residues (262 percent); Cocoa paste (200 percent);
Other fixed vegetable oil (179 percent); Anim/veg hydrogenated (179
percent); Oats (131 percent); Soybean oil (131 percent); Various spice
seeds (117 percent); Palm nut or kernel (100 percent); Vegetable waste
for animal feed (95 percent); Unsweetened cocoa powder (80 percent);
Bran (79 percent); Olive oil (75 percent); Wheat or meslin flour (73
percent); Cane/beet, solid form (73 percent); Rapeseed, colzo/mustard
(68 percent); Yeasts; baking powder (50 percent); Palm oil (not
chemically modified) (47 percent); Wheat and meslin (40 percent).

Advantages/Challenges for U.S. Exporters Targeting Mexico's Food
Processing Sector:

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

  The United States is already the    The European Union, Chile and other
  leading supplier of ingredients to  Central American and South American
  Mexico's food processing industry.  countries have free trade
                                      agreements with Mexico giving them
                                      preferential duties for some
                                      products.

  Geographical proximity gives U.S.   As Mexico's transportation and
  exporters a competitive advantage   distribution infrastructure
  over third country suppliers.       improves, other countries will be
                                      able to deliver product more
                                      efficiently to the Mexican market.

  Because of NAFTA, U.S. products     Commercial barriers such as
  have preferential import duties     labeling, phytosanitary and
  compared to products from many      sanitary regulations and NOMs
  third country suppliers. As of      (Mexican quality standards)
  2003, most U.S. food and            continue to pose obstacles for
  agricultural product exports to     importing some U.S. products.
  Mexico are duty-free.               

  Rising per capital income, more     U.S. firms must aggressively
  women in the work-force, and        solicit new business and establish
  increasing foreign investment are   in-country sales and servicing
  driving the demand for processed    infrastructure.
  foods.                              

  Raw materials for the industry      U.S. exporters still must comply
  imported from the U.S. by Mexican   with all sanitary and phytosanitary
  food processors are subject to less requirements, which are frequently
  stringent labeling requirements.    modified.

  Mexico's domestic production of     Imported products are relatively
  milk powder, lactose and sweet      more expensive and take longer to
  whey, poultry, red meat, cocoa,     arrive.
  grains and flour, canned fruits,    
  sugar, cereals and pet food cannot  
  meet domestic demand. (Source:      
  Bancomext)                          

  Mexican processors view U.S.        Strong competition from local
  ingredients such as red meat, pork, producers and Asian and European
  dairy, poultry and other products   suppliers.
  as having high quality.             
  ----------------------------------- -----------------------------------

##### SECTION II. ROAD MAP FOR MARKET ENTRY

A. OVERVIEW

Because of the personal nature of conducting business in Mexico, U.S.
companies wishing to serve the food processing sector must establish
strong relationships with buyers. The question is: how to build those
relationships? U.S. suppliers have essentially two options.

1.  *Sell through a Mexican distributor/representative.* For low-volume
    or perishable products, Mexican food processors may insist on
    purchasing from a local supplier. Thus, the U.S. company should
    consider a Mexican distributor of similar but non-competitive
    products. The rep may act merely as a sales agent taking orders for
    product shipped directly, or may also serve as importer who stocks
    and distributes the product through its own sales force.

2.  *Establish a Mexican sales subsidiary.* Foreign firms with higher
    sales volume frequently have their own representative offices in
    Mexico, providing sales support and/or warehousing with distribution
    services.

A good first step for U.S. suppliers is to visit Mexico and meet with
potential customers and distributors. Visiting with buyers for food
processors accomplishes several things. First, it gives the U.S. company
a general feel for the market. Second, it allows them to identify
specific needs. Third, it will tell them whether the market is worth
pursuing. Finally, they can investigate the best method to distribute
their product and ask buyers for recommendations of good distributors.

U.S. suppliers are also advised to attend a trade show in Mexico. Mexico
does not host an event focusing specifically on servicing the food
processing sector. The Expo Carne (Meat Expo) show, however, is an
excellent venue for identifying opportunities in the meat processing
market and gauging the competition. This show, which is held every other
March in Monterrey, is the largest of its kind in Latin America.
Similarly, MexiPan (Bread Expo, every other September, next in 2004)
treats the baked goods market and Confitexpo (Candy Expo, every July in
Guadalajara) the candy manufacturing market. Attending a show allows
U.S. firms to simultaneously investigate the market, meet with buyers,
and interview potential distributors. A trip can be combined with
interviews set up by the U.S. Agricultural Trade Office, U.S. Commercial
Service, or one of 30 U.S. state representative offices.

##### B. MARKET STRUCTURE

The vast majority of raw materials used by food processors are purchased
directly from the producer. Grupo Herdez (canned goods and sauces),
Unilever (vegetable oil and ice cream), Grupo Modelo (beer), Jugos del
Valle (non-alcoholic beverages), and Ricolino (candy) reported that they
purchase approximately 80 percent of their raw materials this way. Most
companies interviewed prefer to deal with the local representatives of
foreign raw material suppliers.

**Distribution and Transportation**

The first step towards distributing in Mexico is getting the product
across the border. Since the largest Mexican markets are located in the
interior of the country, ground transportation is the most logical
option for delivery. The Mexican national railway is antiquated,
although recent privatization will increase its usage for bulk
shipments. Maritime transportation of bulk commodities may be considered
for delivery to Veracruz or Cancun (east coast) or Manzanillo (west
coast). Bimbo, for example, imports wheat from the United States that is
shipped to Cancun and is then transported by truck to its main
processing plants.

Trucking companies cannot bring merchandise directly from the United
States to Mexico. A U.S. trucking company drives the shipment to the
border and transfers its trailer to a Mexican rig. The best way to ship
by truck is to use an internationally bonded carrier that has
relationships with Mexican truckers. Thus, U.S. exporters typically are
only responsible for delivering to the border where the importing
company takes care of transporting the goods to the processing plant.

United States

Mexico

Mexican food processors consider several factors when deciding between
domestic and imported raw materials. Transportation costs and potential
delays are chief among these. Also, because Mexico's climate is often
hot and varied, storage and refrigeration costs are important
considerations.

##### C. COMPANY PROFILES

Nine individual products accounted for approximately 65 percent of the
total food processing production value: Soft drinks and non-alcoholic
beverages (18 percent), beer (10 percent), packaged milk (seven
percent), sugar products (six percent), vegetable oil and shortening
(five percent), animal feed (five percent), breads and baked desserts
(five percent), corn-based snacks (five percent) and red meat and
poultry (three percent).

The following table provides detailed information on some of the largest
processors in Mexico.

+----------------+----------+------+--------+------------------+------+
| Company        | Industry | S    | E      | Production       | Proc |
|                |          | ales | nd-Use | Location         | ure- |
|                |          |      | C      |                  | ment |
|                |          | 2002 | hannel |                  |      |
|                |          |      |        |                  |      |
|                |          | (in  |        |                  |      |
|                |          | 000s |        |                  |      |
|                |          | USD) |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Agro           | P        | 350  | Export | Jalisco          | NA   |
| Industrial     | rocessed |      |        |                  |      |
| Exportadora,   | fruit    |      |        |                  |      |
| S.A. de C.V.   | and      |      |        |                  |      |
|                | ve       |      |        |                  |      |
|                | getables |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Alfa, S.A. de  | red      | 5,   | Retail | Nuevo Leon (2)   | Di   |
| C.V.           | meat,    | 300; |        | (HQ), San Luis   | rect |
| (holding):     | poultry, | 100  |        | Potosi,          |      |
| Sigma          | dairy,   |      |        | Chihuahua,       |      |
| Alimentos S.A. | prepared |      |        | Jalisco (2),     |      |
| de C.V.        | and      |      |        | Hidalgo, Mexico  |      |
|                | frozen   |      |        | City; Total: 8   |      |
|                | meals    |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Bafar    | red      | 53   | Retail | Chihuahua (HQ),  | Di   |
| S.A. de C.V.   | meat,    |      |        | Cd. Obregon;     | rect |
|                | poultry, |      |        | Sonora; Total: 2 |      |
|                | and      |      |        |                  |      |
|                | dairy    |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Industrias     | tobacco, | 1    | R      | Total: 400       | Di   |
| Bachoco        | poultry, | ,100 | etail, |                  | rect |
|                | red meat |      | HRI    |                  | &    |
|                | and eggs |      |        |                  | Bro  |
|                |          |      |        |                  | kers |
+----------------+----------+------+--------+------------------+------+
| Grupo Mac Ma   | prepared | 18   | Retail |                  | NA   |
|                | gourmet  |      |        |                  |      |
|                | meals,   |      |        |                  |      |
|                | cookies  |      |        |                  |      |
|                | and      |      |        |                  |      |
|                | co       |      |        |                  |      |
|                | nfection |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Qualtia        | red      | NA   | Retail | Nuevo Leon       | Di   |
| Alimentos S.A. | meat,    |      |        | (HQ);Total: 3    | rect |
| de C.V.        | poultry  |      |        |                  |      |
|                | products |      |        |                  |      |
|                | and      |      |        |                  |      |
|                | dairy    |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Corvi    | co       | 1    | Retail | Mexico City      | Di   |
|                | nfection | ,400 |        | (HQ); Total: 4   | rect |
+----------------+----------+------+--------+------------------+------+
| Grupo          | dairy    | NA   | Retail | Nuevo Leon,      | Di   |
| Industrial     |          |      |        | Coahuila (HQ)    | rect |
| Lala S.A. de   |          |      |        | Durango (4);     |      |
| C.V.           |          |      |        | Total: 7         |      |
+----------------+----------+------+--------+------------------+------+
| Ragasa         | oilseed  | NA   | Retail | Nuevo Leon (2)   | Di   |
| Industrias     |          |      | &      | (HQ),            | rect |
| S.A. de C.V.   |          |      | Proc   | Tamaulipas;      |      |
|                |          |      | essors | Total: 4         |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Minsa    | corn     | 202  | Retail | Edo de Mexico    | NA   |
|                | flour,   |      | and    | (HQ), Sinaloa ,  |      |
|                | t        |      | Proc   | Coahuila,        |      |
|                | ortillas |      | essors | Jalisco,         |      |
|                | and      |      |        | Veracruz,        |      |
|                | other    |      |        | Chiapas; Total:6 |      |
|                | products |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Bimbo    | con      | 4    | Retail | Total: 44        | Di   |
| S.A. de C.V.   | fection, | ,200 |        |                  | rect |
|                | baked    |      |        |                  |      |
|                | goods    |      |        |                  |      |
|                | and      |      |        |                  |      |
|                | snacks   |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| PepsiCo Inc    | snack    | NA   | Retail | Gamesa: Nuevo    | Di   |
| (holding):     | food     |      |        | Leon (2)         | rect |
| Gamesa S.A. de |          |      |        | (HQ);Total: 8    |      |
| C.V.; Sabritas |          |      |        |                  |      |
| S.A. de C.V.   |          |      |        | Sabritas:Total:  |      |
|                |          |      |        | 7                |      |
+----------------+----------+------+--------+------------------+------+
| Grupo La       | baked    | 281  | Retail |                  | NA   |
| Moderna S.A.   | goods    |      |        |                  |      |
| de C.V.        | and      |      |        |                  |      |
|                | wheat    |      |        |                  |      |
|                | flour    |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Nacional de    | snack    | NA   | Retail | Nuevo Leon (HQ); | Di   |
| Alimentos y    | food     |      |        | Total: 1         | rect |
| Helados SA de  |          |      |        |                  |      |
| CV (Botanas    |          |      |        |                  |      |
| Bokados)       |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Nutrisa        | Health   | 29   | Retail |                  | Di   |
|                | foods    |      |        |                  | rect |
|                | and      |      |        |                  |      |
|                | snacks   |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Jugos del      | fruit    | 370  | Retail | Edo. de Mex,     | Di   |
| Valle S.A. de  | juice    | \*\* |        | Mexico City      | rect |
| C.V.           |          |      |        | (HQ), Nuevo      | &    |
|                |          |      |        | Leon, Zacatecas, | Bro  |
|                |          |      |        | Baja California, | kers |
|                |          |      |        | Veracruz; Total: |      |
|                |          |      |        | 8 Mexico, 1      |      |
|                |          |      |        | Brazil           |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Herdez   | 400      | 471  | R      | Ensenada,        | NA   |
|                | prod.-   |      | etail, | Yavaros, S.L..P. |      |
|                | canned   |      | HRI    | (2), Celaya,     |      |
|                | fruit    |      |        | Mexico DF (2),   |      |
|                | and      |      |        | Cuernavaca,      |      |
|                | veg.,    |      |        | Veracruz,        |      |
|                | pasta,   |      |        | Chiapas; Total:  |      |
|                | sauces,  |      |        | 10               |      |
|                | etc.     |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo          | Refined  | 37   | Retail | Mexico City      | NA   |
| Azucarera de   | sugar    |      |        | (HQ), Jalisco ,  |      |
| Mexico         | and      |      |        | Michoacan,       |      |
| (holding       | honey    |      |        | Veracruz (2),    |      |
| company)       |          |      |        | Tabasco; Total:  |      |
|                |          |      |        | 5                |      |
+----------------+----------+------+--------+------------------+------+
| Fomento        | a        | 5,   | Retail | Nuevo Leon       | Di   |
| Economico      | lcoholic | 500; | & Food | (HQ);Total: 6    | rect |
| Mexicano, S.A. | drinks   | 2    | S      |                  | &    |
| de C.V.        |          | ,100 | ervice |                  | Dist |
| (FEMSA)        |          |      |        |                  | ribu |
| (holding):     |          |      |        |                  | tors |
| Cerveceria     |          |      |        |                  |      |
| Cuauhtemoc     |          |      |        |                  |      |
| Moctezuma      |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Modelo   | a        | 3    | Retail | Zacatecas ,      | Di   |
|                | lcoholic | ,700 | & Food | Coahuila ,       | rect |
|                | drinks   |      | S      | Sonora, Sinaloa, |      |
|                |          |      | ervice | Jalisco, Oaxaca, |      |
|                |          |      |        | Mexico City      |      |
|                |          |      |        | (HQ); Total: 7   |      |
+----------------+----------+------+--------+------------------+------+
| Grupo          | soft     | 1    | Retail | Tamaulipas (HQ); | Di   |
| Continental    | drinks   | ,000 | & Food | Total: 17        | rect |
| (holding)      |          |      | S      |                  |      |
|                |          |      | ervice |                  |      |
+----------------+----------+------+--------+------------------+------+
| Pepsico        | soft     | 329  | Retail | Guadalajara,     | Di   |
| (holding):     | drinks   |      |        | Morelia, Uruapan | rect |
| Grupo de       |          |      |        | and Celaya       |      |
| Embotelladoras |          |      |        |                  |      |
| Unidas         |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Embotelladoras | soft     | 1    | Retail | Nuevo Leon (2)   | Di   |
| Arca           | drinks   | ,400 | & Food | (HQ); Total:18   | rect |
| (holding):     |          |      | S      |                  |      |
|                |          |      | ervice |                  |      |
+----------------+----------+------+--------+------------------+------+
| Gruma S.A. de  | corn &   | 2    | Proc   | Nuevo Leon (HQ), | Di   |
| C.V.           | wheat    | ,000 | essing | Total: 17;       | rect |
| (holding):     | flour,   | ;    | Ind. & | Total: 9; USA:   | &    |
| GIMSA S.A. de  | t        | 491; | R      | 13               | Dist |
| C.V., Molinera | ortillas | 14   | etail; |                  | ribu |
| de Mexico S.A. |          | 6\*; | Bakery |                  | tors |
| de C.V., Gruma |          | 7    | Ind    |                  |      |
| Corp.          |          | 75\* | ustry, |                  |      |
|                |          |      | Retail |                  |      |
|                |          |      | & HRI  |                  |      |
+----------------+----------+------+--------+------------------+------+
| PepsiCo Inc    | co       | NA   | Retail | Total: 1         | Di   |
| (holding):     | nfection |      |        |                  | rect |
| Sonric's       |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Grupo Sanborns | bakery   | 1,   | Retail | Total: 123       | Di   |
| S.A. de C.V.   | products | 800; | & Food |                  | rect |
| (holding):     |          | 74\* | S      |                  | &    |
| Controladora y |          |      | ervice |                  | Dist |
| Administradora |          |      |        |                  | ribu |
| de Pastelerias |          |      |        |                  | tors |
| S.A. de C.V.   |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Fomento        | soft     | 5,   | Retail | Total: 8         | Di   |
| Economico      | drinks   | 450; | & Food |                  | rect |
| Mexicano, S.A. |          | 1    | S      |                  |      |
| de C.V.        |          | ,800 | ervice |                  |      |
| (FEMSA)        |          |      |        |                  |      |
| (holding):     |          |      |        |                  |      |
| Coca Cola      |          |      |        |                  |      |
| FEMSA          |          |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Nestle de      | Pet      | NA   | Retail | Edo. de Mexico,  | Di   |
| Mexico         | food,    |      |        | Queretaro,       | rect |
|                | coffee,  |      |        | Tlaxcala,        |      |
|                | cereals, |      |        | Cuautepec,       |      |
|                | ice      |      |        | Chiapas,         |      |
|                | cream,   |      |        | Jalisco, Puebla, |      |
|                | powdered |      |        | Mexico City (HQ) |      |
|                | milk,    |      |        | , Monterrey;     |      |
|                | con      |      |        | Total: 16        |      |
|                | fection, |      |        |                  |      |
|                | etc.     |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+
| Unilever de    | Ice      | NA   | Retail | Edo de Mex,      | Mo   |
| Mexico         | Cream,   |      |        | Mexico City      | stly |
|                | ma       |      |        | (HQ), Morelos;   | Di   |
|                | rgarine, |      |        | Total: 3         | rect |
|                | sauce,   |      |        |                  |      |
|                | v        |      |        |                  |      |
|                | egetable |      |        |                  |      |
|                | oil      |      |        |                  |      |
+----------------+----------+------+--------+------------------+------+

\* Figures from 2001, \*\*Figures from 2000; HQ = Headquarters

Source: Bolsa Mexicana de Valores and Direct Contacts.

##### D. SECTOR TRENDS

**Foreign Direct Investment**

Between 1999 and 2002, \$3.6 billion in foreign direct investment (FDI)
flowed into 635 of Mexico's food, beverage, and tobacco firms. Of these,
the United States invests in 312 companies, or 56.5 percent of the
total. Regarding the number of firms with foreign investors, 15.3
percent are food processors, 14.5 percent are dedicated to soft drinks,
7.1 percent prepare bottled fruits and vegetables and 5.3 percent
cultivate other products.

Tobacco, soft drink, cream/butter/cheese, and beer processors in Mexico
received 38.5 percent, 13.8 percent, 6.7, and 5.7 percent respectively
of total FDI in the processed food sector. According to the Secretary of
the Economy statistics, 20 percent of processed food companies account
for 67 percent of FDI within the sector.

Some of the larger companies with foreign investment include: Grupo
Modelo (35 percent Anheuser Busch); Jerome Mesoro (Jerome Mesoro, USA);
Harinera la Espiga (affiliated with General Mills); Gamesa (100%
Pepsico); Agroindustrias del Noroeste (Smithfield Foods); Carroll\'s
Foods de Mexico S.A. de C.V. (Carroll\'s Foods, Inc); Farmland
Industrias, SA (Farmland, Kansas City, MO); Tyson de Mexico, S.A. de
C.V. (Tyson USA); Delimex de Mexico S.A. de C.V. (Heinz Corporation);
Gollek Interamerica, S. de R.L. de C.V. (Kellog\'s Company); Grupo
Herdez, S.A. de C.V. (McCormick Inc. / Hormel Foods, USA); Grupo La
Moderna, S.A. de C.V. (Miller Milling Co.); J.M. Smucker de Mexico, S.A.
de C.V.; Kellogg de Mexico, S.A. de C.V. (Kellogg Company); Kraft Foods
de Mexico, (Nabisco) S. de R.L. de C.V. (Kraft Foods North America);
Laboratorios Griffith de Mexico, S.A. de C.V. (Laboratorios Grifith
Corporate y Grifith Inc., USA); Pillsbury Mexico, S.A. de C.V.;
Productos del Monte, S.A. de C.V. (Conagra Grossir and Products); Sana
International, S. de R.L. de C.V. (J.R. Simplot); Molinos Azteca, S.A.
de C.V. (ADM); Hershey de Mexico S.A. de C.V. (Hershey Foods); La Corona
S.A. de C.V. (Newbridge Latin American); Sabritas, S.A. de C.V.
(Pepsico); Tecnica Mexicana de Alimentacion S.A. de C.V. (Prisma, USA);
Tutsi, S.A. de C.V. (Tootsie Roll Industries Inc.).

**Export and Plants Abroad**

Following are some of the principal Mexican companies with significant
exports and foreign manufacturing operations:

-   Grupo Bimbo (Bimbo Bakeries USA) operates 17 plants in California,
    Texas, and Ohio as well as facilities in Latin America.

-   Grupo Industrial Maseca (Gruma Corporation, Irving, Texas) produces
    tortillas and tortilla flour in the U.S. through two companies:
    Azteca Milling (five plants producing tortilla flour) and Mission
    Foods (14 plants producing tortillas, chips, and snacks).

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-   Jugos del Valle has one production plant in Brazil, which represents
    approximately six percent of the company's sales. Seventeen percent
    of annual sales are exported.

-   Grupo Modelo has a malting plant in the United States; all other
    production sites are in Mexico. Twenty five percent of sales
    exported.

-   Ricolino, the confection line of Grupo Bimbo, has one plant in the
    United States and another in the Czech Republic.

-   Grupo Azucarera de Mexico exports at least seven percent of its
    sugar production.

-   Grupo Herdez exports seven percent of the company's sales.

-   Nestle de Mexico has 16 plants in the country, and 450 production
    sites worldwide. Seven percent of Nestle de Mexico production is
    exported.

**Consumption Trends**

Following are some of the more important trends affecting processed food
production.

-   *Quick and easy food.* According to INEGI, more women are working
    and comprised approximately 38 percent of the formal workforce
    in 2002. As more women are employed, their families will eat out
    more often and will turn to easy meal options.

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-   *Healthy and low-calorie food consumption is increasing*. Most
    processors, including Nestle de Mexico and Grupo Herdez, confirm
    that consumers are more health-conscious. But many other companies
    commented that Mexicans have been slow to demand low-fat foods on a
    major scale.

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-   *Frequency of eating out.* According to ANTAD (the Association of
    Retail Stores), 39 percent of Mexicans eat out no more than once per
    month.

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-   *Flavors.* According to Mane, a snack food distributor, there is a
    worldwide tendency towards "exotic" (Asian, Indian, Tex-Mex, etc.)
    snack foods. Mexico continues to appreciate the lime and chile
    combination on snack foods, whether salty or sweet.

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-   *Changing beer consumption.* Dark beers and ales have grown in
    popularity over the past year, but industry experts feel that this
    trend is temporary.

**Industry Trends**

Following are some of the trends affecting the processed food industry.

-   *Growth in the market in general.* Mexico's food processing sector
    has been expanding at a brisk pace of eight percent per year over
    the past three years.

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-   *Multi-grain/wheat bread.* Multi-grain bread production, mostly from
    small and mid-sized bakeries, increased from 78,000 tons in 1999 to
    115,000 tons in 2002, a 47 percent increase. According to INEGI,
    annual domestic production of wheat bread/wholemeal bread has grown
    by more than 35,000 tons between 1999 and 2002.

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-   *Sugar use will affect production location.* Foods that use sizeable
    quantities of sugar will increasingly be manufactured domestically,
    replacing imports. Because of the high cost of sugar and cocoa, the
    confection industry has been focusing on developing and increasing
    sales of sweets that are cheaper to manufacture such as
    marshmallows, tamarind and spicy candies. For example, La Abuelita
    is using cocoa powder instead of solid bars to make their packaged
    hot chocolate.

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-   *Foreign investment*. Although foreign investment dropped
    significantly in 2002, the food processing industry remains one of
    the principal sectors for foreign investment receiving \$3.4 billion
    from 1999 to 2002.

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-   *Joint ventures*. Sigma Alimentos has established a subsidiary in
    alliance with ConAgra Foods for prepared meals using the brand names
    Banquet, Sugerencias del Chef, El Cazo Mexicano and Menu del Sol.
    Sigma also has distribution rights for Oscar Mayer products.

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-   *The Hispanic market in the United States has boosted Mexico's
    exports*. The demand of the large Mexican-American population across
    the border for familiar processed foods has boosted production in
    Mexico.

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-   *Improved packaging.* The canned foods, snack foods, beverage and
    baked goods industries are focusing attention on modernizing
    packaging to make products easier to consume and longer lasting.

-   *Adapting to regional tastes.* Unilever adapts its products
    according to the region in which the foods are being marketed. For
    example, foods sold in Northern Mexico have a higher salt content
    than in the South and Center of the country.

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-   *Potential for exports of Mexican foods to the United States to
    serve a growing Mexican market.* Mexican food processors are taking
    advantage of the demand for Mexican food among Mexican-American and
    non-Latin consumers alike. While this trend increases production in
    Mexico, the effects have not yet been fully realized in snack foods
    and baked goods since large Mexican producers such as Bimbo have
    facilities in the U.S.

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-   *Nutrition is important.* Most producers indicate that nutrition is
    important to consumers. Others commented that healthy foods have
    been slow to take hold among Mexican consumers. Virtually all of the
    industry representatives interviewed stated that their products have
    been moderately or heavily incorporating different types of
    additives such as vitamins, calcium and protein.

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-   *Some imported goods are being replaced by growing domestic
    production*. It is not cost effective to import some relatively
    inexpensive products, such as snack foods, because of high freight
    costs. Thus, these products are increasingly produced locally.

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-   *Demand for high quality ingredients.* Although Mexican food
    processors tend to be price-sensitive, they also demand high quality
    ingredients for increasingly sophisticated products.

##### SECTION III. COMPETITION

Domestic suppliers are the biggest competitors to U.S. exporters of
ingredients to Mexico's food processing industry. Regarding imports, the
competition varies depending on the wide variety of products used as
food ingredients.

Following is a summary of the main competitors in their respect
categories:

##### ***Meat***

-   Top suppliers of imports: United States (81 percent), Canada (12
    percent), Australia (3 percent).

-   Sigma Alimentos is the country's number one producer of processed
    red meat, poultry meat and frozen food products.

-   Virtually all of Sigma Alimentos's poultry inputs are imported from
    the United States; their red meat inputs are imported from the
    United States or are domestically produced.

-   Mexican production of sausages and cold cuts is dominated by Sigma
    Alimentos, Qualtia and Bafar which together account for 75 percent
    of total domestic production.

##### ***Dairy***

-   Top suppliers of imports: United States (36 percent), New Zealand
    (25 percent), Canada (eight percent).

-   The yogurt industry is dominated by European and Mexican firms: the
    French company, Danone, commands 35 percent of the national market,
    while Nestle (Swiss) has 18 percent followed by the Mexican
    companies Sigma Yoplait (15 percent), Alpura (12 percent) and others
    (20 percent).

-   Unilever (Dutch and British), the maker of Holanda, Bing and Magnum
    brands, has approximately 60 percent of the ice cream market
    followed by Nestle (Swiss) which holds another 25 percent.

-   The Mexican companies Lala (15 percent UHT, 55 percent fresh),
    Alpura (45 percent UHT, 20 percent fresh), Parmalat (12 percent
    UHT), Sello Rojo (10 percent fresh) and San Marcos (8 percent fresh)
    dominate the sale of fresh and UHT milk.

-   Chilchota, Chen, Sigma Alimentos and Lamesa are the leading
    producers of cheese. Cheese production continues to be largely
    artisan, and consumer tastes vary by region, making it difficult for
    producers to achieve nationwide distribution. Mexico produces
    essentially no hard cheese.

##### ***Confection***

-   Top suppliers of sugar imports: United States (77 percent), Ecuador
    (4 percent), Spain (3 percent). Top suppliers of cocoa imports:
    United States (55 percent), Canada (7 percent), Argentina (6
    percent).

-   Nestle (Swiss), Hershey (U.S.), Joyco (Spain) and Tutsi (U.S.) are
    the principle foreign companies that process chocolates and sweets
    in Mexico. According to the National Association of Chocolate, Candy
    and Related Product Manufacturers (*Asociacion Nacional de
    Chocolates, Dulces y Similares*), Mexican companies such as Grupo
    Lorena, Turin, Larin and Grupo Vera hold approximately 35 percent of
    the market share.

-   There continues to be considerable artisan production of sweets that
    are influenced by regional tastes.

### Baked Goods

-   Top suppliers of imports: United States (56 percent), Ireland (nine
    percent), Netherlands (six percent).

-   Although Grupo Bimbo continues to have a near monopoly on the
    production of white bread, multi-grain breads made by smaller
    bakeries are making their way onto the retail shelves. Several
    fairly new brands such as Filler (Mexican), Delibrot (Mexican) and
    Taifelds have achieved rapid customer acceptance.

-   CANAINPA (Baked Goods Chamber of Commerce) and U.S. Wheat Associates
    concur that there is sizeable room for growth and for companies to
    use multi-grain formulas for breakfast bars and baking mixes.

-   According to the 1999 INEGI Industrial Census there are more than
    15,000 baked goods producers that have two or fewer employees. Small
    and medium sized bakeries dominate production of non-sliced bread.

##### ***Snack Foods***

-   Imports are still dominated by the United States, although they
    dropped by 52 percent in 2002.

-   Mexico has strong domestic production of snack foods and a price
    advantage over imports. Domestic production value grew 27 percent
    from 1999 to 2002.

-   Healthy snack food selection in Mexico is limited, but there will
    likely be growth in this area.

##### ***Beverages***

-   Top suppliers of imports: United States (46 percent), Spain (15
    percent), France (eight percent).

-   Coca-Cola and Pepsico tend to dominate the sale of soft drinks in
    Mexico, but the country does have several national soft drink
    brands: Jarritos, Sidral Mundet, Sangria Senorial.

-   Fruit juice production is divided between Jugos del Valle (25
    percent), Jumex (25 percent) and Boing (12 percent).

-   Grupo Modelo (65 percent) and Cuauhtemoc (35 percent) dominate beer
    sales almost entirely.

##### ***Flour and Grains***

-   Top suppliers of flour imports: United States (91 percent), France
    (3 percent), Spain (3 percent). Top suppliers of grains imports:
    United States (77 percent), Canada (9 percent), France (3 percent).

-   Mexico imports practically no milled flour. The country has 93 mills
    supplying the processed food and retail sectors.

-   According to the U.S. Wheat Board, half of the wheat consumed in the
    country is domestic, while the remainder is imported from the United
    States (70 percent) or through the Canadian Wheat Board (30
    percent).

-   Almost all of the yellow corn consumed in Mexico originates from the
    United States while white corn is nearly entirely domestic. Corn
    importers must obtain a permit to buy yellow corn.

-   According to Grupo Modelo, Mexican breweries are encouraging Mexican
    barley production by only importing when local production has been
    exhausted.

##### SECTION IV. BEST PRODUCT PROSPECTS

PRODUCTS PRESENT IN THE MARKET THAT HAVE GOOD SALES POTENTIAL

  ------------------------- -------------------- ------------------------
  \- Red meat               \- Pepperoni         \- Liquid cheese

  \- Pork meat              \- Sweet whey        \- Pizza crust

  \- Beef brisket           \- Milk powder       \- Soybean

  \- Turkey meat            \- Butter            \- Soybean meal

  \- Chicken meat           \- Lactose           \- Soybean oil

  \- Marinated poultry      \- Lard              \- Fruit flavored drinks

  \- Mechanically de-boned  \- Chicken fat       \- Isolates
  poultry                                        

  \- Chicken and turkey     \- Sunflower         \- Dry soup preparations
  parts                                          

  \- Italian sausage        \- Wheat flour       \- Doughnuts

  \- Raw turkey             \- Marshmallow       \- Concentrates

  \- Shortening             \- Yogurt            \- Multi-grain baked
                                                 goods

  \- Mixed fruit juice      \- Breakfast bars    \- Mixed and salted nuts

  \- Spicy candy            \- Ice cream bars    

                                                 
  ------------------------- -------------------- ------------------------

PRODUCTS NOT PRESENT IN SIGNIFICANT QUANTITIES BUT WHICH HAVE GOOD SALES
POTENTIAL

\- Malt

\- Spices

\- Artificial and natural seasonings and flavorings

\- Iced tea and iced coffee drinks

\- Cookie dough and baking mixes

\- Variety flavored carton ice cream

PRODUCTS NOT PRESENT OR WHOSE EXPORT TO MEXICO IS PARTICULARLY DIFFICULT
BECAUSE OF SIGNIFICANT BARRIERS

Most U.S. food and agricultural products became duty free on January 1,
2003 as the ten-year implementation period for the North America Free
Trade Agreement (NAFTA) came to an end. However, the potential increase
in imports associated with this opening resulted in negotiations to
contain U.S. exports of certain products. Thus, some products still face
quotas or other barriers: fresh poultry, beef carcasses, bone-in meat,
boneless beef cuts, prime beef cuts, fresh potatoes, sugar, cocoa and
cacao, white corn and high fructose corn syrup, among others.

##### SECTION V. CONTACT INFORMATION[^2]

U.S. Government and Trade Association Contacts:

  ----------------- -------------- ------------------------ ----------------------------
  Organization      Contact        Address                  Telephone/Fax/E-mail/Web

  U.S. Agricultural Dan Martinez;  Blvd. Diaz Ordaz No. 140 Tel 52 (81) 8333 5289; Fax
  Trade Office --   Director       Torre II Piso 7; Col.    52 (81) 8333 1248;
  Monterrey                        Santa Maria; 64650       atomonterrey@usda.gov;
                                   Monterrey, N.L.          www.fas.usda.gov

  U.S. Agricultural Bruce Zanin;   Jaime Balmes 8-201; Col. Tel 52 (55) 5280 52 91; Fax
  Trade Office --   Director       Los Morales Polanco;     52 (55) 5281 6093;
  Mexico City                      11510 Mexico City        atomexico@usda.gov,
                                                            www.fas.usda.gov,
                                                            www.fas-la.com/mexico

  American Peanut   Sarah Gordon;  Cerrada de la Otra Banda Tel 52 (55) 5554-5419; Fax
  Council           Golin Harris   #58-4; Tizapan San       52 (55) 5554-7075;
                                   Angel; 01090 Mexico City ma_cristina@infosel.net.mx

  American Soybean  Mark Andersen; Jaime Balmes 8-201; Col. Tel 52 (55) 5281 0120; Fax
  Association       Director       Los Morales Polanco;     52 (55) 5281 0174;
                                   11510 Mexico City        mwandersen@soyabean.com.mx

  Grupo PM S.A. de  Luis Moreno;   Mercurio 24; Col.        Tel 52 (777) 316 7370; Fax
  C.V.              Director       Jardines de              52 (777) 316 7369;
                                   Cuernavaca;Cuernavaca,   luisf@grupopm.com
                                   Morelos                  

  Marketing         Raul           San Juan de los Lagos \# Tel 52 (55) 5362 7407; Fax
  Solutions         Caballero;     52 Santa Monica; 54050   52 (55) 5362 6724;
                    Director       Naucalpan, Edo de Mx     mktsolut@mx.inter.net

  National          German         Jaime Balmes 8-201; Col. Tel 52 (55) 5281 6080; Fax
  Renderers         Davalos;       Los Morales Polanco;     52 (55) 5281 6085;
  Association       Director       11510 Mexico City        nramex@compuserve.com.mx

  National          Jose Luis      Jose Ma. Rico #212-702;  Tel 52 (55) 5524 8273; Fax
  Sunflower         Escamilla      Col. Del Valle; 03100    52 (55) 5534 8997;
  Association                      Mexico City              escgrain@avantel.net

  USA Poultry and   Jose Luis      Blvd. Diaz Ordaz No. 140 Tel 52 (81) 8333 7582; Fax
  Egg Export        Cruz; Director Torre II Piso 7; Col.    52 (81) 8333 1248;
  Council                          Santa Maria; 64650       luispo@prodigy.net.mx
                                   Monterrey, N.L.          

  U.S. Dairy Export Larry Solberg; Matanzas #733 Int C;     Tel 52 (55) 5119 0475; Fax
  Council           Director       Col. Lindavista; 07300   52 (55) 1997-5758;
                                   Mexico City              usdecmex@prodigy.net.mx

  U.S. Grains       Ricardo Celma; Jaime Balmes 8-201; Col. Tel 52 (55) 5282 0973; Fax
  Council           Director       Los Morales Polanco;     52 (55) 5282 0968;
                                   11510 Mexico City        rcelma@grains.org.mx

  U.S. Meat Export  Gustavo        Jaime Balmes 8-201; Col. Tel 52 (55) 5281-6100; Fax
  Federation        Castano;       Los Morales Polanco;     52 (55) 5281-6013 ;
                    Regional       11510 Mexico City        mexico@usmef.org
                    Manager                                 

  U.S. Rice         Adrian T.      Camino a los Pirules     Tel 52 (413) 235 0437; Fax
  Federation        Rivera;        18-B; Haciendas de Valle 52 (413) 228 0444;
                    Director       Verde Carretera a        mexico@bestapples.com
                                   Tlacote; 38160Apaseo el  
                                   Grande, Gto              

  U.S. Wheat        Mitch          Jaime Balmes 8-201; Col. Tel 52 (55) 5281 6560; Fax
  Associates        Skalicky;      Los Morales Polanco;     52 (55) 5281 3455;
                    Director       11510 Mexico City        mskalicky@uswheat.org
  ----------------- -------------- ------------------------ ----------------------------

[^1]: CCG selected approximately 70 categories of "food ingredients"
    from government statistics in determining the trade balance between
    the United States and Mexico.

[^2]: This report is for informational purposes only to assist exporters
    of U.S. produced food and agricultural products in their sales and
    promotional efforts in Mexico. The data in this report were
    collected from local trade and government sources and are not
    necessarily official U.S. Department of Agriculture (USDA) data.
    While every effort has been made to provide an accurate list of
    contacts, telephone and fax numbers change frequently in Mexico.
    Also, there may be other qualified firms in Mexico and the United
    States, and their exclusion from any lists or directories is
    unintentional. Neither the U.S. Agricultural Trade Office (ATO) or
    the USDA endorse any firm contained herein. U.S. exporters should
    take normal commercial precautions when dealing with any potential
    importer, including checking references.