Tate & Lyle
Carst and Walker
Mexico investments

PepsiCo and Nestle pump billions into Mexico despite new ‘sin food’ taxes

PepsiCo and Nestle have announced plans to invest $6-billion in Mexico as the lure of faster growth in Latin America’s second-largest economy trumps higher taxes on their products from soft drinks to pet food.

PepsiCo, the maker of Cheetos and Pepsi soda, said it will spend $5-billion in five years to expand its food and beverage business in Mexico, citing the nation’s growing middle class and opportunities for long-term growth.

Nestle, producer of Friskies and Purina, said it will invest $1-billion over the same period to build plants including a pet food factory in the central state of Guanajuato.

Mexico has embraced free trade policies in recent decades, and has drawn growing investment interest after President Enrique Pena Nieto made a landmark reform drive in his first year in office, pushing major telecommunications, energy, banking and tax legislation through a divided Congress.

The moves come just three weeks after Mexico applied a one peso per litre tax (R0.82) on sodas, an 8 percent tax on high-calorie foods and a 16 percent tax on pet food as part of a push to increase the government’s revenue base.

The new investments show companies like PepsiCo aren’t being deterred by the impact of the duties, with most passing on higher taxes to consumers, said Marisol Huerta, an analyst with Grupo Financiero Banorte SAB in Mexico City.

PepsiCo “still sees a firm consumer and a growing demand for their products,” Huerta said. The higher taxes “could affect volumes, but not revenue because, they’re selling at a higher price. The consumer will feel it, but most will probably absorb it.”

The announcements by PepsiCo and Nestle came at last week’s World Economic Forum annual meeting in Davos, where Mexican President Enrique Pena Nieto and Economy Minister Ildefonso Guajardo were courting foreign investors. Mexico is forecast to grow the fastest among the biggest economies in North and South American this year at 3.4 percent, more than 2.8 percent for the U.S., 2.3 percent for Canada and 2.1 percent for Brazil, according to the median forecast of analysts surveyed by Bloomberg.

Nestle will fund a new infant nutrition factory in the western city of Ocotlan and a petfood factory in Silao, the Vevey, Switzerland-based company said in a statement today. Chief Executive Officer Paul Bulcke said the investment will create 700 direct and 3,500 indirect jobs and increase the amount of raw materials purchased locally.

Emerging Markets

PepsiCo said increasing spending in Mexico is part of its strategy to invest in emerging markets, which accounted for 35 percent of net revenue in 2012. The investment in Mexico will create about 4,000 new jobs and will be focused on innovation, infrastructure, agriculture and community, PepsiCo CEO Indra Nooyi said in Davos.

“Mexico is an important market for PepsiCo and we believe there is tremendous opportunity for growth and expansion throughout the country,” PepsiCo Mexico President Pedro Padierna said in an e-mailed statement. “This investment reflects our confidence in Mexico’s future.”

Nestle said it planned to invest $1 billion in Mexico over five years, building two new factories and expanding a third in its sixth-biggest market.

The world’s No. 1 food maker said it would build an infant nutrition factory in Jalisco and a pet-food factory in Guanajuato, as well as expanding an existing cereal factory.

The investment would create 700 direct jobs, Nestle said. The Mexican factories will produce goods for the wider region.

Source: Bloomberg, Reuters

Caption: President Enrique Pena Nieto shakes hands with PepsiCo chairman and CEO, Indra Nooyi, and Nestle head, Paul Bulcke.

Bad news: Obesity in Mexico

  • Mexico has taken over from the US as the fattest nation on earth
  • Around 70% of Mexican adults are now classified as overweight
  • Diabetes affects one in every six adults
  • Only 10 percent overweight in 1989 – before fast food was widely available
  • The young and the poor are the worst-affected groups

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