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The economics of calories.

Please note that this article is about processed food only and does not include beverages of any type in the economic data.

The world’s population of roughly 7.28 billion consumed approximately US$4.9 trillion worth of processed foods in 2014. That equals to about US$673 per individual per year, but this amount varies wildly from several thousand dollars in developed countries to just a few dollars in the poorest economies.

According to IHS, a global forecasting firm, worldwide production and consumption of processed food will enjoy an impressive annual average growth rate of 7.6% during the next 5 years to reach approximately US$7.85 trillion in 2020.

If the population of the world rises to about 7.67 billion by that time, then the per capita consumption of processed food will leap to US$1,023 in 2020. So this is a hot industry to say the least, and yes, most of the growth of people and processed food production and consumption will be in the Asia –Pacific region.

In Mexico, processed food production reached US$138 billion in 2014. With a population of approximately 123 million, the per capita consumption of processed foods was US$1,122 which almost doubles that of the world’s. Production and consumption figures in Mexico are pretty much the same.

Mexico’s production forecast for 2020 is shown in Exhibit #2, and according to IHS, processed food will be at about US$179 billion by then, which is not as fast growing as the world’s, but still performs at a very healthy average annual growth rate of 4.5%.

The World Bank estimates that Mexico’s population will be close to 132 million in 2020, which would make the per capita production/consumption of processed food stretch to a level of US$1,356.

Mexico is the third largest producer of processed foods in the American Continent, behind the U.S. and Brazil. Over 800,000 workers are supported by the processed food industry in Mexico in manufacturing plants and logistics locations.

Mexico is the eighth biggest food processing country in the world and its output represents 12% of the manufacturing gross domestic product (GDP) and about 4% of Mexico’s total GDP.

The growth in demand of processed foods in Mexico can be attributed to factors such as a growing middle-class, available agricultural resources, low manufacturing costs, ample production capacity, increasing income levels and changing of life styles as more women enter the labor force reducing time to prepare natural meals at home.

Production of bakery products and tortillas lead with a 26.9% share, closely followed by the slaughter, packaging and processing of livestock, poultry and other edible animals with 25.8% share. In third place with a 10.6% share are dairy products.

The composition of the subsectors makes for myriad delectable stories. For example, the bakery and tortillas segment is served in one extreme by the largest bakery in the world, The Bimbo Group (US$14 billion in sales and 130,000 employees) and in the other end by literally hundreds of thousands of micro factories, Mom & Pop operations of bread and tortillas.

For the dairy sector, you will find two amusing stories in this issue of MEXICONOW: one about flatulent cows and the environment and another about the processed milk and derivative products value chain by Alpura, a leading dairy industry producer in Mexico.

And for the high end of food and innovation, see our zero calories story about METCO and its natural sweeteners like Svetia and Diabe-sugar.

An irresistible cake

Unequivocally, processed food is the industry where you will find the largest number of Mexican entrepreneurs, both in large scale operations as well as small and medium size firms.

Besides Bimbo which operates 170 factories in 22 countries across the globe, other large Mexican owned corporations include: Gruma (US$4 billion in sales, 20,000 employees, flour and tortillas), Bachoco (US$3 b/ 25,000 emp. / poultry products), Lala (US$3 b/ 35,000 /dairy), Sigma (US$4 b/ 33,000/ meats), Herdez (US$1 b / 6,000 / canned food), Bafar (US$600 million / 10,000 / meats) among a total of 20 Mexican companies with annual sales over US$500 million.

And as one can imagine, 123 million Mexicans with a relative good annual per capita income of about US$11,000 represent a strong gravitational force to attract foreign investment from multinationals, including the biggest in the world: Nestle (Switzerland), Danone (France), Unilever (U.K.) and an endless parade from the U.S. boasting Kraft, General Mills, Kellog, Heinz, PepsiCo, Mars, Campbell and many others.

Please see our two-page spread map in this article illustrating the location of operations of the main processed food manufacturers in Mexico.

According to Mexico’s Ministry of the Economy, there has been a total of US$16.4 billion worth of foreign direct investment (FDI) inflows to Mexico during 2004-2014 in the processed food sector.

You will notice in Exhibit#4 the unevenness of such inflows through the years, suggesting that, other than large isolated projects, many of the investments happened in years prior to 2004 as this is clearly a mature industry.

Interestingly and uncommonly enough, the U.S. is not the leader in FDI in Mexico’s processed food industry. The first place belongs to the Netherlands, led by Nestle, with a whooping US$14 billion total in the past 12 years, compared to Switzerland and the U.S. at about US$4.5 billion each.

The process of natural ingredients is of course a favorite of FDI as grains, seeds, oil, fats, fruits and vegetables are the segments with the lion’s share as shown in Exhibit# 5.

Bear in mind that, true of most industries but of particular importance to our subject matter, the ideal situation for a value chain is to have the closest location to both the raw materials and the customers.

It is not surprising then that most of the processing of food takes place in the southern states of Mexico (State of Mexico, Oaxaca, Puebla, Jalisco and Veracruz) where the most ingredients are available and where population has the highest density.

 

Butter or Margarine?

Undoubtedly, one of the main controversies about processed foods has to do with the power of multinationals over the processed food industry. This power involves their huge influence along the value chain, from the control and accumulation of seeds, grains and other raw materials to the manipulation of consumers’ tastes and preferences.

So who do you trust more for your toast spread, a cow or a chemist?

Why is such a high percentage of the population clinically obese and suffering from Type-2 diabetes in Mexico and the U.S.?

The answers, according to most experts, can be found in the fierce competition of multinationals for “stomach-share” of the consumers. This is something that has been going on for the last 35 years.

By design, processed food makers, particularly in the “junk-food” segment, try to optimize their products for addiction with sugar, salt and fat; they are always looking to hook the consumer with inexpensive and filling foods.

And countries like Mexico with a population of limited disposable income are easy prey. It’s not uncommon to see a construction worker having a real (sweetened) large coke and a white bread “salchicha torta” for lunch or a kid at school savoring his meal out of a Beef Taco Lunchable plastic container with a sweet soft drink, both lunches covering about 35% of the % Daily Value for both sugars and saturated fat.

In 2013, Mexico was declared the world’s leading country in terms of obesity among children and adults. The consequences are very severe including the need to spend 7% of the total health budget to treat obesity problems, not to mention the contribution of obese conditions to health fatalities.

So how do we fix this? Mexico’s federal government new tax on sweet drinks and foods of about 8% was only marginally effective in curbing consumption of sweets, but it did bring in millions in taxes for the treasury.

Probably better results have been obtained by the government’s eating educational campaigns and new food nutrition laws that target school children’s diet.

And there’s a tiny light of hope developing. Somehow, maybe aided by social media, a wellbeing trend, or just plain common sense, there is a flow of information that is increasing the interest in healthy foods in Mexico, as well as organic foods and more natural ingredients.

There are no statistics to back this up, but retailers talk about increases in sales of plain carrot snacks, natural calorie-free sweeteners, olive oil, organic eggs and fruits and many other healthy options.

But the race for healthy nutrition cannot be won without the help of multinationals, some of which have launched programs to promote the consumption of more healthful meals and beverages, and many have actually reduced the content of salt, sugar and fat in their products.

It is not easy, and it is probably impossible to unwind the addictive engineering of foods that multinationals have developed for decades.

Mexicans need a lot of things, but they certainly do not need a coke.

By Sergio L. Ornelas, Editor MEXICONOW

 

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