Economic Opening in Agriculture and Food

1. Economic Opening in Agriculture and Food • Differential growth rates in import and export sectors • Differential rates of opening in different sectors • Food manufacturing hindered by poor performance in agriculture • Limited infrastructure, including marketing and human capital • non-tariff barriers continue to distort trade

2. Structural Change • Limited role for government in economy • The market allocates resources • Mexican economy joins world economy • Increased competition • Reduction of subsidies • Privatization • individual initiative replaces state determination

3. Average CETE Rate

4. Comparative CETES and T-Bill Rates(Adjusted for Slippage of the Peso)

5. Foreign Investment in Mexico

6. Destination of Direct Foreign Investment(1994-1996)

7. Food Industry Share of Total Industry Output

8. Annual Growth of the Food Industry

9. Cumulative Monthly Imports of Meat

10. Bank Credit to Agriculture in Real Pesos

11. Why U.S. Investors Look to Foreign Markets • Mature domestic markets • Foreign markets offer: • - Faster growing economies • - Faster growing populations • - Attractive income/expenditure elasticities • Access to raw materials and/or inexpensive labor • Access to closed or restricted markets

12. Direct Foreign Investment Provides • Production technology • Commercial and financial technology • Access to international markets • Formation of human capital • Creates demand for inputs and services • Leads to formation of clusters

13. GLOBALIZATION AND DIRECT FOREIGN INVESTMENT THE MEXICAN EXPERIENCE

14. WHAT DO COMPANIES LOOK FOR IN A TARGET COUNTRY FOR DFI • Attractive domestic market • Qualified and inexpensive labor • Abundant natural resources • Transportation advantages -- export platform • Stable political situation • Tax and capital policies • Free flow of capital • Ease of exporting and importing

15. What the Mexican Food Industry Needs • Specialization • Technology • Financing • Economies of scale • "Merchandizing" • Product differentiation • "Niche" management • Brand loyalty • Price determination

16. Joint Ventures • THE MEXICAN PARTNER NEEDS • Capital • Technology • Markets • THE MEXICAN PARTNER OFFERS • Know-how for producing in Mexico • Knowledge of the Mexican market • Management of the distribution system

17. Bank Lending • Cost of credit is high • Money is still scarce in the banking system • Banks are somewhat gun shy about lending, having been burned over the last couple of years • Lending to food industry has been seen as a risky • Banks still emphasize guarantees over the quality of the business

18. Direct Foreign Investment by Country of Origin

19. Mexico’s Commercial Trade(Millions of Dollars)

20. Options Available to Mexican Companies in a Global Economy • Go out of business • Close down • Sell out • Entrench into a strong regional or niche market strategy • Grow into a national player

21. Why Should a Mexican Company Export • Develop market discipline • quality • reliance • understand competition • Generate foreign exchange • Manage market fluctuation risk