Market Monitor Food Mexico 2019

Following estimated domestic food sales growth of 6.7% in 2018, 6% sales growth is expected in 2019. The outlook for Mexico's food retail market remains positive, with average annual sales growth of more than 6% expected between 2019 and 2023. The mass grocery retail segment is fairly concentrated, with the four leading operators accounting for more than 60% of sales.

Mexican households continue to spend more than a quarter of their total spending on food and non-alcoholic drinks. Basic staples will remain a key component of the market, reflecting the large number of low-income households. However, steady economic growth and rising wages will support the expansion of a middle class with higher spending power.

The Mexican agriculture and food sectors are very much export-driven (exports amounted to USD 14.8 billion in 2018), with the US the main export market. The USMCA agreement replacing NAFTA is still subject to ratification in all three member states. Should this fail and trade disputes flare up again it could have a major impact on the industry, as Mexican food and agriculture exports to the US could be impacted by tariffs. At the same time, Mexico imports most of its dairy from the US, and another deterioration of the US-Mexican trade relationsship could encourage Mexico to boost production at home.

Should the USMCA agreement finally take effect after ratification it is expected that the economic impact on consumers and food supply chains will be relatively small and comparable to the status quo of a continuation of NAFTA.

Financing requirements and financial gearing are high in the food industry, and the willingness of banks to provide loans has encouraged additional investments. The maximum payment period ranges from 30 to 120 days, depending on the kind of products (perishable or non-perishable food products). Profitability of food businesses is generally high.

The insolvency level in the food industry continues to remain low, and no major increase is expected in 2020. Most overdue payments are due to administrative reasons or commercial disputes, mainly covering small amounts.

For the time being our underwriting stance for the food sector remains generally open for all main subsectors. The outlook for meat, dairy, beverages producers and food retail is positive, with steady sales growth expected in the short- and medium-term. We carefully monitor the economic policies and decisions under President Andrés Manuel López Obrador as well as the Mexican and US economic performance in general, and adapt our underwriting stance if necessary.