Market Integration
Sigma Alimentos
May 7,2004
1
Agenda



Precedents
━
Imports
━
Exports
Sigma Alimentos
━
Processed Meat
━
Yogurt
━
Cheese
━
Frozen Food
Opportunities
2
Agenda



Precedents
━
Imports
━
Exports
Sigma Alimentos
━
Processed Meat
━
Yogurt
━
Cheese
━
Frozen Foods
Opportunities
3
Precedents

During the eighties (1986) Mexico enters the global markets (GATT)

Mexico decides to enter in a Tri Lateral agreement
USA-Canada-Mexico
━

NAFTA (1994)
Mexico expands in a case by case its agreements with ROW:
━
Colombia and Venezuela (1995)
━
Israel (2000)
━
Costa Rica (1995)
━
━
Bolivia (1995)
Salvador, Guatemala and
Honduras (2001)
━
Nicaragua (1998)
━
Iceland, Norway, Liechtenstein
and Switzerland (2001)
━
Chile (1999)
━
Uruguay (2001)
━
European Union (2000)
4
Precedents

In 2003 the weighted average import tariff from trade
partners countries was 1.8%, and 16.1% for non trade
partners
Average
Weighted Average
18.4
16.1
5.4
2.0
FTA
4.8
1.8
Non FTA
Total
5
Precedents

Mexican exports have grown significantly from B$ 18.0 USD
(1980) to B$ 164.9 USD (2003), 10.1 % CAGR
Mexican Exports
(B$ USD)
200
160
120
80
40
0
80 82 84 86 88 90 92 94 96 98 00 02
6
Precedents

Also, Mexican imports have grown from B$ 21.1 USD
(1980) to B$ 170.6 USD (2003), 9.5 % CAGR
━
Most of the trade with NAFTA partner countries
Mexican Imports
(B$ USD)
200
160
120
80
40
0
80 82 84 86 88 90 92 94 96 98 00 02
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Agenda



Precedents
━
Imports
━
Exports
Sigma Alimentos
━
Processed Meat
━
Yogurt
━
Cheese
━
Frozen Foods
Opportunities
8
Sigma Alimentos

Producer and distributor of processed meats, yogurt,
cheese and frozen prepared foods

Sales of B$1.1 USD

15,000 people employeed

Owner of the largest
refrigerated distribution
network in Mexico

Leader in brands
9
Brands
10
Processed Meats

Leader in processed meats, 47% MS in a market worth
B$ 1.5 USD
━
Almost three times larger than next competitor
━
Leader in both mom & pop and supermarket channels
━
Customer orientation
━
Marketing orientation
━
Multiple brands strategy
11
Processed Meats


Main Raw Materials
━
Pork Meat
━
Turkey Thigh
━
Mechanically Separated Chicken and Turkey
The use of poultry meat started thirty years ago in the World’s
Processed Meat Industry, in Mexico at the beginning of the nineties
following
━
Global market and availability of raw materials
━
Development of new market segments
━
Consumer seeking variety, health and lower prices

Distribution agreement with Oscar Mayer in 1993

Started exports to USA Hispanics market in 2002
12
Yogurt


Introduced in 1994 as a franchise from French company
Sodima International
━
Technology
━
Marketing
Yoplait is the second brand in Mexico, 23% Market Share,
in a dinamic market worth approximately M$ 700 USD
━
Brand positioning
━
Product innovation
━
Leverage Sigma’s distribution network
13
Cheese

Large and very fragmented market

Entered this market 1995

Sigma’s growth in the last five years, 15% per year

━
Sales support
━
Brand image and advertising
━
Distribution network
Exports to Hispanic markets: Authentic Mexican fresh
cheeses
14
Frozen Foods


Anticipating the market and consumer tendencies in Mexico
and taking advantage of development of ethnic foods in the
US, Sigma entered into this market with a line of a mexican
frozen food products in 1997.
━
Developed a Frozen Food Distribution Network
━
Plant strategically located for exports, close from the
border
━
Leverage with Sigma’s distribution infrastructure
JV with ConAgra Foods in 2001
━
Sinergies between partners
15
Quality

High and Consistent Quality for the consumer
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Plants and distribution centers

70 Distribution Centers

15 Plants
━
11 Processed Meats
━
1 Yoghurt
━
2 Cheese
━
1 Frozen Foods
Distribution Center
Plant
17
Exports to United States

Initial export efforts for processed meats and cheeses to
California, Texas and Chicago in 2002

Marketing differentiation strategy
━
Taking advantage of brand recognition (FUD)
━
Processed meats and cheeses for Hispanics wanting
familiar brands and products
━
Know how in sales and marketing to Hispanics
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Agenda



Precedents
━
Imports
━
Exports
Sigma Alimentos
━
Processed Meat
━
Yogurt
━
Cheese
━
Frozen Foods
Opportunities
19
Opportunities

Need Governments decision, commitment and willingness
to move forward in a market integration
━

Must have clear vision for the future relationship
However, keep working on Free Trade within NAFTA
━
Still a lot of pending issues
━
Good moment to stop and analize next steps
20
Opportunities

Subsidies and governmental support for the Agrifood Sector
among countries are different and distort the trade
━

This is an inequality subject and without near solution
Lack of infrastructure and its costs affect competitiveness:
━
communications
━
highways
━
electricity
21
Opportunities

A link of the productive chain is substituted by an exterior
one when it loses competitiveness
━

This substitution directly affects the previous links inside
the chain
Example:
━ Mexican Mature Cheeses have been displaced by producers from
New Zealand, Australia and others
Exterior Productive Chain
Farm
Agro-Industries
Food Industry
Sales
Consumer
Farm
Agro-Industries
Food industry
Sales
Consumer
National Productive Chain without Protection

Supplier development a key issue: pork, turkey, chicken,
milk
22
Opportunities

Other issues that affect trade despite having low or null
tariffs:
━
Sanitary
━
Border Inspections and Regulations
━
Border Security
━
Transportation
23
Opportunities

Sanitary
━
Different certificate requirements and plant inspections

━
Tri national sanitary committee



━
TIF (Mexico), USDA (United States)
Stronger rol vs OIE
BSE
Avian influenza
Still restrictions in transit among NAFTA



Do not recognize disease-free zones
Limit market alternatives
Restrictions inside Mexico
24
Opportunities

Sanitary
━
Examples:

Chicken “Taquitos” export from Mexico to USA
Import US
Chicken


Cook
and Process
the “Taquito”
(Mexico)
Export “Taquito”
to USA
To export processed meats to USA you need your
suppliers to be a USDA and do not accept TIF as a
certificate
Constrains to export processed pork meat to USA, has
to bring pork from Yucatan, Sonora or the USA,
process in Mexico City or Monterrey and export to
USA
25
Opportunities

Border Inspections and Regulations
━
Physically inspections by SAGARPA and USDA, lots of
precise paperwork
━
Randomize inspections and analisis

Could be two or three weeks delay, even though TIF or
USDA had already certified
- Critical in perishable products

Sometimes all shipments are inspected
26
Opportunities



Bioterrorism
━
Registration
━
Sistems to operate
Transportation
━
Requirement to change trucks and trailers at the border
━
Cost and delays
━
Free-Transit?
Big vs Small
27
Opportunities
CONSUMER

Finally, concrete actions will benefit the final consumer with
better prices, variety and quality under equal opportunities
for participants in the supply chain.
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