Meal ticket: Food and beverage activity continues to underpin the economy

The food and beverage sector in Querétaro is one of the state’s two legacy industries, along with automotive. Today it remains the second-biggest manufacturing segment in Querétaro and is an important part of the state’s economy. According to figures from the National Institute for Statistics and Geography, food, beverages and tobacco accounted for 6% of the state’s economy in 2013 and grew 3% over 2012. The industry dates back to the 1950s when Kellogg’s opened a cereal plant in the state. In the following decades, other foreign companies arrived, including Gerber and Mars. Mexican companies have also established operations in Querétaro, with Leche Querétaro and Lyncott being two of the state’s biggest producers of dairy products. Mexican firm and regional Coca-Cola bottler, Industria Envasadora de Querétaro, has also been based near Santiago de Querétaro since 1979.

PET FOOD: A significant portion of the industry’s production comes from pet food. The processed pet food market in Mexico is worth about $2.2bn a year and is dominated by two players, Mars and Nestlé, which together control about 70% of the market. Mars produces dry pet food for the local market in its Queré- taro plant, which has an annual production capacity of 300,000 tonnes. It also produces wet pet food at a plant in the state of Jalisco, which has an annual production capacity of 55,000 tonnes.

Growth in Mexico’s pet food market, the 10th-largest in the world, has been robust in recent years, but Mars and its competitors face at least one significant, new risk: Mexico’s 2013 fiscal reforms include a 16% tax on processed pet food. However, the imposition of the tax is too recent to gauge how it will affect national pet food sales or Mars’ operations in Querétaro.

DAIRY: Dairy products make up another pillar of Queré- taro’s food and beverage industry. Leche Querétaro distributes about 85% of its packaged milk locally, so it has seen significant growth as the state’s population has expanded and become wealthier in recent years. In 2013 Leche Querétaro completed an expansion of its Querétaro plant that increased its production capacity by 90% to 200,000 litres a day.

Lyncott, a manufacturer of dairy products, has also boosted production, having completed an expansion of one of its two Querétaro plants in 2014. The company said the expansion would increase its production capacity from 6000 to 9500 tonnes per month.

Kellogg’s has also established extensive operations in Querétaro. It produces most of its cereal for the domestic market at its plant there. The company’s headquarters for Latin America are also located in the state, as is Kellogg’s primary Latin American distribution centre, which ships its products to the US, Mexico and other Latin American countries.

COMPETITION: Many of the same characteristics that have spurred growth in other industries in Querétaro have attracted food and beverage companies to the state, including better security, proximity to Mexico City and its central location. This last factor has been of particular importance to the food and beverage sector, since these businesses are primarily focused on the domestic market. However, other central Mexican states benefit from many of the same conditions as Querétaro and, in recent years, Querétaro has seen stiff competition from its neighbours for foreign investment dollars, losing out on several big projects. In early 2014, for example, Nestlé announced an investment of $1bn in three projects: a new baby formula plant in Jalisco, a new pet food plant in Guanajuato and an expansion of its existing cereal plant in Guanajuato. Also in 2014, Mars announced that it would spend $160m on a new chocolate factory in Guanajuato.

In light of the emerging industrial competitiveness of other central Mexican states, future growth in Queré- taro’s sector may have to be generated internally, rather than through foreign investment. But even if foreign capital becomes scarce, this will not erode the business of companies already established in Querétaro. These firms should continue to benefit from the state’s logistical advantages and positive demographic trends.