Large-scale investments showcase development momentum in Hidalgo

In November 2017 Grupo Modelo – part of global brewing giant AB InBev and Mexico’s largest beer maker – announced plans for its eighth brewery. The proposed project, to be developed in the municipality of Apan, is by far the biggest private investment ever to be made in Hidalgo, at MXN14bn ($756.6m).

As the second-biggest producer of barley in Mexico, with plentiful water, and located next door to the largest consumer market in Latin America and with easy access to ports, Hidalgo was the ideal choice for Grupo Modelo to build what has the capacity to become the second-largest brewery in the world. For Hidalgo’s state government, which has prioritised agro-industry as one of its four strategic sectors, it was a strong sign that its efforts to develop the economy around its key strengths are paying off. “Anyone who knows about business will tell you, food is a constantly growing sector,” José Luis Romo Cruz, secretary of economic development for Hidalgo, told OBG. “It allows us both to export – and we have the infrastructure for that – and to take advantage of being 80 km from Latin America’s largest market.”

An Important Arrival

To build its brewery Grupo Modelo also purchased 196-ha of land on which it will be sited. The area, which had previously been reserved for other projects, came ready to be developed into a large-scale industrial site.

Construction of Grupo Modelo’s new brewery began in late 2017, and the plant is set to begin operations in the first half of 2019. The plant will open with capacity to brew 12m hectolitres of beer per year – the equivalent of 3.35bn bottles. For now the brewery’s footprint takes up just 100 ha, meaning there is room at the site for the company to double its production capacity to 24m hectolitres annually.

“All the structure, land and design of the brewery is being made in such a way that it can be expanded,” Grupo Modelo’s CEO, Mauricio Leyva Arboleda, told OBG. “The state of Hidalgo has facilitated the infrastructure surrounding the plant to ensure it is in condition to absorb such volume in the future.”

The Hidalgo plant will increase Grupo Modelo’s capacity by 17%. In doing so, it is expected to create 1200 direct jobs and 5000 indirect positions. During construction it could also support up to 10,500 jobs.

Broader Interest

Grupo Modelo’s investment embodies several of the government’s key targets: attracting a top-tier company to the state; creating well-paid employment; and developing its strategic sectors. Similar to other developments of recent years, Hidalgo is building impressively on existing strengths. In fact, Apan itself has a history of producing alcohol. A century and a half before Grupo Modelo arrived in Hidalgo, the municipality was a leading producer of pulque, an alcoholic drink made from the agave plant, for the local market.

And though Grupo Modelo is currently stealing the headlines, other international companies had spotted Hidalgo’s potential for agro-industry long before. Most notably, global food commodities supplier Cargill, the largest privately held company in the US, has been present in Hidalgo since 1995.

Cargill’s Hidalgo plant has been key in the distribution and crushing of oilseed, as well as the production of high-quality oils, flours and maize. The company’s facility in Atitalaquia is home to its only refinery in Mexico, and one of Cargill’s five most important globally when it comes to grinding and refining oils. The seven different oils processed there are the base for 168 different products. From Atitalaquia, Cargill exports to all 32 federal entities of Mexico.

Furthermore, in 2014 Cargill responded to growth in the market with the expansion of its oils refinery and packaging factory, increasing its production of oils from 264,000 to 336,000 tonnes per year.

“Access to the railways and natural gas, alongside the well-developed industrial park, and Hidalgo’s proximity to some of the country’s main consumer centres were key factors that guided our decision to base our operations here,” Luis Ferrari, superintendent of Cargill’s Atitalaquia complex, told OBG.

Another recent investment in the sector came from a domestic giant of the global food industry. In December 2017 Mexican bread maker Grupo Bimbo completed the construction of a new MXN100m ($5.4m) factory in Tepeji Park.

High-tech

Additionally, the month before Grupo Modelo announced its investment, Mexican dairy company Grupo Lala opened its first deli meats production facility in Tizayuca, generating 350 jobs directly for the state. Lala produces deli meats under the Nutri Deli brand, and has developed a technology and innovation centre to ensure the quality of raw materials and develop new products.

This focus on technology ties the agro-industry investment to Hidalgo’s broader economic development aims of pursuing innovation-based growth, and is also a major feature of Grupo Modelo’s brewery.

“The new factory will employ cutting-edge technology not only for production and quality, but also to optimise resources,” Grupo Modelo’s Leyva told OBG.

In particular, best practices in terms of water recovery could lead to savings of up to 40%. Further to this the plant will treat all residual water, part of which will be used to water the factory’s green areas. “This means we are not wasting any of the water we use to produce beer,” Leyva told OBG.

A Transformative Model

A brewery brochure produced jointly by the Secretariat of Economic Development (Secretaría de Desarrollo Econó mico, SEDECO) and Grupo Modelo claimed it will be a transformative project for the region, which is envisaged to have a multiplier effect on activity in various sectors. “We should see a chain of providers that can reactivate the local economy,” Edgar Espínola, president of the Business Coordinating Council of Hidalgo, told OBG. “This project is big enough to generate new hotels, restaurants and schools.”

The plant also promises good jobs. According to the brochure, the average wage of a worker at the brewery will be MXN30,121 ($1630) per month, which compares favourably to the average salary in the manufacturing industry of MXN11,426 ($617). Moreover, it is 3.2 times more than the existing average wage in Hidalgo of MXN9203 ($497). SEDECO estimates that the project will double the number of formal jobs in the municipality of Apan, and the government is proactively seeking to ensure that local businesses become major suppliers. “The construction sector is set to be the first to benefit from these big investments,” Espínola told OBG. “The government is encouraging these companies to give priority to hidalguense businesses.” The state governor, Omar Fayad Meneses, hosted meetings between Grupo Modelo and local business lobby groups and chambers of commerce in January and February 2018 with this aim. SEDECO has identified sectors where Grupo Modelo’s investment can create opportunities for local businesses, including: concrete, steel and laminate providers; logistics services; machinery hire; engineering and architecture; and transport.

Miguel Yáñez, general manager of the Hidalgo Intermodal Logistics Terminal in Tula run by Hutchison Ports, points out that Grupo Modelo is already one of Hutchison’s main export clients at the port group’s Veracruz facility. “We view these kinds of announcements with great optimism,” he told OBG.

Rural Potential

But perhaps where the transformative effect of such a large project is most urgently needed is in the countryside, where the state’s Secretariat for Agricultural Development says there is a “complex reality”.

Some 28.7% of Hidalgo’s territory is dedicated to agriculture. But while 48% of Hidalgo’s population is rural, and 77% of those Hidalguenses who work in the primary sector are employed in agriculture, some 22% of these workers do not receive income, and 44% make only the minimum wage.

“One of Grupo Modelo’s principles is to make investments not just in major cities, but in different municipalities where we can develop the surrounding area economically and socially,” Leyva told OBG. “We want to do the same in Hidalgo from 2019.”

Grupo Modelo had been working with barley farmers in Apan for three years before announcing its investment, and expects increased demand to support the sector. Apan produces 57,238 tonnes of barley per year, while the municipalities of Tepeapulco, Almoloya and Zempoala – all within a 25 km radius of the plant – each produce more than 20,000.

Grupo Modelo will buy the barley on a contract-farming basis, meaning the price is defined before harvest and payment is guaranteed. Domestic firm Munsa Molinos committed to do the same when signing a MXN210m ($11.3m) investment in a facility to industrialise wheat, seeds and other agricultural products in the state in June 2017, benefitting both farmers and the state’s agro-industrial development.