U.S. Firms Invest in Mexico's Processed Food Industry

The 1994 North America Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico was established to enhance trade. The successfulincrease in trade was accompanied by an even more important sharp increase in foreign direct investment (FOi) between the partners, especially between the United States and Mexico. U.S. exports of processed foods to Mexico, mostly processed meats, poultry, animal fats, and vegetable oil, increased from $1.1 billion in 1990 to $2.8 billion in 1998. U.S. processed food imports from Mexico grew from $1 billion to $2.5 billion in the same years, and were mostly malt beverages, prepared fresh and frozen fish, and distilled spirits (table 1). At the same time, foreign direct investment (FOi) between the United States, Canada, and Mexico increased sharply, paving the way for a regional food system. FOi, or substantial ownership investments in foreign businesses, allows the investing firm to exercise control over the use of those assets (unlike foreign portfolio investment, which is passive and does not seek control over decisionmaking). The $6.5 billion in sales generated by U.S. food processing affiliates in Mexico overshadowed U.S. exports of processed food products to Mexico by more than a 2-to-l ratio in 1998, making FOi more responsible than direct exports for the increasing presence of U.S. food processing firms in Mexico (fig. 1). U.S. FOi in Mexico's $47 billion processed food industry increased from $210 million in 1987 to $5 billion in 1997 (fig. 2). Mexico is now the third largest host country for U.S. FOi after the United Kingdom and Canada. Nearly three-fourths of the U.S. FOi in Mexico's food processing sector is in firms producing a wide variety of highly processed foods including snack foods, edible vegetable oils, mayonnaise and salad dressing, meat and poultry, concentrates and flavorings, confectionery products, and pasta and related products. About one-tenth of the U.S. FOi is in flour mills or bakery product companies; about 15 percent is in breweries and soft drink bottlers. Less than 5 percent is in fruit and vegetable processors