In 2022, Minsa will look out. The second largest corn flour producer in the country had to delay some plans due to the pandemic, which is now resuming with the intention of exporting around 25,000 tons next year between the United States, a market to which it returns, and Venezuela and Colombia.
The machinery is already in motion. In April 2020, the non-competition clause that Minsa had in the United States expired, after in 2017 a sale agreement to the agro-industrial firm Bunge was truncated to make way for another, which was closed a year later: that Bunge acquired only Minsa’s subsidiary in the US, which contributed around 20% of the corn flour sales volume, the segment that generates 90% of the Mexican company’s income.
The flour mill started this year with exports and the objective is to continue that path from the two plants closest to the border. “We have closed with several large clients and we believe that we are in a unique position, because the non-compete was only two years and they did not let us use our brand until less than five months ago”, explains Altagracia Gómez, president of the board of directors of Minsa.
The directive points out the advantages of a market that grows more than the Mexican one and has greater profitability. “And a natural incentive, the sale in dollars.”
At the same time that the first cases of coronavirus were detected in Mexico, Minsa was preparing to start operations in Colombia. It was March 2020 and the plans were put on hold. Now, with the marketing channels working, he wants to close with a local partner to start production in the country.
The disembarkation with operations stopped but not the works to arrive. In recent years, Colombia and Venezuela have been important clients. In the latter market, it launched a flour for arepas, one of the typical dishes in both countries. “The year we sold the most in South America was 2019 and 37,000 tons were sold. As now [the strategy] is focusing less on pantries and more on arepas, there would be better margins, although with less volume ”, affirms the management.
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Gómez has become one of the few women who lead a family business in Mexico. In the country, only a quarter of companies are run by women, according to 2020 data from consultancy Grant Thornton. If the focus is placed on family members, the percentage drops to around 20%, and if the zoom is closed only to large ones, it drops to 8%, reveals the ‘X-ray of the family business in Mexico 2020’, from the Centro de Family Business Research at the Universidad de las Américas Puebla.
Last year, the businesswoman had to face several challenges. In Minsa, the first was operational. Agri-food companies did not stop their production with the pandemic and the flour mill had between 400 and 500 employees within the vulnerable population, out of a total of 3,200 employees. The priority channel for the organization is the Dough and Tortilla Industry (IMT), that is, the more than 100,000 tortilla shops in the country. “That cannot be replaced by online sales,” he warns.
To the adjustments to maintain operations with an important part of the staff at home, it was necessary to make changes in the production processes, given the changes in the consumption chains. With the decrease in demand for restaurants and hotels, that of self-services increased, a channel that had usually been very small for the company and that requires packages and not sacks. Until now, IMT generated 80% of sales, 10% were special customers (such as Bimbo or PepsiCo), between 5 and 7% corresponded to the government and the remaining percentage, supermarkets.
Despite the rise in the latter channel, the one that advanced the most was that of special customers, which rose to 22% of total sales volume, a record for the company. To respond to this peak, Minsa put a special team inplace to meet the needs of these special customers, who also need to adjust the formulas and ensure that the product works in the machines of their plants.
The price factor
But the biggest challenge was corn prices, which hit all-time highs at the end of last year. This raw material represents 83% of Minsa’s fixed costs. In the summer of 2020, the price fell and those who had bought futures and had hedges to insure a cost in the raw material experienced losses.
But in the fall, the trend turned around and prices climbed. “There was pressure to raise the price from all the actors in the chain,” says Gómez. In November 2020, tortilla producers announced increases of 1.5 to 2 pesos per kilo. And, then, there was a call from the government to the flour mills to maintain prices.
“It could be done by calling for solidarity for a month, it was sold even below cost. But already in January the government and the tortilla makers were warned that the price that had been raised for the tortilla was not justifiable with that of the flour, because we were only raising the cost of the tortilla maker from 37 to 46 cents ”, he points out.
In addition, local production was cheaper than the international price and farmers and other customers who do not necessarily buy in Mexico increased their demand. “We were no longer five or six big buyers, there were 20 of us and obviously fighting with the producers over everything,” he recalls.
Julián Fernández, Head of Analysis at Bursamétrica, explains that the costs of raw materials have become more expensive due to a lack of production and storage. “And the few that have been storing hold the market and raise prices,” he explains.
The pandemic also increased logistics and hydrocarbon costs. This could be a future risk, says the specialist, who adds that the company has always been stable and has been considered a backup or security investment for investors. If the principle of any business, the businesswoman warns, is to buy low and sell high, the situation had been reversed: Minsa bought high and had to sell at low prices.
“It was a complicated subject. Of course, you understood the request, not only from the government, but also from society, not to raise the most basic good of Mexico’s basket, which brings 55% of the calories consumed by the most vulnerable decile of the population, “he says. In February, the company began to raise the price gradually and by zone. Gomez sees it difficult to repeat a situation of these characteristics.
“It has had its obstacles, but it has managed to overcome it in the best way,” says Fernández about the company, which closed the third quarter of the year with a 0.7% increase in sales volume compared to the same period in 2020, but a 16.88% increase in net sales due to the rise in the price of flour. The company has been recovering the margin, after a greater impact at the beginning of the year.
In the period from July to September, its profitability, measured with the profit margin, was 2%, an improvement of 10 basis points compared to 2019, according to its quarterly report. In the end, Gómez concludes, the request to lower prices was not a sustainable solution to a temporary problem. “It is difficult to make the decision to lose money. And it is not that you were losing money, you were losing profits, and it is a difficult decision to sell, even more so when you are a public company ”, concludes Gómez. “But I also think that sometimes you have to know that to make money in the long term, you have to lose it in the short term.”
