EconomyFinancialWhy AMLO's request to Heineken, Coca-Cola and Pepsi comes...

Why AMLO's request to Heineken, Coca-Cola and Pepsi comes at the worst time

Nuevo León has been experiencing a severe drought for weeks, which first led Governor Samuel García to establish staggered schedules for the supply of the liquid, and recently prompted President Andrés Manuel López Obrador to make an unusual request. The president asked beer and soft drink manufacturers to temporarily stop production at their plants in the entity and transfer the water from their wells for domestic consumption.

Nuevo León concentrates 11% of the national beer production, led by Zacatecas (24.1%) and Coahuila (11.5%), according to the latest data from Inegi. The multinational Heineken and some 40 craft beer plants have operations in the entity, in addition to Arca Continental, the second largest bottler of the Coca-Cola soft drink, and GEPP, the PepsiCo bottler.

Although the soft drink and beer sector is not the only one that operates in the entity – Nuevo León is the third largest manufacturer of auto parts nationwide – it is one of the most intensive in its water consumption. Each liter of beer needs approximately 155 liters of water to make, according to The World Wildlife Fund (WWF). Companies use water for beverage manufacturing processes and also for washing returnable containers. Added to this is the volume used for the production of raw materials and disposable packaging.

Does AMLO’s request have support?

The president’s request was preceded by the publication of the “Agreement for the start of an emergency due to the occurrence of severe, extreme or exceptional drought in basins for the year 2022” in the Official Gazette of the Federation, which establishes that measures may be implemented to guarantee the water supply for the population in places with severe, extreme or exceptional drought conditions.

One of the measures contemplated in the document is that the holders of water concessions, especially for industrial and agricultural uses, transfer the liquid to third parties on a provisional basis if necessary. The National Water Commission (Conagua) detailed at the end of June that there are 64 water concessions granted to companies in Monterrey, which add up to around 50 million cubic meters, which is equivalent to 1,600 liters per second.

Four of the 10 concessions with the largest volume of water are in the hands of beverage manufacturers. Heineken, for example, has two that give it access to more than 3.6 million cubic meters of water. Purified Drinks, a company dedicated to the production of soft drinks and other non-alcoholic beverages, has a concession that gives it access to 1.4 million cubic meters of water, while Arca has another for 1.2 million cubic meters.

Neither Heineken nor Arca Continental were available to comment to Expansión on the matter.

Arca detailed in its financial report for the first quarter of 2022 that the liquid they use is obtained from their own wells, concessions granted by the government, supply contracts with municipalities and through public drinking water networks, while Heineken Mexico has declared in the past that is willing to work with the government to find solutions to this problem.

The Chamber of the Transformation Industry of Nuevo León (CAINTRA) said in a statement that the entity’s industrial sector “is focused on implementing actions that provide water to the most vulnerable and most affected areas.”

More beer shortages?

The water crisis is one more front that is opening up for the soft drink and beer industry. Since last year, companies have been experiencing the lack of glass containers and the rise in the price of raw materials, such as aluminum and cardboard, which has already caused the lack of some presentations in the refrigerators of supermarkets and grocery stores.

A survey carried out by the National Alliance of Small Merchants (ANPEC) revealed that the north of the country is where there is a greater problem for supply, which could take up to three months to regularize due to the water crisis it is going through. the region and seasonality.

“In summer is when more beer is consumed, the demand increases in some places up to 100% due to the heat,” explains Cuauhtémoc Rivera, president of ANPEC.

Although bottlers and beer manufacturers claim to have made progress in implementing processes to use less water in their plants, Julián Fernández, head of analysis at Bursamérica, predicts that the water shortage in Nuevo León could intensify the shortage of beer.

“The companies require a constant production to be able to maintain the shipments and, with an affectation due to the issue of the drought, there will be a decrease in the product at the national level.”

Water scarcity: a risk for the operation of companies in NL

The National Water Commission (Conagua) made an emergency declaration in August 2021 to alert about the lack of water in basins during this year. So Moody’s projected that companies would need to increase capital spending to maintain adequate access to the liquid.

Arca Continental, the second largest Coca-Cola bottler in Latin America, has already recognized in the past the risk due to the potential lack of water in the entities where it operates. “The availability of water is a determining factor to establish or close bottling plants, so the lack of supply of this liquid may be decisive in the future for the normal course of operation of our existing plants. Likewise, we cannot assure you that the water supply will be sufficient to meet our future production needs,” reads its latest financial report.

Everything goes up, but Mexicans do not give up their Starbucks coffee or Domino's...

Starbucks and Domino's Pizza remain the restaurant operator's most profitable brands, with revenue growth of 43.3% and 16.5%, respectively.

The drop in copper production impacts the profits of Grupo México

At the same time that its copper production fell 6.6%, it observed a decrease in the price of the mineral of 18.6%

Get rid of inflation! Gentera achieves triple-digit profits

Despite the good dynamism of its portfolio, the institution will show caution in 2023 due to the "January slope" and the possible defaults of its clients.

Arca Continental enters the distribution of Don Julio tequila

The Coca-Cola bottler will now test distillate distribution, while reinforcing Topo Chico's presence in the ready-to-drink category.

Orbia's profitability falls in the face of inflation, currency volatility and Europe's energy crisis

The company's sales stagnated, its operating flow fell 28% and its net income fell 56%, due to the complex macroeconomic environment.

More