Mexican packaging machinery market to heat up in 2019

Continuing a positive trajectory, Mexico is moving steadily towards a greater modernization of its packaging technologies, which presents many opportunities for CPGs.

Lilián Robayo Páez
Lilián Robayo Páez

One of the most outstanding news stories from the G20 summit in Buenos Aires, held from November 30th to December 1st, was the signing of the new free trade agreement between Mexico, the United States, and Canada, which replaced the North American Free Trade Agreement (NAFTA) under the new name Tratado México-Estados Unidos-Canadá (T-MEC).

The new agreement places an emphasis on its adaptability to current economic circumstances, including such critical issues as e-commerce, information technology, and trade enablement. It also pays special attention to the social impact that international trade has and the expansion it offers to the participation of other sectors of the economy, including small and medium companies in regional trade.

Signed by Mexican President Enrique Peña Nieto on the last day of his presidential term, T-MEC expects ratification from legislative powers in each of the countries, however before its approval it already has the backing of newly-inaugurated Mexican president Andrés Manuel López Obrador. This should guarantee an implementation without setbacks.

Among buyers of packaging machinery who participated in PMMI’s market intelligence report 2018-2019 Packaging Machinery Opportunities in Mexico, there were no worries or concerns raised with regards to the negotiation phases of the Treaty, or in regard to the impact that the agreement would have on the development of their businesses or investment plans. Moreover, despite the uncertainties generated by the initial position of the U.S. administration during the renegotiation, and against the forecasts of demand reduction, in 2017 imports of packaging machinery from Mexico registered one of the highest growth rates in recent years (7.9 percent) and exceeded 750 million U.S. dollars for the first time.

On the other hand, at the time of publishing the mentioned report, the presidential elections had not yet been held, and probable scenarios were considered in it which can now be evaluated based on confirmed facts.

The arrival to power of López Obrador, may not have the adverse effects on the economic stability that some analysts had predicted. In fact, the new president indicated, after acknowledging his triumph, that he would respect the autonomy of the Central Bank, he would maintain the financial and tax regulations, and would recognize the commitments made with domestic and foreign companies and banks.

Favorable conditions for the sale of packaging machinery
With the stability of the current economic, commercial, and political conditions, and the projected increase in the Mexican gross domestic product (GDP) of 2.5% in 2019, it could be expected that its packaging machinery imports will keep growing in the near future. Growth is anticipated to be driven by key factors such as a strong domestic and external demand, as well as by the interest of many companies to modernize their operations to improve their efficiency and competitiveness.

Some market, demographic, labor, political, and commercial factors also impact the opening of opportunities to activate the demand for packaged goods, and consequently, the imports of packaging machinery:

• The approval of T-MEC may help to create a better environment for domestic demand and investment from manufacturing companies seeking technological modernization, after a substantial drop in the consumer confidence index in January 2017 due President Trump’s anti-treaty position.

• Retail sector sales, a solid indicator of the demand for packaged products, has registered three consecutive years of good results. The increase in remittances received from abroad, mainly from the U.S., has been considered to be the driver for this performance. It was estimated that retail stores would jointly make investments equivalent to 3.1 billion $U.S. in 2018.

• Private consumption has performed positively since 2010 and registered a growth rate of 2.5% in 2017. This dynamic is largely attributed to Mexico having a high percentage of the population (67.7%) under 39 years of age, and with consumption habits in the younger generations that drive a positive buying dynamic for goods. People with the possibility to work are rapidly outstripping the number of dependents in Mexico.

• The creation of jobs has shown a surprising pace, with a total of 828,000 jobs/year during the period 2000-2017. According to Q1 data, in 2018 this figure increased considerably, with a monthly average of 100,000 new jobs, which exceeds government estimates.

• Some multinational companies and business groups that use packaging machinery have indicated their intention to continue investing in Mexico, understanding the impacts of political decisions on their operations. Companies adapt to the realities of the countries and, as of now, the outlook and the growth of demand in Mexico remain solid.

• A positive effect of the uncertain political and commercial climate experienced in recent months has been that many Mexican exporters have become aware of the need to abandon their “comfort zone” and extend the market for their products beyond the U.S., especially towards Latin America and Europe. This is especially true in the case of sectors such as food and beverages, which are among the most active in Mexican foreign trade.

• Mexican export activity shows a healthy behavior, with an average annual growth of 7.8% for the period 2000-2017. Demand for Mexican products has been consistent during recent years, and particularly strong in 2017. This performance of the external sector translates, for many companies, into the need to maintain their investment plans and consolidate their production capacity.

• Mexico continues, like many emerging countries in the world, the trend towards new forms of packaging for a wider variety of products, better adjusted to the needs of consumers that demand new properties of convenience, functionality, and economy. To these demands, producers must respond with modern and efficient packaging solutions.

Where does Mexico buy?
The domestic manufacture of packaging machinery in Mexico has a very small share compared to the total value of the market, and the offer is mainly oriented to meet the needs of medium and small companies. The purchases to external manufacturers continue being, consequently, the main source of supply, with a value that reached 751 million U.S. dollars in 2017, through more than 2,000 imports. (See graph Packaging Machinery Imports 2008-2017).

The exchange advantages that currency fluctuations generate are an important factor in decision making among those companies that look for packaging machinery abroad, and a factor that affects the participation of manufacturing countries in total sales to Mexico. Traditionally, the United States, Italy, and Germany have dominated sales to the Mexican market, with a joint participation of 70%, and with a stable positioning of the U.S. machinery in the food industry; from Europe, in the sectors of personal care and pharmaceutical products; and with a close competition, in regard to preference, between U.S. and German machinery in the beverage sector. In 2017, an important rebound in offers from Japan and Spain was seen, with those from the former increasing by 64%, compared to 2016 data.

The ones who buy
The food, beverage, personal care, and pharmaceutical industries concentrate most of the demand for packaging machinery, with a share between 75% and 78% of total market value.

The Mexican processed foods industry is now the seventh largest in the world. The high percentage of young population and a growing middle class are drivers of the demand for food, in addition to the interest of international companies to make Mexico a place from which to meet the needs of the entire North American market.

The beverage sector has had a particularly dynamic performance, ranked fourth in the world in 2016 after being seventh in 2013, and enjoying a strong presence in domestic and international markets, with products such as soft drinks, bottled water, and beers and liquors, respectively.

Personal care items showed a growth of 3% in volume and 7% in value in 2017, surpassing their performance in previous years and the average rate of national industrial growth.

Despite increasing competition from generic drugs and a low level of new investments, the pharmaceutical sector continues to occupy the fourth spot in the demand for packaging machinery. While the market for pharmaceuticals remains roughly constant, there have been significant increases in purchases made by sectors such as automotive parts, medical devices, and consumables, as well as logistics and e-commerce companies.

A probable and positive future
With the information and analysis shown in the 2018-2019 PMMI Packaging Machinery Opportunities in Mexico study, the most likely outlook for 2019 is a slightly higher sales increase than those reported in 2017. Recent events in political and commercial fields seem to support this assessment and point to a continuity in the growth trend experienced by the packaging machinery industry in the last decade.

 

Gear up for EXPO PACK Guadalajara
As this article clearly demonstrates, the Mexican packaging market is heating up. More than 16,000 Mexican and Latin American manufacturers will attend EXPO PACK Guadalajara 2019, to be held June 11-13, at Expo Guadalajara, Jalisco, Mexico.

Present to visit more than 800 exhibitors, attendees will include your packaging and processing professional peers from industries including food and beverage, personal care, chemical, automotive, electronics, pharmaceutical, confectionery, baking, graphic arts, and textiles.

For information on educational programs, exhibitor lists, and more, visit www.expopackguadalajara.com.mx.

Machinery needs south of the border
Looking for Insight into the Mexican packaging machinery market? The new 2018-2019 Packaging Machinery Opportunities in Mexico report highlights several positive factors indicating packaging machinery demand. Download the entire report, or get a free executive summary, at pwgo.to/3938.

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