NAFTA, Canada, and Mexico: Mexico Foreign Direct Investment

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Mexico is the third-largest host country for U.S. direct investment in the global food and beverage industries, and it also has attracted foreign direct investment (FDI) in production agriculture. Many of these investments were initiated following implementation of the North American Free Trade Agreement (NAFTA) in 1994. The agreement contains many provisions designed to facilitate foreign investment, including equal treatment of foreign and domestic investors and prohibition of certain performance standards—such as a minimum amount of domestic content in production—for foreign investments. However, Mexico really began to open up to foreign investment in the 1980s, when the country first relaxed and then eliminated rules for most sectors of the economy that limited foreign ownership of Mexican businesses.

U.S. direct investment in Mexico is substantial in the food and beverage industries but much smaller in production agriculture. According to 2010 data from the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA), the U.S. direct investment position in Mexico on a historical-cost basis (i.e., the stock of direct investment) was about $3.2 billion in the food industry and $356 million in crop and animal production combined. U.S. authorities did not report a similar statistic for the Mexican beverage industry in 2010 in order to avoid disclosure of the data of individual companies, but the previous year’s data indicate that the U.S. direct investment position in that industry was about $6.0 billion in 2009. While there are important individual instances of Mexican direct investment in the U.S. food industry, BEA does not report data describing the sum of these investments, again in order to avoid disclosure of the data of individual companies.

The U.S. direct investment position in the Mexican food and beverage industries has expanded greatly during the NAFTA period, rising from a total for the two industries of about $2.3 billion in 1993 to about $8.8 billion in 2009 (see line graph below). The beverage industry accounts for much of this growth, with its stock of investment climbing from about $1.0 billion to about $6.0 billion over that same period. In contrast, the U.S. direct investment position in the Mexican food industry declined from about $3.0 billion to about $1.3 billion between 1997 and 1999. Since then, U.S. investment in the Mexican food industry has experienced fairly steady growth, reaching about $2.8 billion in 2009 and $3.2 billion in 2010.

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The current composition of U.S. direct investment in the Mexican agricultural production and food industries parallels the composition of U.S. agricultural exports to Mexico, in which grains and oilseeds are among the most prominent commodities in terms of total export value. As seen in the pie graph below, grain and oilseed milling accounted for about 69 percent of the U.S. direct investment position in Mexico’s agricultural production and food industries in 2010. Animal production accounted for about 8 percent. Note that this pie graph does not include investments in the beverage industry, whose data are suppressed for 2010.

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BEA statistics for 1999-2010 provide insights into the long-term composition of U.S. direct investment in the Mexican agricultural, food, and beverage sectors, as well as some noteworthy changes in that composition (see table below). The beverage sector is consistently the largest component of this investment, typically accounting for over 60 percent of the U.S. direct investment position in these sectors in recent years. Much of the growth in U.S. FDI in the Mexican food industry took place in grain and oilseed milling, where the U.S. direct investment position expanded from $378 million in 1999 to about $2.4 billion in 2010—an increase of more than 530 percent. Other sectors where U.S. direct investment is prominent include sugar and confectionary products and animal production.