“Go down to Mexico and take a look at the terminal markets; see what’s moving in and out. Go into the supermarkets,” he recommends, to learn retailer preferences in both communication and buying patterns. “Simply talk with people.”
Papangellin also suggests talking to U.S. customers who have cross-border relationships, and to ask for references. Conversing with brokers located close to the border is a good idea, as they may be able to provide background information or references as well. Lastly, “contact freight forwarders or customs brokers, then go online and do searches.”
Some retailers like Walmart, Costco, and H-E-B have operations on both sides of the border. “If someone happens to be doing business with Walmart in the United States, ask them if they can point you to Walmart Mexico, where they’re located, and who to talk to,” Papangellin says.
Partnering Pros and Cons
Another option is to partner with a firm already doing business in Mexico. Opinions on the value of this strategy, however, are mixed. “It may be easier for someone who is completely new at exporting,” asserts Papangellin, “but if you’re an established company, you may already be known, even though you’re not doing much business there… If you’re new, obviously, it’s the other way around. So I don’t see a need to partner up with a U.S. company that is already doing business in Mexico.”
Hanemann, too, believes a partnership is unnecessary except in specific circumstances, for example, if “your sales goal is short, in terms of time, or limited in terms of volume.”
But Miller advocates a partnership strategy. “Don’t go at the process blind. There are significant processes and documentation required to minimize the risk of product being refused at the border.”
Attorney Colter-Carswell agrees with Miller. “A joint venture with a Mexican partner can be very helpful to start a business.” He stresses that any partnership must be “formalized according to all legal compliances to avoid the risk of legal misunderstandings. You have to be very careful in such ventures.”
Costs, Risks, and Profit
To assess costs and profitability, Hanemann says to find out “what prices are being paid by size and grade during your field visits, then determine how this stacks up with your next-best options for those same sizes and grades in other markets. If it appears to make sense, ship a few loads and learn a few lessons through direct experience.”
Mexico the supplier is well known; but how about Mexico the buyer? Many are surprised to learn that Mexico is the United States’ third largest agricultural export market, behind China and Canada. Perhaps more surprising are the produce suppliers still hesitant to take advantage of this opportunity—some are intimidated by the language barrier, others the well-publicized drug violence—but neither should keep companies from exploring sales to Mexico.
A Major Market
Sharing a 2,000-mile border that has over 45 border crossings, the United States is Mexico’s top trading partner for consumer-oriented agricultural imports. The numbers are too big to ignore: the total bilateral trade value of agricultural and related products between the United States and Mexico was $37.3 billion in 2013, according to a U.S. Department of Agriculture (USDA) Foreign Agricultural Service report.
Mexico is also the number-two export market for U.S. fresh fruit and vegetables, trailing Canada. Through the North American Free Trade Agreement (NAFTA), which has been in place for 20 years, imports and exports are near parity. Exports to Mexico were $18.9 billion, down slightly from a record $19.7 billion in 2012, while Mexican imports rose from $17.1 billion in 2012 to $18.4 billion in 2013.
Among the key U.S. exports are fresh fruit ($626 million), processed fruit ($112 million), and vegetables ($255 million). Apples represented well over half of fresh fruit sales at $344 million, and grapes and potatoes were also top performers, valued at $134 and $141 million respectively.
Growth & Maturity
The Mexico market is many things to many people, but everyone agrees it is expanding. “It is definitely a growing, maturing market,” comments George Papangellin, sales manager at Gerawan Farming, headquartered in Sanger, CA, an importer/exporter that grows and ships grapes and stone fruit.
“People are becoming more technically savvy on both sides of the border, learning how to understand each other and how to work deals,” Papangellin explains. “It can only get better, regardless of any geopolitical issues.” Top of mind for many who do business with Mexico and other countries is quality. “If you can demonstrate quality, there is going to be a market for it in Mexico.”
Bob Cordova, president of Lompoc, CA’s EpicVeg puts it this way: “It’s untapped potential,” he remarks. “There’s a tremendous amount of opportunity in Mexico.” Assessing the Opportunity
Exporting to Mexico can be very lucrative, but sellers must know the ins and outs of their destination market. “You have to know how the markets in Mexico work,” Papangellin stresses, and first and foremost is “whether they are the terminal markets or retail markets.” This, he says, “is a great first step in becoming successful.”
Shippers must also be aware of foreign exchange rates, as well as which commodities are most favored in Mexico. Mexican consumers are highly discriminating about flavor and quality, says Don Goforth, marketing director at Family Tree Farms Marketing in Reedley, CA. “For years, our industry regarded [Mexico] as a secondary market, as a market that would only take our seconds, a lower grade type of product. What most people don’t understand about the Mexico market is that it is actually just the opposite,” he says.
Family Tree Farms specializes in creating differentiated genetics based solely on flavor. “We bring to market some very unique products, and interesting flavors,” Goforth explains. “To our Hispanic customers, flavor and quality of food is job one—it’s their priority.”
Arthur Miller, president of Epic Produce Sales in Phoenix, AZ agrees that knowledge is key to successfully selling into Mexico, regardless of the commodity. “The best way is to educate yourself on what items are being grown in Mexico, and what they are selling for on their domestic market.”
Take A Trip
Pear Bureau Northwest’s international marketing director, Jeff Correa, recommends research and a trip across the border. “Attending a trade show is a good way to test if there is demand for a product in Mexico.”
The USDA is a ready source of many types of information, from sales figures and shipping routes to statistics and border crossings. The Foreign Agricultural Service has plenty of “good general background on the market environment,” according to Patrick Hanemann, a principal of Farm2Market Agricultural Consulting in McAllen, TX.
He, too, encourages a visit to Mexico: “Study beforehand to see what products are moving, then go there and talk to people, using an interpreter if necessary. See what labels each buyer or importer is utilizing; get an idea of who has a good reputation, both in the market and at product origin. Above all, talk to people on the market and use the same tools to evaluate credibility and credit-worthiness as you use in the U.S. market.” He cites three major destination markets for direct export to Mexico: Mexico City, Guadalajara, and Monterrey.
On the other side of the border, John Colter-Carswell, an attorney with Colter Carswell y Asociados, S.C., in Monterrey, Mexico gives this advice: “You need to request special agricultural studies by each region. The produce industry in the northeastern part of Mexico is not the same as it is in the south.”
These distinctions include the types of fruit or vegetables produced—for example, asparagus, bell peppers, and tomatoes dominate in several northern and middle states, while mangos, papaya, limes, and chili peppers are prevalent in the south and eastern states. Demographics also influence food preferences, buying habits, and consumption. The north is more sparsely populated (except for border areas) than the central, eastern, and coastal areas, while the southern states are more densely populated.
“Understand that from Mexico City north and Mexico City east-west, you’re going to have more people buying imports,” observes Gerawan’s Papangellin. “Whereas south of Mexico City, and as you follow the country as it bends east, they may be more into their local production and not imported products from the United States.” Demand, however, is frequently affected by production problems and commodity deficits. If crops are damaged by frost or hurricanes, like last year, suppliers will look to imports to fill the gap.
“Our experience is that there is always demand for consistent good quality product, even if, as in the case of Mexico, the receiving country has its own production,” Papangellin adds. Though Mexico is well known for its fruit, especially tropical or exotics, production is still reliant on weather, soil, and availability of water—just like the United States. If supply is short, he notes, Mexican receivers will “import from the United States, whether it’s citrus or table grapes or stone fruit, apples and pears, certain vegetable items.” Bottom line, he emphasizes, “Mexico imports a lot of product.”
“There are many items Mexico imports from the United States, some year-round and some seasonally,” comments Epic Produce’s Miller. “Basically Mexico imports whatever [growers] do not produce during a given season; they also import U.S. items that are produced in Mexico when the U.S. market is cheaper.”
But Mexico is not a homogenous market, notes Correa. “There are a wide variety of consumers looking for different products and they have different tastes. For pears, Mexico is one of our most dynamic export markets—taking nearly all sizes, grades, and varieties. Value-seeking consumers want smaller sizes, and retailers that cater to these consumers will look to carry those sizes or grades. Premium shoppers will look for larger sizes and higher grades, and there is a range of supermarkets and even some traditional markets that cater to those consumers as well.”
Connecting with Buyers
The first thing prospective U.S. exporters need to learn about Mexican buyers is that they value personal contact. “If you’re more into electronic communication, and not so much into the old-fashioned style of face-to-face or over-the-phone talking,” predicts Papangellin, “you’re not going to get very far.”
“Go down to Mexico and take a look at the terminal markets; see what’s moving in and out. Go into the supermarkets,” he recommends, to learn retailer preferences in both communication and buying patterns. “Simply talk with people.”
Papangellin also suggests talking to U.S. customers who have cross-border relationships, and to ask for references. Conversing with brokers located close to the border is a good idea, as they may be able to provide background information or references as well. Lastly, “contact freight forwarders or customs brokers, then go online and do searches.”
Some retailers like Walmart, Costco, and H-E-B have operations on both sides of the border. “If someone happens to be doing business with Walmart in the United States, ask them if they can point you to Walmart Mexico, where they’re located, and who to talk to,” Papangellin says.
Partnering Pros and Cons
Another option is to partner with a firm already doing business in Mexico. Opinions on the value of this strategy, however, are mixed. “It may be easier for someone who is completely new at exporting,” asserts Papangellin, “but if you’re an established company, you may already be known, even though you’re not doing much business there… If you’re new, obviously, it’s the other way around. So I don’t see a need to partner up with a U.S. company that is already doing business in Mexico.”
Hanemann, too, believes a partnership is unnecessary except in specific circumstances, for example, if “your sales goal is short, in terms of time, or limited in terms of volume.”
But Miller advocates a partnership strategy. “Don’t go at the process blind. There are significant processes and documentation required to minimize the risk of product being refused at the border.”
Attorney Colter-Carswell agrees with Miller. “A joint venture with a Mexican partner can be very helpful to start a business.” He stresses that any partnership must be “formalized according to all legal compliances to avoid the risk of legal misunderstandings. You have to be very careful in such ventures.”
Costs, Risks, and Profit
To assess costs and profitability, Hanemann says to find out “what prices are being paid by size and grade during your field visits, then determine how this stacks up with your next-best options for those same sizes and grades in other markets. If it appears to make sense, ship a few loads and learn a few lessons through direct experience.”
Tariff information can be found from commodity trade groups, the office of the U.S. Trade Representative, or the USDA’s Foreign Agricultural Service.
“You have to get with either the U.S. trade representative’s office or go online and search Harmonized Tariff codes to find out if there are specific tariffs in place, and when they are in place—duties and tariffs aren’t on all commodities, all the time. There might be times during the year when there aren’t any,” explains Papangellin.
Prior to the actual shipping of any product into Mexico, each item must be classified according to the aforementioned Harmonized Tariff Schedule, which is handled by the Ministry of Commerce and also by customs authorities under the Ministry of Treasury, Colter-Carswell says.
An extreme example of the system gone awry occurred from 2009 to 2011, when some commodities exported to Mexico were subject to prohibitively high tariffs. A retaliatory move due to the discontinuation of the troubled U.S.-Mexico Cross-Border Trucking Pilot Program (which was resolved, then later dissolved in 2014), the tariffs proved disastrous to exporters of fruit, particularly grapes.
Of course, there are other risks as well. Of bigger concern to some produce companies is sending personnel to investigate export opportunities, as safety concerns have plagued Mexico in recent years due to drug-related violence and crime.
Cordova says he used to travel to Mexico frequently, but admits he has cut back. It is important to note, however, that since Mexican President Enrique Peña Nieto’s much-heralded crackdown on drug crime, media reports have indicated the violence has decreased significantly.
Cutting the Red Tape
Research is also needed so a new exporter is not tripped up by red tape. “You need to know the import laws, restrictions, requirements, and the phytosanitary issues that are involved on the Mexican side,” Papangellin says. “Regarding the crops you currently produce or market, are they registered and following the export protocols necessary to be successfully imported on the Mexican side? You need to do your due diligence, your ‘homework,’ and that’s where the USDA or local grower organizations or associations should be able to help.”
Miller adds that Mexico has two major requirements for imports of U.S. product. “They require phytosanitary certificates and also heat-treated pallets. In addition, some products call for seals on trailers. And Mexico has a zero soil tolerance, so if a load has dirt or soil on the product it can be refused at the border.”
Transportation issues within the U.S. on the way to the border also have to be considered, Papangellin notes. “Is it going to be refrigerated, is it going to be dry, is it going to be a van or an open conveyance? There are certain counties that have phytosanitary restrictions or requirements you need to meet both on the growing side, as well as the packing and the transit side.” This may necessitate alternate traveling routes or providing assurances that precautions have been taken to prevent “a hitchhiker insect.”
Part of the process is paperwork, which will bog down the process if not completed in a timely and accurate manner.
Goforth has staff dedicated solely to managing “all of the protocols required to ship to Mexico. There are very stringent demands as far as labeling and box accountability. Is it burdensome? Yes. Is it doable? Yes. In our case, it is worth the effort.”
Getting Paid
Negotiating payment, both when and in what currency, is a vital step in the process. “Do you want to bill a U.S.-based trading company so you’re secure on the U.S. dollar under the Perishable Agricultural Commodities Act (PACA)? Do you trust the other side and want to use irrevocable letters of credit, or do you want to strictly bill in pesos, and hope you’re going to get paid? You need to understand the culture, the system, the people you are shipping to, the exchange rate, and all the different vehicles available to transact dollars and pesos to assure payment,” Papangellin says. “Don’t wait until something doesn’t happen, like you don’t get paid, and try to figure it out,” he warns. “Then it’s too late.”
This is also when references can come in handy. Aside from cash-on-delivery or direct deposit transactions, Cordova advises exporters to thoroughly evaluate the history and creditworthiness of a buyer, gathering information from references, trade groups, and Blue Book ratings. “References are really key; that’s just basic business.”
One sure way to get paid is through an irrevocable letter of credit, says attorney Robert Goldman in Fort Lauderdale, FL. “The bank guarantees you are going to get paid if the customer doesn’t pay.”
Colter-Carswell agrees, stating, “Request a letter of credit, but it may not be granted to everyone, so you need to draft credit agreements, promissory notes, guaranties, a security agreement—all according to Mexican legislation to secure the liens.”
Liens involving real estate or pledges of certain assets or crops must be filed and recorded before the Registro Uico de Garantias (Secure Guaranties Registry), Colter-Carswell says. Other alternatives include selecting buyers with membership in the Fruit and Vegetable Dispute Resolu-tion Corporation (DRC) or Blue Book Services if things go wrong, but, as he points out, “the creditor will have to execute his final resolution in Mexico through Letters Rogatory [a formal request for action from the courts of one nation to another]. It’s very important to have guaranties from Mexican buyers.”
“Sell to buyers who pay their bills using the same due diligence tools you already use in the United States,” Hanemann says. “Diversify your customer base, just as you do in the United States, don’t put more than 20 percent of your business in Mexico into the hands of any single importer.
“Monitor market conditions from as many different sources as possible, and make sure reports from your buyers reflect what you know to be true from these other sources,” Hanemann says, and also recommends setting and sticking to payment terms, “usually 21 to 28 days from date of shipment—and hold firm. Any slippage requires a response in terms of limiting subsequent volumes. Require DRC membership on the part of your buyer. If necessary, subsidize the buyer’s membership fee yourself; it will be far less expensive than credit insurance. Then become a DRC member yourself.”
While the export process can be fraught with difficulties, following a few simple caveats can go a long way. “You need to choose your friends wisely, business is no different,” Goforth asserts.
“The key is to do business with customers you respect and who will respect your business. It should be a partnership built on fairness and transparency. Of course,” Goforth adds, “at the end of the day, there are bad people everywhere. You just have to choose what team you want to be on, do your best to be who you say you’re going to be, and good business will follow.” He sums it up this way: “With the right product and the right partnership, I see nothing but growth.”
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