What it takes to get a Corona from Mexico to US
Ordering a bottle of Corona beer at a bar in the United States is a simple proposition.
Getting it there from its brewery in Mexico involves a complex, cross-border supply network that will likely get more complicated if US President Donald Trump follows through on vows to renegotiate the North American Free Trade Agreement (NAFTA) or tax imports.
Trump has not outlined specific plans for revising NAFTA, but he has made repeated calls for a levy to discourage companies from moving jobs outside the United States. Last Thursday, the White House floated a plan to impose a 20% tax on imports. Republican leaders in the US House of Representatives have included a tax on imports in their blueprint for overhauling corporate taxes.
The ideas have met opposition in Congress, even inside Trump’s own party. US Senator Lindsey Graham, a republican from South Carolina, took to Twitter on Thursday, saying: “Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad.”
Trump’s rhetoric has also heightened uncertainty over the billions in supply-chain and infrastructure investment that a diverse array of companies including automakers, railroads, appliance makers and food producers have made on both side of the US-Mexico border during the past two decades.
The stakes are high for brands such as Corona, which is entirely brewed in Mexico, and the transportation companies such as Union Pacific Corp. that make money moving the beer’s raw ingredients and packaging into Mexico and bringing the finished brew back to the US.
Victor, New York-based Constellation Brands Inc., which owns the US rights to Corona, plans to spend $2.5 billion to expand an existing brewery in Nava, just south of the border with Texas, and $2b. on a new brewery in Mexicali by 2021.
Just days before the November 8 US election, the company said it would buy a Mexican brewery from Grupo Modelo for $600 million and expand its operations in the country.
To qualify as a Mexican beer, Constellation’s beer brands must be made in Mexico. However, about 40% of the cost of the company’s Mexican beers are tied to ingredients, supplies and freight services that come from the US, Constellation chief financial officer David Klein said during a conference call earlier this month.
The company – which has seen its market valuation triple to nearly $30b. since 2013, when it obtained rights to sell Corona and other Mexican beer brands – imports hops, barley and other grains from the US to brew Corona. The company does not disclose the specific origin of ingredients.
“The majority of our glass-bottle supply comes from the glass plant at the Nava brewery and other Mexico suppliers,” Constellation said in a statement. “We source less than 20% of our glass bottles from the United States. Some raw materials, including hops and grains to brew the beer, do come from the United States.”
Farms in the Midwestern and Northwestern US are major growers of barley in North America, and Mexico was the world’s largest importer of US barley in 2015. Since 2010, Mexico has been either the world’s largest importer of US hops or second, just behind the United Kingdom.
Unraveling the NAFTA supply chains of companies such as Constellation, or the big automakers, would lead to higher prices for consumer goods, experts and industry executives say.
“Everyone would lose, especially the consumer. It’s that simple,” said Brandon Stallard, CEO of Troy, Michigan-based TPS Logistics, which handles tens of thousands of cross-border shipments for customers daily.
US companies also benefit from Corona production. Perrysburg, Ohio-based glassmaker Owens-Illinois formed a joint venture with Constellation to expand a glass-bottle plant next to the Nava brewery and subsequently bought a major Mexican glass-bottle producer to meet demand. Owens-Illinois declined to comment about where its raw materials come from.
Broomfield, Colorado-based Ball Corp. has built a plant in Monterrey to make cans for Constellation’s new brewery.
Constellation says it imports almost 20% of its glass bottles from the US. The company did not say where those bottles come from. But Lance Fritz, the chief executive of No. 1 US railroad Union Pacific often cites the example of glass bottles the company hauls from a plant in Texas to a brewery in Mexico. Those bottles are made from recycled glass Union Pacific hauls from all over America, he says.
The railroad has also invested $40m. in cleaning, washing and repair facility for beer-carrying boxcars just north of Constellation’s Nava brewery. Union Pacific hauls US barley, malt and rice for brewing.
“The job we have at hand is to help our elected officials see the world from our perspective and then pray for them to make the right decision,” Fritz said.
‘Simply put, any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad’