The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
19 - 23 de Noviembre de 2007

The World

Big is good but bigger is better: That appears to be part of the thinking of behind Constellation’s decision to acquire Fortune Brands’ U.S. wine business. Constellation already is the leader in the wine segment, but this will grow their position, especially in the U.S. market. Of course the global wine market is rather fragmented, and the acquisition will only increase Constellation’s global share to only approximately 4.5% up from 4.0%. In the U.S. market, though, the acquisition will push up their share to 20 percent participation. The acquisition, besides giving them a number of brands, also gives them “five California wineries and more than 1,500 acres of vineyards in the Napa, Sonoma and Los Carneros grape – growing regions.” At the same the acquisition gives them a number of brands including Clos du Bois and Wild Horse, in the upscale segment which, they expect, will “enhance [their] portfolio of premium wines”. All in all they will have some 300 brands which cover most of the wine market spectrum. While the acquisition seems to help Constellation strategic vision – although the market’s reaction isn’t so upbeat – the general opinion is that the deal is more beneficial to Fortune’s objections. Fortune sees the wine business as a low margin operation. By selling their U.S. wine business they feel that they will be better able to focus on the spirits segments of their operations. Probably just as important, if not more so, is that by selling their wine business, they will have ‘extra’ cash on hand to make a serious play for Vin & Spirt, the Swedish parent of Absolut.

Reading the label: Increasingly regulators are requiring that more information be placed on product labels. This may be all well and good, but there is always the question if consumers really read the label, much less whether or not they make decision based on the labels. Recent research in the U.S. suggests that consumers are now, more than ever before, reading. The research by the Hartman Group finds that “30 percent of consumers say they read product labels ‘much more often’ than last year. Some 31 percent said they read labels ‘slightly more often’ now, while 36 percent report no change from last year.“ As might be expected there are various factors driving consumers to read the labels. These include: 1) safety concerns; 2) health concerns; 3) avoidance of certain ingredients; and 4) for information on where products originate. Interestingly, consumers also say that media reports influence their decision to read the labels. Of course, reading more doesn’t mean that they read all the time. In fact, they tend to ignore labels for indulgence products and products for special occasions. Nevertheless, what this is saying is that consumers are becoming more involved with the products they purchase and food companies will have to adapt to this if they want their products to relate with consumers.

Mexico

Budget gives more resources to rural Mexico: The Administration’s original budget for the Secretary of Agriculture actually contemplated a contraction in real pesos. What came out of Congress, however, wasn’t much better. The nominal increase was just 3.3 percent over last year. Where the real money went was to the Special Concurrent Program (PEC), which has a strong social component. Once again, we see this as part of a strategy to facilitate the total opening of the agricultural economy to U.S. food and agricultural products within the NAFTA context.