NAFTA GAINS SEEN OVER LONG TERM

JIM OSTROFF

WASHINGTON (FNS) -- The North American Free Trade Agreement took effect on Jan. 1, but the primary gains for U.S. food retailers, wholesalers and processors will come over the long haul, not immediately, according to industry analysts.

"The most important aspect of NAFTA is not tariff reductions as much as the stability it creates for companies, knowing that this will not disappear overnight," said Bruce Gates, government relations vice president for the National-American Wholesale Grocers' Association.

A cornerstone of NAFTA is protection of U.S. and Canadian investments in Mexico and financial reforms to improve its banking and financial services institutions. "In the short run," Gates said, "NAFTA will encourage companies not already doing business in Mexico to consider this in a serious way." Already, he said wholesalers such as Certified Grocers of California and Fleming Cos. are either selling products to Mexican retailers or planning to launch joint ventures with stores there.

Within a few years, Gates said the NAFTA-led "enhancement of Mexico's economy will create billions of dollars in markets for U.S. distributors and opportunities to export not only products, but distribution technologies and expertise," including building and operating warehouses, communications and transportation systems. This latter aspect is a particular opportunity for U.S. wholesalers, said Timothy M. Hammonds, the Food Marketing Institute's president and chief executive officer.

"There are many U.S. companies that will be able to help Mexican store owners develop new kinds of formats, as they did with their independent member-retailers in the U.S.," Hammonds said.

The FMI president noted American supermarket companies, unlike their mass retail brethren, have not made a big push to open stores in Mexico -- and likely will not.

"My personal opinion is that we're probably more likely to see U.S. [supermarket] companies do joint ventures in Mexico, since we've learned in this industry the great advantage of having local management that is familiar with the local customs, products and work force," he said. But NAFTA should benefit U.S. food retailers and wholesalers directly in terms of less costly access to Mexican foods. "Americans have a love affair with all kinds of Latin products, such as fruits, vegetables, salsas and tortillas," Hammonds said. "This should provide a very positive area of sales growth for our supermarket industry" as U.S. import duties on Mexican products are phased out.

Not surprisingly, U.S. food processors are enthusiastic NAFTA supporters. "Mexican consumers are very oriented towards American products and culture, and there has been a tremendous penetration of U.S. food brands there," said Juanita Duggan, senior vice president of government relations for the National Food Processors Association.

Duggan said food processors expected a big boost from NAFTA on Day 1, [Jan. 1, 1994] as about half the U.S. and Mexican import duties on perishables were eliminated immediately, with the rest phased out in either five, 10, or 15 years. Consequently, she said, these firms "believe NAFTA provides a huge opportunity for the sale of finished products to Mexico," although she could not offer dollar estimates. In 1990 the United States exported $29 billion worth of food products to Mexico and imported $30 billion from there. Meanwhile, food processors, like retailers, are particularly happy that the pact allows them to buy Mexican produce at lower prices. Many companies, Duggan said, "will tell you they greatly benefit by the tariff phase-out on tomatoes, for example, which will improve their ability to get [Mexican] product when they need it."

U.S. food processors also expect to increase their imports of Mexican-grown tropical fruits.