MexECON Blog

Demand, Prices Boost Mexican Veggie Producers

Since we at Terra Nova Ventures are mostly focused on Mexican export agriculture, we have a keen interest in commodity demand and prices north of the border.  In a recent analysis, we looked at data from the U.S. Department of Agriculture to determine whether Terra Nova's current businesses exporting fresh produce to the U.S. market during the winter season made sense.  The analysis showed that over the last two decades, demand for various produce commodities produced by Terra Nova's portfolio companies increased faster than U.S. population growth.  In addition, prices generally rose at a good pace, with the producer price index (PPI) for all fresh-market vegetables rising at an average annual rate of 2.5% from 1989 to 2009 - very close to the rate of overall inflation in the period.  Most important, however, produce prices during the winter months grew especially fast.  For example, our analysis shows that the PPI for fresh vegetables rose at an annual rate of 4.6% from November 1989 to November 2009.  Price rose at an annual rate of 4.4% from December 1989 to December 2009, and at a rate of 3.3% from January 1989 to January 2009.  These winter months are when Mexican producers are exporting the bulk of their crop to the United States.

Comment:  Agriculture may not be the largest category of Mexican exports to the United States, but that doesn't mean the sector can't be dynamic.  Rising awareness of the health benefits of fruits and vegetables seems to have helped increase demand for produce in general, and that has benefitted produce growers in Mexico.  In addition, Mexican producers have been helped by the fact that winter-season produce prices have risen at an extraordinarily strong rate over the last two decades.  This analysis helps validate the attractiveness of Mexican agriculture in general and Terra Nova's portfolio companies in particular.  We continue to seek profitable new investment opportunities throughout Mexican agriculture. 

Patrick Fearon, CFA
Vice President, Fund Management

                         U.S. Producer Price Index for Fresh Vegetables
                                                         1982 = 100
                                    Source:  U.S. Department of Agriculture
US Veggie PPI

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