Mexico: Heat wave good for consumption but not for beer production

It’s a paradox: The heat wave that has hit Mexico in the past few weeks has been a great boon for the country’s beverage industry, particularly beer producers, as thirsty consumers seek solace from record temperatures. At the same time, the near-drought conditions present a huge challenge to Mexico’s beverage industry, as water supplies become increasingly scarce, Bloomberg reported on June 22.

All 32 Mexican states registered temperatures of at least 30 Celsius (86 Fahrenheit) this week, with nine expected to exceed 45 Celsius (113F), the country’s weather service said. The heat wave is aggravating recurrent water shortages, with Mexico receiving 30% less rain so far this year and almost two-thirds of its reservoirs less than half full, according to the National Water Commission.

Meanwhile, the beer industry is also setting records. Thanks to brands such as Corona and Dos Equis, Mexico has been consolidating its place as the world’s largest beer exporter, with shipments worth more than $6 billion last year according to central bank figures. That’s 7.3% more than in 2021, almost tripling the value of shipments of a decade ago.

Mexico has been strategic in positioning its crafty-looking, summery beers in the global market. Just last month, Constellation Brands Inc.’s Modelo Especial became the US’s bestselling beer, dethroning Bud Light amid changes in consumer tastes (and a media backlash against the US brand). The current hot weather triggered an 80% increase in beer sales in Mexico between May and June, according to estimates by an association of small retailers.

Yet the water shortage is both a logistical challenge and a public-relations nightmare for the industry. During last year’s historic drought in Northern Mexico, when water had to be rationed for months in the city of Monterrey, big industrial users received their allotments even as ordinary citizens had to queue for their government-provided rations. Brewers and other companies were forced to give up some of their excess of water to defuse the scandal.

The lack of water also explains the cancellation in 2021 of a huge brewery project by Constellation Brands in Mexicali, in the Baja California state bordering the US. After the project was rejected in a local referendum due to concerns about the region’s water supply, the company announced the construction of a plant in the state of Veracruz, where water is abundant.

It’s hardly a trend, but the move could be the start of a shift of production to Mexico’s South from the North — increasing the costs to export to the profitable US market. Mexico’s north, center and northeast regions represent 78% of the country’s territory and 77% of its population, but have only a third of the country’s renewable water. The other two-thirds is in Mexico’s Southeast, where only 23% of the population resides.

That may help explain why, at the peak of the crisis last year, President Andrés Manuel López Obrador threatened to stop beer production in Mexico’s North. Thankfully, the weather improved, and the president never enforced his ultimatum. The current weather situation could restart that debate.

Water shortages are common beyond Mexico, of course, and the drought affects more than just the beer industry. Earlier this month Diageo Plc, the world’s biggest spirits company, warned that climate change is going to make water scarce and that the company had 43 sites in water-stressed areas last year.

But if Mexico wants to maintain its position as the world’s leading beer exporter, the industry is going to have to address these issues — and soon.

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