(BusinessWeek) PepsiCo Inc. (PEP:US) and Nestle SA (NESN) announced plans to invest $6 billion in Mexico as the lure of faster growth in Latin America’s second-largest economy trumps higher taxes on their products from soft drinks to pet food.
PepsiCo, the maker of Cheetos and Pepsi soda, said it will spend $5 billion in five years to expand its food and beverage business in Mexico, citing the nation’s growing middle class and opportunities for long-term growth. Nestle, producer of Friskies and Purina, said it will invest $1 billion over the same period to build plants including a pet food factory in the central state of Guanajuato.
The moves come just three weeks after Mexico applied a one peso per liter tax on sodas, an 8 percent tax on high-calorie foods and a 16 percent tax on pet food as part of a push to increase the government’s revenue base. The new investments show companies like PepsiCo aren’t being deterred by the impact of the duties, with most passing on higher taxes to consumers, said Marisol Huerta, an analyst with Grupo Financiero Banorte SAB in Mexico City, in a telephone interview.