As Mexico's iconic tacos become a luxury due to soaring food prices, Chinese cuisine is emerging as a popular and affordable alternative for the local. Inflation in Latin America, exacerbated by the pandemic and geopolitical tensions, has turned traditional meals into a financial burden, with the price of cilantro in Mexico quadrupling. Meanwhile, Chinese restaurants, by localizing their supply chains and catering to local palates, are gaining traction.
Food and Beverage Becomes Brazil’s “Invisible Tax”
In recent years, the price level in Latin America has soared, especially in countries such as Brazil, and eating out and daily consumption costs are staggeringly high. In Brazil, for example, Brazilian office workers eat in restaurants at noon every day, the average cost of 51.61 reais, often spend more than 50 reais. Such consumer prices not only reach the level of many developed countries, and has even become the “invisible tax”. In Rio de Janeiro’s “kilo dish” restaurant, local office workers can freely choose buffet-style meals, pay by weight. This way of eating may seem flexible, but it hides high costs. Several “kilo dish” restaurants compete with each other on commercial streets, ostensibly forming a price war. But in fact, due to the increase in ingredients and operating costs, food and beverage prices have not decreased, but continue to rise. Even a simple midday meal at work, its consumption is still not low.
Source: Shanghai Observer
The price of food and beverage is climbing not only in Brazil, but throughout Latin America. In January this year, a Mexican taco chain (Taco Bell) of the old receipt issued in 2012 on TikTok sparked a hot debate. US netizens could not believe that the price of tacos today is more than three times the price of the year! This receipt shows that 12 years ago, Americans could buy two five-layer beef burritos for just $2.59 (including tax). Now, the same burrito has risen to $3.69 per unit, and after accounting for taxes and fees in different states, the price of buying two beef burritos is more than $7.40.
Source: Taco Bell
Buy Cilantro in Mexico for Four Times the Price in China
In Taco’s home country of Mexico, many Mexicans have grown to be unable to afford the national snack. This year, the price of Mexican cilantro rose sharply, from 7 pesos to 30 pesos, forcing street vendors to cut, or even eliminate this key ingredient. In the capital, Mexico City, taco vendors have had to substitute onions because of the high price of cilantro. This not only changed the traditional flavor of the taco, but also sparked widespread consumer dissatisfaction. From April to June, the price of a bundle of cilantro (about 5 kilograms) in Mexico City’s Ixtapalapa wholesale market soared from 130 pesos to 450 pesos in just 30 days. The national average price of cilantro in Mexico has also risen from 19 pesos to 89 pesos per kilogram. In China, the highest average price of cilantro in the past three years is about 9 yuan ($1.28) per kilogram. The cilantro price in Mexico is four times that of China. Mexican cilantro prices soared for quite complex reasons, mainly including extreme weather and pest infestation. In addition, the climate instability caused by the El Niño phenomenon is also pushing up food prices, which not only puts pressure on the local economy, but also affects people’s daily lives.
Source: EqualOcean Analysis
Source: Unsplash
Pizza or Taco, an Economic Question
The upward pressure on prices has become more pronounced in the wake of the epidemic. According to Paul, an entrepreneur in Guadalajara, Mexico’s second-largest city, the cost of living in Mexico has increased by 10-20 percent after the epidemic, but wages have risen by only 3-5 percent. He said bluntly, “In Mexico, the gap between rich and poor is widening, and the average person’s life is becoming more and more stressful.” With the cost of living rising and incomes growing at a rate far outpacing inflation, many families have had to cut back on spending and live frugally. In the face of rising prices and meager wage increases, many Mexicans can only tighten their belts and become extra cautious in their daily spending. Paul is one of the rich local businessmen with a chauffeur and nanny at home, and due to more than a decade of master-servant relationship, these employees have long been like his family. Out of this emotional connection, Paul synchronized wage increases for them, allowing them to make ends meet even as prices soared. However, he also realized that not all employees could enjoy such treatment. Paul has investments in several areas, including restaurants, beverages, and tequila. He bluntly mentions that things are not going well for employees in his company. With the rising cost of living and slow wage growth, companies are having to deal with increasing financial pressures. His company has seen an increasing number of layoffs and resignations in recent years, and many employees have had to find other ways to cope with the growing economic challenges. “In Mexico, the economic inequality is very clear. We belong to the richest group of people, while most ordinary people are struggling to cope with basic living expenses,” he said.
Paul has also observed that Mexican eating habits have changed in response to economic pressures, with more people choosing to buy pizza rather than street food tacos. Sales of the fifth largest pizza brand in Mexico, in which he invested, became better after the epidemic. According to his explanation, “In Mexico, a pizza that costs about $5 is enough to feed a family, whereas 2-3 tacos cost close to $10, which is not enough for one person.”
In Latin America, economic development and the cost of living vary widely from country to country. Brazil, Peru and Argentina have always been recognized as countries with a low cost of living in South America. However, with the end of the new crown epidemic, the situation has shifted. Today, Paraguay has the lowest cost of living in South America, while Uruguay has jumped to the highest cost of living in the region. In 2023, the average monthly cost of living in Paraguay will be about $446 (excluding housing rentals), much lower than Uruguay’s $887. Paraguay’s lower cost of living is attributed to its relatively low prices for food and basic services. An average family in the capital, Asuncion, spends around $150 to $200 per month at the supermarket, while choosing to shop at markets is more economical. Eating out is also very affordable, with per capita spending between $12 and $25 in high-end restaurants and only $3 to $10 in regular restaurants. The cost of living is also relatively low, with apartments in the city center costing between $300 and $400 per month, while housing in the suburbs can be up to 40 percent cheaper. Nonetheless, the average cost of living in Paraguay is still higher than the average monthly income of many private sector workers (around 3.16 million guaraníes) and the legal minimum wage (around 2.8 million guaraníes). As a result, even in low-cost Latin American countries, many families still need to be careful with their budgets in order to maintain a basic living.
Source: The Economist Intelligence Unit
Latin America’s Dilemma: Soaring Prices, Persistent Hyperinflation
The most important reason for high prices in Latin America is persistent high inflation. The International Monetary Fund (IMF) expects that inflation in Latin America and the Caribbean will continue to be high in the coming years, and it is expected that inflation in Latin America and the Caribbean will reach 16.7% by the end of this year. Multiple factors are at work behind the scenes: the new crown epidemic has disrupted the global supply chain, while the Russia-Ukraine conflict has led to a spike in energy prices and a consequent sharp rise in the cost of food and household goods.
Source: EqualOcean Analysis
In Mexico, in particular, inflationary pressures have been particularly pronounced, with annual inflation already as high as 5.57 percent in July this year, and prices of fruits and vegetables soaring by 23.6 percent. This price increase directly impacted the consumer’s wallet, making many families’ daily expenses on the pressure. Despite the Bank of Mexico’s attempts to stimulate the economy through interest rate cuts, economic growth remains weak and inflationary pressures remain high. Currently, the sustainability of services inflation and low economic activity has worried the market. The central bank is faced with a “dilemma”: to prevent inflation from getting out of control, but also to avoid further economic recession. More market concerns and worries is that in recent months, in addition, the exchange rate of the Mexican peso also continued to depreciate. Since the end of the Mexican presidential election, the peso has been three consecutive months lower, the current exchange rate against the dollar has fallen to 19.93, a single-month depreciation of up to 6 percent, becoming one of the world’s largest depreciation of the currency.
Source: Google Finance
The continued depreciation of the peso has cast a shadow over Mexico’s economic prospects. Firstly, the political situation in Mexico is fraught with uncertainty. It fell in response. Although the National Renewal Movement (PRN) party won a landslide victory in the election, its push for judicial reforms has caused widespread concerns. Investors feared that these reforms would affect Mexico’s judicial independence and legal environment, and feared that they would weaken their investment protection. Such uncertainty has led to an exodus of capital, a fall in market confidence and a corresponding fall in the value of the peso.
A sudden change in the winds of US trade policy has put additional pressure on the peso. Trump let slip during this year’s US presidential campaign that he would impose high tariffs on Mexican automobile imports, leaving uncertainty about the future of Mexico’s auto manufacturing industry - one of the country’s economic pillars. This threat of tariffs directly exacerbates the risks for the sector, which in turn affects economic growth expectations for the country as a whole.
As for Mexico’s retail market, things are not looking good either, showing considerable weakness. Retail sales plunged 3.9 percent year-on-year in June this year, a low point in recent years and well above market expectations. These weak economic data have made people pessimistic about Mexico’s future economic prospects, and the peso has fallen even further as a result.
Source: VCG
How Chinese Food Can Occupy the Market amid Inflation Challenges
With taco prices soaring, more and more Mexicans are turning to more affordable and various Chinese food. In Latin America, high prices are posing a challenge to the restaurant industry, especially for Chinese companies, whose operating costs are rising due to the current high prices. Prices of raw materials and ingredients have skyrocketed, directly affecting the profitability of catering and retail industries. For example, in Brazil, operating in the restaurant business not only needs dealing with rising food prices but also facing the increase in logistics costs, as the local infrastructure is still relatively backward and transportation costs remain high. And for Chinese restaurant companies in Mexico, the continued depreciation of the Mexican peso drives up the cost of imported goods and local sourcing, which makes the enterprise doubly stressed to control the budget.
Despite the current challenges posed by inflation and political uncertainty, one thing is certain: improving the supply chain is key. This means that while rising costs are inevitable, companies can effectively remain competitive by intelligently adapting supply chain strategies. Paul pointed out that Latin America is in great need of foreign investment to increase jobs, so he believes that even in the face of US sanctions, Mexico still needs the entry of Chinese companies in the general direction. Chinese companies need to adjust their strategies at any time to adapt to market changes if they want to succeed. Take the catering industry for example, Yang Guofu spicy hot pot in Brazil is currently expanding rapidly. It adjusts the dishes to cater to local tastes, which not only retains customers but also let the business flourish.
Commenting on the price of Chinese food in Mexico, Paul mentioned that although it is not cheap, on par with other local restaurants, it is still popular because of its unique flavors and various choices. In the capital, a bowl of noodles costs at least 100 pesos, which is more expensive than many fast foods, but people are willing to pay for this fresh try. In the Brazilian market this year, two companies, Yang Guofu and Zhang Liang spicy hot pot, are winning the hearts of local consumers with their highly standardized operating procedures and precise grasp of local tastes. Yang Guofu has reduced its reliance on imported raw materials by establishing a local supply chain, effectively controlling costs. Although the cost of purchasing ingredients is currently high, it has made full use of the spending power of its target audience in the Latin American market, and is still earning substantial profit returns. Thus high prices actually make up for high operating costs, allowing these catering companies to not only maintain operations but also make a profit. In addition, the experience of Suzhou’s manufacturing industry in going overseas in Latin America also shows that through the whole industry chain going overseas and smart supply chain strategy, enterprises can still effectively maintain competitiveness. Mexico’s Suzhou Anjie Technology, which provides supporting electronic components for Tesla, has realized cost control and market expansion locally by taking advantage of the global supply chain. This is not only responding to customer demand, but also a strategy to optimize the operation process on a global scale.
Therefore, EqualOcean believes that despite the challenges, Chinese companies have a chance to succeed in the Latin American market as long as they can flexibly adjust their market strategies. By establishing a strong supply chain and production base, Chinese companies going overseas can not only meet the demand of the local market, but also enhance their competitiveness in the international market while ensuring profits.