Constellation versus the Will of the People

Mexico | With a plebiscite on its brewery in Mexicali, Baja California, looming, Constellation Brands has slowed the construction of its USD 1.5 billion plant with a capacity of 10 million hl. It now hopes to finish construction work in 2021, which represents a delay of two years. Constellation originally planned to open it in December 2018.

Part of the population opposes the brewery for its presumed environmental impact, especially for the use of water. Mexico’s Baja California peninsula already faces water supply challenges for agricultural and urban uses, and residents fear Constellation’s brewery will suck up what little water there is to make beer for export to the US – criticisms that the company denies.

In January 2019, the Electoral Court of Baja California ordered the State Electoral Institute to grant a hearing to Constellation Brands representatives, before issuing its verdict on whether or not to allow a ballot initiative on the construction of the plant.

It seems as if Constellation has not handled stakeholder issues well. For one, it lacks federal water permits for the Mexicali project, and insists its state permits suffice. For another, it has also demanded that the people’s vote is suspended. To complicate matters further, the ballot initiative could eventually entangle Constellation in the region’s June gubernatorial election, Carlos Laboy, an analyst with HSBC, said in a recent note.

“If Constellation is seen to oppose a democratic referendum without elevated concern for community issues, it could create a damaging narrative and delay needed capacity a few years,” Mr Laboy argued.

He advised Constellation to push the reset button on its Mexicali project by processing more clean water to farmers than it uses and also improve its water intensity rate, which was reported at 3.19 litres of water per litre of beer in 2017.

In addition to the construction of the Mexicali plant, Constellation keeps ahead with major expansion plans at the other two plants it operates in Mexico, one in Obregon, Sonora and another in Nava, Coahuila.

Constellation has already spent USD 3 billion to expand its brewing capacity in Mexico to over 30 million hl annually. Once the Mexicali plant is on stream, total capacity could rise to 43.5 million hl.

The company anticipates that for the 2019 fiscal year its beer business (which includes the production of brands such as Corona and Modelo in Mexico for the US market) will report an increase in net sales of between 9 percent and 11 percent, with an operating margin of approximately 39 percent.