By Santiago Pérez
Residents in the border city of Mexicali voted against the
completion of a $1.4 billion brewery owned by Constellation Brands
Inc. on grounds that its intensive water consumption was
detrimental for the community, a move that risks undermining
foreign investment in Mexico as the country faces a deep economic
contraction.
The administration of nationalist President Andrés Manuel López
Obrador organized the public consultation on Saturday and Sunday.
Farmers had complained that Constellation's water-intensive plant
threatened to intensify irrigation shortages in the agriculture
sector.
Around 76% of those who voted rejected the project developed by
Constellation, the third-largest U.S. beer producer and brewer of
Mexico's Corona and Modelo brands for U.S. consumers. Turnout was
less than 5% of eligible voters.
As a result of the vote, the government won't grant a water
supply permit to Constellation Brands, Deputy Interior Minister
Diana Álvarez said on Monday. The federal government will soon
begin talks with Constellation to look for compensation for
incurred losses, Ms. Álvarez said, after disclosing the results of
the referendum.
The cancellation of such a large-scale project sends a negative
signal to foreign investors, business groups say. This is the first
time Mexico's government has put a big foreign investment project
to a public referendum, even as foreign direct investment shrank
last year and the country's economy is expected to nosedive as the
world is engulfed by the coronavirus pandemic.
Fixed investment in Mexico fell 4.9% last year from 2018,
contributing to a mild contraction in economic activity. Economists
polled Friday by local bank Citibanamex expect gross domestic
product to contract 3% in 2020, compared with an estimate of 0.7%
growth just two weeks before.
The vote comes as the company was close to completing
construction of the plant with all required government approvals.
It began construction on the site in 2016 and planned to finish it
next year. Constellation said it has already spent some $900
million on the nearly completed brewery.
The company aimed to provide 750 jobs in Mexicali. But farmers
complain that they have already been forced to pull tens of
thousands of acres out of production because of water
shortages.
"Farmers were not taken into account when this project was
launched," said René Prieto, a forage, corn and alfalfa producer in
the Mexicali Valley who voted against the plant's construction. "I
am in favor of the investment, but we were never notified that the
water that was for the agriculture sector would now be for
industrial use."
Mr. López Obrador said he will meet with the company's
management and evaluate a possible relocation of the plant to a
region with greater water sources.
"We have to listen to the people and govern with the popular
mandate," Mr. López Obrador said Monday.
"Of course, foreign investment matters to us, but we must take
people's opinions into account and take care of our natural
resources.," he said at his daily news conference.
The country's top business confederation said the referendum was
conducted in an irresponsible way as coronavirus infections spread
rapidly across the country.
"Carrying out a referendum to determine the viability of a
private investment project that has all the permits violates the
current legal framework and creates an environment of legal
uncertainty in Mexico," the organization said in a statement on
Sunday.
Constellation Brands officials declined to comment before Mr.
López Obrador's news conference on Monday. The company has said the
project meets all regulations and laws, and that its operations
pose no risk to local water supplies.
Mr. López Obrador is using the controversial consultations for
big infrastructure decisions. Before taking office in late 2018, he
organized a four-day referendum on a $13 billion airport project
that was underway for the country's capital. Only 1.2% of
registered voters turned out, but he canceled the project after 70%
of those who participated rejected it.
He organized another referendum in the Yucatán Peninsula for the
approval of the Maya Train, a $7.4 billion, 950-mile tourist
railway that runs through Mexico's largest rainforest. More than
92% of those who participated voted in favor.
But the consultations have sparked strong objections, in part
because they are poorly organized, voter turnout is low and the
selection of issues put to a public vote is arbitrary. Equally
worrying is its use to replace the central role of the government
to preserve the rule of law and regulate private investment
projects, business leaders say.
In the case of the Mexicali, it was an incomplete and irregular
consultation, said Ernesto Elorduy, head of the Mexicali chapter of
employer federation Coparmex.
"The turnout is unlikely to be representative of Mexicali's
population. It was a disorganized consultation and carried out
during the most important public health contingency in the history
of Mexico," he said.
He added that there were just 10 polling stations in urban areas
for more than one million residents, and 17 polling stations in
rural areas where people strongly opposed construction.
"The result is irrelevant. These types of policy decisions must
be made by federal and local authorities and regulatory agencies,"
he said.
More than half of Constellation's 9,000 workers are based in
Mexico, where the company has invested more than $9 billion over
the past six years. The company has said it wants to keep making
its Mexican brands in Mexico but would look elsewhere if it can't
expand in the country.
Mexico is the world's largest beer exporter, generating some $4
billion in sales of brands such as Corona. The country is the main
source of imported beer in the U.S., with more than a 70% market
share.
Write to Santiago Pérez at santiago.perez@wsj.com
(END) Dow Jones Newswires
March 23, 2020 12:11 ET (16:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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