Even popcorn could become a victim if NAFTA ends

While Cinepolis's purchases are just a drop in the bucket, it shows the scope for potential impact if other buyers followed suit. Photo / 123RF

As Donald Trump's administration prepares to renegotiate NAFTA, the head of Mexico's largest movie theater chain is warning that an end to free trade could convince him to buy his popcorn from Argentina instead of the U.S.

Cinepolis de Mexico, the world's fourth-largest cinema chain, buys about $10 million a year of American kernels from farmers in Kansas, Missouri and Iowa, according to Chief Executive Officer Alejandro Ramirez. He said his company already studied sourcing the corn from Argentina after Trump's campaign and victory helped push the peso to record lows against the dollar. For now, the U.S. still wins. But a tax of as little as 2 percent could tip the scales, he said.

While automakers such as General Motors and Toyota have born the brunt of Trump's Nafta displeasure, Cinepolis shows how key U.S. exports that are unrelated to manufacturing could become collateral damage. Ramirez, who heads a business chamber including the nation's biggest multinational companies, said his group is working with its business partners in the U.S. to educate politicians there on the value of economic integration.

"A lot of the value chains are complex, and nobody has really told people that," Ramirez, 46, said in a phone interview from Mexico City on Thursday. "We all need to work better to inform. In the past, it was not necessary because we never thought free trade would be put at risk."

That changed with the election of Trump, who has promised to end or renegotiate the North American Free Trade Agreement, which he described as the "single worst trade deal" in U.S. history and a disaster for American workers.

Mexico this week began 90 days of consultations between the government and the private sector to prepare for talks expected to start in May. President Enrique Pena Nieto and top officials have said keeping North America a tariff-free area is a key goal.

While Cinepolis's purchases are just a drop in the bucket of the more than $2 billion in corn that the U.S. exports to Mexico annually, it shows the scope for potential impact if other buyers followed suit.

Ramirez, whose grandfather started the cinema chain more than four decades ago, said his company's total annual bill in Mexico for American goods is about $40 million. This includes screens, projectors, and $6.5 million of Wisconsin cheese to drizzle over nachos. Overall, Morelia, Mexico-based Cinepolis has about 3,200 movie screens in Mexico, with 1,700 more between Latin America, the U.S., Spain and India.

While Cinepolis has invested about $140 million in the U.S., Mexico - where the company has a 68 percent share of the market - remains by far its biggest presence. And in Mexico, about 90 percent of the movies shown in Cinepolis come from the U.S., Ramirez said. "We're one of Hollywood's big customers," he said.

"We import all of our corn for movie theaters from the U.S. thanks to the fact that there's free trade," Ramirez said. "If that wasn't the case - if we go to pre-Nafta tariff levels - then it would be cheaper to bring it from Argentina."

Ramirez doubts many Americans are familiar with the concept of supply chain integration, which causes every dollar of Mexican exports to hold an estimated 40 cents of U.S. content, according to a 2010 working paper from the National Bureau of Economic Research. And American farmers may not know when their produce ends up in Mexico, he added. Getting this message out, he said, is now the mission of his group, which works with the U.S. Chamber of Commerce and The Business Roundtable.

"There are things that we can find that are not a zero sum game but a win-win solution," he said. "A car that has been assembled in Mexico, you cannot really say that it's a Mexican car. It's really a North American car. This free trade agreement has been critical for competitiveness of the North American region as a whole."

- Bloomberg