Winery Visit Turns Sour (Part 2)

My “winery visit” blog didn’t produce much feedback—responses to the young lady’s question, “Why do you buy bottles from Mexico? Why not from the U.S.?” Some 500 people did click on the article at some places or the other where it was posted (Medium, LinkedIn, Facebook, and my personal website) and sent to people on my mailing list, but I have no way to know how many of them actually read it.

It’s indeed a difficult question, which became apparent when I discussed the issue in a group of which I am a member. The discussion produced multiple viewpoints, as expected, though cost being a prominent reason for buying wine bottles from Mexico. Someone talked about maquiladora factories in Mexico’s border region with the U.S. as a possible place where bottles could be manufactured and exported to the U.S.?(More about maquiladoras later). The discussion strayed from time to time to matters such as politics and migration.

Some of the written responses I did receive presented interesting viewpoints. Here’s a quick summary of the response in no particular order, some presented almost verbatim.

I think it all comes down to where it hits our pocketbooks. Raised as I was, I look for bargains. If a shirt is made in the USA but I see a similar one from China that is cheaper, I will buy the one made in China… I consider myself a giving person who realizes there are poor nations where employees aren’t paid much. I consider myself helping those poor employees out when I buy the products they make rather than the more expensive products made in United States.

Since businesses are always watching their bottom line; my first thought is that it was probably cheaper to import the bottles from Mexico than to buy them from Owens Illinois.

Speaking firsthand, I have worked at two wineries, joyfully for wine but not salary. The owners of private wineries have small profit margins, given the cost of staff, products for shipping, supplies used for wine making and bottling process, labor in the fields, fertilizers, chemicals, stakes, netting, etc. Too many costs that can be trimmed, the better. Wine bottles are much cheaper in Mexico because of the cost of raw materials, labor, and fewer US companies competing for the bottle business.

In these days of global sourcing, it is not surprising that the tour guide was shocked at the comment; it shows that such matters are rarely seen by the average visitor (and maybe the tour guide as well).

Who does not know what the USMCA agreement is all about??I would think bottles from Mexico, vineyard and processing in the US, and consumption in US and export markets would be the ideal situation.

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I have used this mini case study several times since 2000 in my International Business courses. Here are some answers I received over the years (including background and context added by me).

Cost. The cost of a company’s inputs is always a factor in purchase decisions, along with factors such as quality, lead time, and the cost of freight and shipping. Another reason companies are so focused on cost control and cost reduction is the existence of intense competition for most goods and services. Small wineries compete with other wineries, large and small, that also import wine bottles from low-cost nations such as Mexico. If they don’t do that, they will be priced out of the market, and their owners/investors and employees will lose out in the process. It’s management’s fiduciary duty, under law, to act in good faith serving the owners’ (shareholders’) best interests, typically financial interests.

NAFTA. The North American Free Trade Agreement created a free trade zone between the U.S., Mexico, and Canada in 1994, which remained in force until 2020. It was designed to promote trade by eliminating most tariffs on exports and imports between the three countries. So, most U.S. goods and services could be exported to Canada and Mexico without tariffs and quotas, and vice versa. Wine bottles made in Mexico could therefore be exported to the U.S. without tariffs, which made them much cheaper than wine bottles imported from other countries. Bottles made in the U.S. were much costlier than imported bottles due to the higher cost of labor and practically all manufacturing inputs.

The Trump Administration discontinued NAFTA in 2020, and replaced it with the United States Mexico Canada Agreement (USMCA), essentially an updated version of NAFTA, with major changes relating to labor and environmental standards, intellectual property protection, and certain provision relating to digital trade.

Maquiladoras. Another factor helping Mexico’s manufactured exports to the U.S. is the maquiladora program launched by the Mexican government in 1964 to boost the manufacturing sector by allowing foreign companies to set up factories in certain regions, typically just below the U.S.-Mexico border. Such factories, known as maquiladoras, can import the needed raw materials and export finished goods—all without paying any customs duties or tariffs. Foreign companies also benefit from cheap labor.

Mexico has been the United States’ third largest trading partner (after China and Canada) and the second largest export market (after Canada) for a long time.

Trade Theories. Theories of international trade, which we have known since Adam Smith’s seminal book published in 1776, The Wealth of Nations, explain why it is in a country’s interest to engage in trade with other countries. A country should specialize in the production and export of goods it can produce more efficiently than other countries, and import goods produced more efficiently by other countries. Trade theories answer questions like “why does the United States export commercial jet aircraft and import textiles and clothing.” Therefore, it’s in a country’s interest to specialize in the production of goods it produces most efficiently and import goods from other countries that it produces (comparatively) less efficiently, even if it could produce them more efficiently itself. As a result, a country can increase its consumption of goods and services that go beyond what it could produce on its own.

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Towards the later part of my stay in Bowling Green, Ohio (1997-2002), I knew the Executive Vice President of Toledo-based Owens-Illinois. I posed the same question to him. He laughed and said that they don’t supply bottles to small wineries. His own family owned a small winery in Michigan and they didn’t supply bottles even to them.