Top Editors ... LatinAmerica... land of promise

Title: LatinAmerica... land of promise
Date: 01/01/2006
Autor: By Hanne Martine Stabursvik and Claire Rowan


Latin America remains one of the most challenging and complex markets in the world and represents an enticingly underdeveloped region for food and drink manufacturers

To many, Latin America is the world’s breadbasket; a troubled region witheconomic instability; and a far away exotic paradise, all in one. While this description to a certain extent rings true, it is not particularly helpful for the overseas stakeholder who is considering Latin America as an interesting market to buy from, or sell to, for that matter.
First of all, Latin America is a huge geographical region, comprising 20 independent countries and several dependencies starting in the North with Mexico and finishing in the South with the Argentine and Chilean Patagonian plains. To picture Latin America as a homogenous region is as accurate as describing all EU  countries as the same. Between the two extremes, there are tropical rainforests in Central America, high mountains in the Andes, Caribbean islands, and temperate and highly productive plains in the Pampas.
Roughly 500 million people live on a 21 million km2 expanse of land, compared to roughly 705 million in Europe who occupy just 10 million km2.
Politically, the region has gone through a spectacular transformation. Twenty years ago it was fraught with civil war and military dictatorships: now there are democratic institutions, integrated development
planning, dialogue and consensus building.
More pragmatism prevails, and less bravado. However, political, economic and fiscal regimes continue to create a complex backdrop for industrial development.
Assigned the honorable title of ‘emerging market’, Latin America has the natural resources to feed the whole world if conditions were more favourable. The total retail value of the Latin American packaged food market grew by over 15% from 2003 to 2005 and reached US$135.6 billion.
Strong growth in Brazil and recovery in Argentina contributed to the double-digit value growth, with the regional market exceeding its 1999 value for the first time during the review period, according to
international research specialist, Euromonitor. These figures indicate a substantial recovery from the sharp decline in sales in 2002, following the collapse of the Argentine economy at the beginning of that year: a devaluation that untied the Argentine peso from the US dollar, coupled with the government’s declaration of default on its public debt, led to a dramatic loss in consumer confidence as the banking system collapsed, and jobs and savings were lost, according to Euromonitor.
At the same time, Brazil showed strengthening value sales in 2005 as affluence allowed more Brazilians to afford imported products once again.
Packaged food sales reached US$49.2 billion, and demand for lower fat foods rose in sectors such as dairy products, and ‘ethnic’ food types such as Italian food. Bakery and dairy products remained the greatest value
sectors, and there is a growing market for functional drinks and exotic juices in Brazil.
In Mexico, during the same review period, economic slowdown prompted consumers to seek budget-priced products that offered convenience, such as frozen vegetables. An increasing move towards using supermarkets for distribution in Mexico also helped to boost the availability of such products, according to Euromonitor.
Packaged food sales reached US$38.9 billion in 2005 compared to US$36.2 billion in 2004, and US$28.6 in 2001. Soft drinks, bakery and dairy products represented the biggest market sectors.
Soft drinks represent by far the biggest grocery sector in Argentina in terms of value sales, growing from US$1.7 billion in 2001 to US$3.5 billion in 2005, according to Euromonitor.
The country’s total packaged food sales were valued at US$8.2 billion in 2005, which represents almost 100%
growth on the 2001 figure of US$4.6 billion, with dairy products and bakery products representing the second and third largest sectors respectively. Carbonates continue to enjoy the dominant position in the market,
but consumers continue to show little brand loyalty, and both the Coca-Cola Company’s Nativa and PepsiCo’s Pepsi Twist were withdrawn from shelves shortly after launch following their failure to achieve the desired market share. Leading manufacturers are therefore focusing only on products that sell well and leave less profitable niches alone.
Throughout the region, although many households still have domestic staff to help in the kitchen, there is an increase in the number of convenience products consumers are prepared to spend their money on. As more women join the workforce and have less time for preparing traditional meals, so more snack products are appearing. However, the rapid volume growth of 27% in sales of both sweet and savoury snacks contrasted with a value growth of 11% in the five years to 2004.
According to Euromonitor this was due to companies in economically challenged countries such as Argentina, Brazil and Venezuela offering promotions aimed at stimulating volume sales, such as buy-one-get-one-free offers, stickers and prize draws.
Also key in Latin America is a passionate interest in health and beauty, so it is the healthier pre-prepared convenience foods such as ready meals that enjoy most demand.
Non-essential items such as confectionery were hit by the economic squeeze in most countries.
However, snack bars saw a dynamic 237% growth in volume, albeit from a very low base. It was Mexico that accounted for almost 63% of these sales, fuelled by the entry of the major manufacturer, Bimbo, as well as the increasing demand for healthy, convenient food products, and a wider distribution in both supermarkets and
traditional retail outlets in Mexico.
Despite the disparate nature of the region (every country has its own prevailing cultural, economic, and political character), Latin America remains a challenging area for investment and growth. All of the region’s countries have singled out their agricultural and food producing sectors as important strategic growth sectors for exports.
They have thus acted to combat animal and plant health problems that were the foremost impediments to free trade; and focused increasingly on safety and hygiene throughout the supply chain.

Argentina

Argentina, in particular, has only recently formally ended a stifling economic crisis by finding a way out of its defaulted debt problem. With the defaulted bonds now successfully swapped, and with other debt burdens re-structured, Argentines have a much more optimistic outlook on the future. True, the economy has grown
steadily since the crash in 2001, but production levels are still not quite where they were before the onset of the recession back in 1998.
Meanwhile, the internal markets are still somewhat unstable, with inflation for 2005 forecasted to reach just about 12%.
This has led to a situation where authorities are worried about the effect on ordinary people’s lives within the country and have negotiated with the food sector to prevent prices for staple products rising. Also, highly unpopular export taxes are still in place and despite calls to remove them, finance ministry officials are so far keeping quiet on the issue, or even threatening to increase the taxes if the sector does not improve investments.
Already, the government has imposed a ban on red meat exports, and there is a looming ban on wheat exports. This situation has led some leading economists to predict that such taxes on raw materials will be a further
incentive for the industry to develop food processing for the domestic market - and for export where EU taxes on processed products are not prohibitive.

Argentine poultry processing

Emboldened by the sustained growth and development of the poultry sector (Argentine birds are free from avian flu, and thus have enjoyed increased demand), poultry producers in Argentina are investing in processing plants and have already set their eyes on the international market.
One of the principal players in Argentina, Granja Tres Arroyos (Three Streams farm), invested in a
new processing plant last year and claims to have enjoyed excellent returns. Tres Arroyos’ International market director, Fiorella De Grazia, explained that in total, 70% of the company’s total production goes to the home market, while 30% is destined for export markets such as Germany, the UK, The Netherlands, Russia,
Africa and the Middle East. Ms De Grazia said that the company had been surprised by the consumer response to its new products on the domestic market. Until now, Tres Arroyos has been producing for fast
food chains, service companies and supermarkets, but now the company plans to launch new products under its own brand, Granja Tres Arroyos. This development, coupled with success on the international market, has led Tres Arroyos to invest further in its production facilities. A new process plant currently consists of one flexible line, which produces individually quick frozen, cooked poultry meat, BBQ preparations, and
empanadas (breaded and battered poultry portions), in 5kg or 10kg packs.
Other EU-approved establishments, such as Las Camelias (which is also Halal certified), and Supermercados Toledo confirm that the internal Argentine market has responded favourably to their recently developed poultry products, and they are also now gearing up their production capacity.
International markets are seen as very attractive, but many Argentine poultry producers prefer to be prudent and to progress slowly to prevent any embarrassing delivery shortages that would hamper development further.
This is a complex and challenging market,but it is one that holds great potential for the coming years for those players who can withstand the pressure but FBI will be covering further specific developments in the region on a regular basis as we track who is investing in new technology and products.