Brazil – Food & Beverages 2019

Brazil's Food Market Recovers Slowly From Crisis

Published: 28 February 2019

1. Overview

Development of the sector in 2018 fell short of expectations

According to the Association of the Food Industry ABIA (Associação Brasileira das Industrias da Alimentação), the development of the sector in 2018 fell short of expectations. Real sales of food (including beverages) rose by only 1% between January and November. Production volume fell by as much as 2.7% during this period. The figures reflect the continuing uncertainty in the economy in the run-up to the presidential elections of October 2018. Added to this is the eleven-day strike by truck drivers in May 2018 and the resulting price increases in freight transport.

According to ABIA, sales in the food industry fell by 1.4% between January and November 2018, although at the beginning of the year the association had predicted a significant increase. ABIA has not yet published a forecast for 2019. If Bank Bradesco’s forecast for private consumption in 2019 proves to be correct – an increase of 2.8% – the food industry should likewise pick up.

 

Brazil: Sales in the food industry (in R$ billion at current prices)

Food group 2016 2017 Change 2016-17 (%)
Total foodstuffs 497.3 520.7 4.7
.Meat products 133.1 137.6 3.4
.Dairy products 67.5 70.2 4.0
.Processed coffee, tea and cereals 67.6 69.8 3.3
.Oils and fats 49.2 51.7 5.1
.Sugar 46.6 47.7 2.4
.Miscellaneous (snacks, ice cream, spices, etc.) 34.6 38.0 9.8
.Wheat products 33.6 36.9 9.8
.Fruit and vegetable products 30.3 32.0 5.6
.Frozen food and ready-made meals 15.4 16.2 5.2
.Chocolate, cocoa and confectionery 14.5 15.2 4.8
.Canned fish 5.0 5.3 6.0

Source: ABIA (http://www.abia.org.br)

 

Weak currency boosts exports

The industry association ABIA counts a total of 35,600 companies in the food industry. The sector accounts for a quarter of Brazil’s total industrial production and is its largest employer with 1.6 million employees. Around one fifth of local food production is exported; in 2017 this figure totaled US$ 38.8 billion, making Brazil the world’s second largest exporter of processed food. In addition to strong global demand, the weak Brazilian real is contributing to export activity.

 

2. Meat

Brazil to sell more meat to China

2018 was a year of transition for Brazil’s meat-processing industry. According to ABPA (Associação Brasileira de Proteína Animal), chicken production fell by 1.7% to 12.8 million tons. Of these, 4.1 million tons were destined for export. The situation was no better for pork, wherein production fell by 3.2% to 3.6 million tons and exports reached 549,000 tons.

One reason for the meagre development was a strike among truck drivers, during which millions of animals perished. Increasing maize and soybean prices likewise increased the cost of animal feed. In addition, the Russian market for Brazilian pork and beef had been inaccessible since mid-2017 due to samples of Brazilian meat testing positive for ractopamine. The import ban was lifted again in November 2018.

The industry association ABPA expects the meat processing industry to grow in 2019, thanks to access to Russia and the improved economic situation in the domestic market. According to the association, the second half of 2018 was already significantly improved compared to the first half. Also, a steep increase in deliveries of pork to the People’s Republic of China, where African swine fever is currently rampant, is expected.

JBS, the world’s largest meat-processing group, concluded a mega-deal at the end of 2018 with the Chinese Alibaba subsidiary Win Chain. As a result, JBS will supply beef worth US$ 1.5 billion to China over the next three years. JBS now generates only 20% of its worldwide sales of US$ 51.1 billion (2017) in Brazil, with the largest share of the business generated in the USA.

Marfrig Global Foods, the second largest beef producer in the world after JBS, changed its strategic direction in 2018 to focus exclusively on beef. The company sold its American subsidiary Keystone Foods and acquired National Beef for US$ 1 billion. In Brazil, Marfrig is currently investing US$ 24 million in a hamburger production facility in Bataguassu (Mato Grosso do Sul). The food manufacturer Frimesa is building a pork production facility in Assis Chateaubriand (Paraná). With investments of around US$ 300 million, a daily capacity of 15,000 pigs will be reached in 2027.

 

3. Dairy products

Cheese still has potential for growth

The market for dairy products has consolidated in recent years, with the acquisition of Brazilian companies by foreign groups such as Lactalis (France), Emmi (Switzerland) and Lala Foods (Mexico). Lala Foods acquired the Brazilian company Vigor Alimentos in 2017, which has expanded strongly since then. By 2022, Vigor plans to expand five cheese production sites in the state of Minas Gerais, projected to cost US$ 20 million. The company still sees significant growth potential for the cheese market in Brazil, as the annual per capita consumption of 7 kilograms is well below the consumption of neighboring Argentina (12 kilograms).

The cheese manufacturer Polenghi, owned by French company Savencia Fromage & Dairy, is also expanding its production capacity. Polenghi currently operates three factories in Brazil and one in Uruguay. Polenghi is now investing US$ 80 million for another factory in Uberlândia (Minas Gerais). Selita, a Brazilian producer of dairy products, plans to expand its site in Cachoeiro de Itapemirim (Espírito Santo) at a cost of US$ 16 million.

In the area of sauce products, Kraft Heinz has been able to further expand its already strong position in Brazil. The company has invested around US$ 160 million in the past two years, increasing its production capacity by 50% according to company figures. Kraft Heinz, with its Heinz and Quero brands, is the market leader in ketchup with a share of 28%. The company has a market share of 12% of the mayonnaise market. Here, the Hellmann’s brand from Unilever is the leader (market share 56%). The group is currently expanding its sauce production unit in Pouso Alegre (Minas Gerais) at a cost of US$ 34 million.

 

4. Bakery products & chocolate

Consumption of mass-produced bread is declining

According to estimates by Euromonitor International, sales of bread in 2018 rose by 2.1% by weight to 5.6 million tons. Mass-produced bread accounted for 0.5 million tons, and bread produced in bakeries for 5.1 million tons. According to the association ABIMAPI (Associação Brasileira das Indústrias de Biscoitos, Massas Alimentícias e Pães & Bolos Industrializados), consumption of mass-produced bread grew at double-digit rates before the economic crisis but has been declining ever since. The price per kilogram for mass-produced bread is around 11 Brazilian real (R$), while bakeries charge an average of R$ 14, according to the association. The market leader in mass-produced bread is Mexican group Bimbo (market share 34.4%), followed by Wickbold (21.2%) and Panco (14.5%).

Swiss manufacturer of frozen bakery goods Aryzta is to build a new production unit in Pouso Alegre (Minas Gerais) at a cost of approximately US$ 40 million. Upon its completion in 2020, it will be the company’s largest plant worldwide. Aryzta, whose most important customers include McDonald’s, Burger King, Starbucks, Abbraccio, Bob’s, Casa do Pão de Queijo, Subway and Grupo Pão de Açúcar, has reported double-digit growth in Brazil. The biscuit manufacturer Marilan announced at the end of 2018 that it intends build a factory near the town of Recife (Pernambuco) costing US$ 43 million, in order to supply the northeast of Brazil, where around 30% of the country’s biscuits are consumed. The biscuit manufacturer M. Dias Branco, on the other hand, has cancelled plans for a new factory in Juiz de Fora (Minas Gerais).

According to Euromonitor International, chocolate consumption in Brazil rose by 2% in 2018 to 274,500 tons, after three consecutive years of decline. Growth of 2.5% is expected for 2019. Market leader Nestlé (market share 34.1%) has renewed its entire portfolio over the past four years. According to the company, demand has moved away from traditional 200-gram bars towards smaller quantities with higher cocoa content and various fillings. Therefore, new flavors of the Talento brand will be launched in 2019, which are made with organic cocoa, filled with Amazon fruits, and are sugar- and gluten-free.

In November 2018 food and beverage industry associations signed an agreement with the Ministry of Health to reduce sugar content in their products. A total of 68 companies are participating in the voluntary pact, which affects 23 categories of food, including chocolate, cakes and pastries, juice boxes, soft drinks and yoghurt. This is expected to reduce sugar consumption by 144,600 tons by 2022.

 

5. Beverages

Premium beers grow at an above-average rate

With an annual beer consumption of 12.4 billion liters, Brazil is the third-largest market in the world after the People’s Republic of China and the USA. However, consumption stagnated in 2018 due to a rather half-hearted Carnival and the truck drivers’ strike. The FIFA World Cup was able to partially compensate for these declines, as reported by Bernardo Paiva, president of market leader AmBev, whose brands include Skol, Brahma and Antarctica. The company intends to increase its supply of low-cost beers in Brazil, with around a quarter of demand falling into this category. For that purpose, AmBev launched the Nossa brand in northeastern Brazil in September 2018.

Premium beers account for around 12% of the volume, while mass-produced brands comprise the remaining 63%. For 2019, Euromonitor International forecasts a slight increase in total beer consumption of 0.8%, to 12.5 billion liters. Premium beers are expected to grow at an above-average rate of 3.4%. According to media reports, the Spanish firm Estrella Galicia is currently looking for a location for a production facility in Brazil. It will have an annual capacity of 20 million liters and cost around US$ 27 million. The industry association for craft beer Abracerva (Associação Brasileira de Cerveja Artesanal) expects around 100 new small breweries to open in 2019. Nationwide, their number has grown from 290 in 2012 to around 900 currently.

Soft drinks consumption in Brazil continues to decline. According to market researcher Nielsen, consumption fell by 4.7% by volume in the twelve months leading up to August 2018. Consumption of sugar-free soft drinks also declined during this period, by -1.7%. In contrast, the categories of coconut water (+10.9%), ready-made teas (+6.5%) and juices (+2.4%) increased. These figures illustrate a consumer trend towards healthier drinks. According to the industry association ABIR (Associação Brasileira das Indústrias de Refrigerantes e de Bebidas não Alcoólicas), per capita consumption of soft drinks was 89 liters in 2010 but only 62 liters in 2017.

According to estimates by ABIC (Associação Brasileira da Indústria de Café), coffee consumption increased by 3.4% to 23 million bags (48 kilograms each) in 2018. By 2021, the association expects an increase to 25.6 million bags, with capsule coffee expected to further expand its market share, which stands at only 0.9% according to ABIC. The capsule-coffee market is dominated by three brands: Nespresso (45.5% market share; Nestlé), Dolce Gusto (14.1%; also Nestlé) and 3 Corações (8.5%; Grupo Três Corações). The third company plans to invest US$ 43 million to expand its production of coffee capsules in Montes Claros (Minas Gerais).