Brazil Country Profile

Market Overview:

 

Euromonitor reports that Brazil’s economy will contract in 2020.  Domestic activity will be affected by measures taken to contain COVID-19; meanwhile external demand will be stifled by the global slowdown caused by the pandemic.  Investment will also be limited. The economy should bounce back in 2021, after which the recovery is forecast to continue, with real Gross Domestic Product (GDP) growth of 3.3% in 2021, and annual growth averaging around 2.4% per year in 2024-2027.

  • Brazil’s economy will experience a sizeable recession in 2020. Real GDP increased by 1.1% in 2019 and a fall of 9% is expected in 2020.
  • The real value of private final consumption rose by 1.8% in 2019 and a decrease of 9.3% is forecast for 2020.  Spending is being hampered by quarantines and social distancing.
  • China is emerging as an especially significant investor.  Beijing has recently acquired a controlling interest in Brazil’s second-busiest port by volume.  Other Chinese companies have started building and bidding for additional ports and railways.
  • Due to tightening global financial conditions, placing Brazil on a path of strong and durable economic growth will require committed pursuit of fiscal consolidation, ambitious structural reforms, and a strengthening of the financial sector.

A decision to restart trade negotiations with the European Union, (EU) and the start of a wide-ranging free-trade agreement with Mexico are encouraging moves which could boost trade in the medium term.  Local content rules have also been eased, but trade barriers remain high.

In 2019, population reached 211 million, an increase of 36.3 million since 2000.  The median age was 33.1 years in 2019, 7.8 years greater than in 2000.  Fertility has been falling rapidly but it is still 1.7 births per female.  The downward trend will decelerate in the future, reaching about 1.6 births per female by 2030.  Sterilization, abortion and programs for family planning are driving the decline.

The number of those over 65 years more than doubled in 2000-2019, reaching 19.5 million by the end of that period.  However, this group still accounts for just 9.3% of total population – a relatively small share compared with most countries.  Demographers expect the ageing process to accelerate in the future, with the share of those over 65 years reaching 13.6% of total population by 2030.

USDA’s Agricultural Trade Office, ATO, in in Sao Paulo, hereinafter referred to as “Post” also reports that in 2020 the economic scenario revealed Brazil still needs to in place measures to reverse unemployment, weak demand, and excess capacity. Economists advocate for trade liberalization and ease of taxation as growth drivers.  In 2019, the Brazilian economy expanded 1.1% compared to the previous year, reaching R$7.3 trillion (US$1.8 trillion).  Despite the slow growth, the food segment has been less affected; however, domestic consumption has been facing two major challenges: debt repayment and decline of real wages.  Stronger economic recovery needs bold reforms, which for now is unlikely to happen due to the COVID-19 pandemic.

Despite the delicate political and economic situation, Brazil is still a major player and an important market for agricultural products.  Food processors, wholesalers, retailers, food service operators and food importers are all part of a well-developed food industry, that contributes to making domestic scenario competitive and dynamic.

Brazil is the 10th largest U.S. export market for agricultural products in Latin America. Total U.S. agricultural exports to Brazil dropped 3% to US$589.3 million in 2019.  Exports of U.S. consumer-ready products to Brazil dropped 8% to US$200.9 million in 2019, which represented nearly 34% of the agricultural total.  Brazil imported US$213.3 million in processed foods from the U.S. in 2019, ranking 4th in the region and a drop of 17%.  That figure was 36% of the agricultural total.  Top processed food exports to Brazil in 2019 included:

  • Food Preparations
  • Distilled Spirits and Other Alcoholic Beverages
  • Fats and Oils
  • Prepared/Preserved Meats
  • Processed Vegetables And Pulses
  • Chocolate and Confectionery
  • Syrups and Sweeteners
  • Processed/Prepared Dairy Products
  • Condiments and Sauces

Certainly Brazil is going through a difficult time, but the food sector is a key sector for the country and has been less affected than other sectors of the economy.  Brazilians spent around 17% of their disposable income on food and this remains unchanged.  Brazil continues to be an attractive consumer market.  Half of the country’s population of is considered middle class and around 16 million are at the top of the social pyramid, the very rich consumers.

Advantages & Challenges in the Brazilian Food Market

Advantages

  • Retailers offer foreign goods to differentiate themselves from competitors, develop new niche markets, and gain high-end consumers’ attention.
  • Price is not always the determining factor for high-end consumers.
  • Brazilian importers are frequently searching for new-to-market products, as they must update their portfolio in order to compete.
  • The U.S. food industry is able to respond to consumer demand promptly, regardless of the segment of products.
  •   U.S. exporters are inclined to work with high volumes and different partners.

Challenges

  • Imported products fall in the luxury goods category. Consumers easily associate Europe with sophistication and tradition, which gives some advantage to European companies.
  • High-end consumers are more demanding regarding other aspects of products, such as innovation, packaging, status, new trends, etc.
  • Importers tend to buy small quantities to test the market. U.S. companies are usually not predisposed to sell small volumes.
  • Consumers perceive U.S. food products to be overly processed and relatively unhealthy.
  • Retailers and distributors are cautious when importing new-to market products and often start with smaller orders. Exclusive contracts are a common clause to Brazilian companies.

Post suggests that when approaching the Brazilian market, exporters should be aware that most imported foods and beverages are not priced competitively compared to locally produced products. The Brazilian food industry is well developed and major multinational companies have a consolidated presence in the market, making the sector highly competitive.  A common mistake U.S. Company’s make is assuming that products that fit well in other Latin American countries will fit well in the Brazil market.  In general terms, a product imported from the United States or Europe reaches 3-5 times the Ex-Works (EXW) price at retail.  U.S. exporters should bear in mind that when an imported product reaches supermarket shelves it will fit in the premium price category.  For this reason, premium attributes must be recognized by consumers.  

U.S. food and beverages directly compete with European products.  This is mainly due to entry costs, the local tariff system, and the exchange rate itself.  Products imported from Mercosul members (Argentina, Paraguay, Uruguay and Venezuela) enjoy duty-free status and Chilean products face a reduced duty rate.  U.S. and European products are generally positioned within the premium price category.  As a result, U.S. exporters must evaluate the extent to which their products can compete and maintain attractiveness vis-à-vis European competition.

Brazil’s 2019 imports of consumer-oriented food products amounted to US$4 billion, representing no significant changes compared to the previous year. With an uncertain business climate, importers continue to be cautious, especially because the Brazilian currency has oscillated more than expected. Within the consumer-oriented food products category, Mercosul countries (Argentina, Uruguay and Paraguay) maintained its position as Brazil primary exporter due to the benefit of duty-free tariffs treatment. Other non-Mercosul countries face difficulty to compete with Argentina, Uruguay, and Paraguay in price terms. However, in high-end or premium products category, the EU gained one percentage point of market share.

According to ATO contacts, the relationship importers have with European suppliers is well consolidated.  It is a common practice e for EU suppliers to negotiate better payment terms with importers.  This practice tends to increase sales of EU exporters by absorbing competitors’ market share, which can be seen from the 2019 data.  The United States’ consumer-oriented products market share in Brazil decreased by 1% in 2019 due to the EU aggressiveness servicing the market.

Because approximately 80% of food and beverage distribution takes place through retail stores, developing a relationship with retailers will be more likely to guarantee visibility and country-wide coverage.  The commercial power of the retail industry vis-à-vis food suppliers has steadily increased over the past years.  Retailers are well aware of their importance in the food distribution system and their advantageous position in comparison with suppliers.  They exert considerable purchasing power as they reach the overwhelming majority of Brazilian households.

Foreign products may be imported directly from the processor or distributor or purchased locally from an importer.  When importing, Brazilian companies are considered conservative.  It is generally preferable to import a wide variety in small quantities.  This aversion to risk becomes even more apparent during challenging economic scenarios, such as the current time.  Driven by consumer demand, retailers have to offer an extensive range of imported products, otherwise they may compromise competitiveness.

 

Retail Sector:

 

According to Euromonitor, retail sales in the packaged food market in Brazil had been estimated to reach US$94.9 billion in 2019.  That makes it the largest in Latin America and the 5th largest in the world.  That also represents a growth rate of 24.3% or US$18.5 billion since 2015.  The forecast for growth in this market is also quite promising.  By the year 2024, the retail sales in the packaged food market in Brazil is expected to reach US$131.1 billion, a growth rate of 30.8%, or coincidentally US$30.8 billion.  High growth rates in the forecast included:

  • Sauces Dressings and Condiments
  • Processed Fruit and Vegetables
  • Baked Goods
  • Ready Meals
  • Confectionery
  • Processed Meat and Seafood
  • Dairy
  • Rice, Noodles and Pasta

Post reports that for the food retail sector, 2019 was considered a positive year.  The industry totaled R$378.3 billion (US$96 billion) in 2019, a 6.4% increase in nominal terms, compared to the previous year.  Due to the COVID-19 pandemic, 2019 will likely become a new benchmark as the Brazilian economy starts to recover.

In 2019, France’s Carrefour maintained its leadership as Brazil’s largest retailer, with reported sales equivalent to R$62.2 billion (US$16 billion).  Carrefour expanded the number of stores in 2019 by 7% compared to the previous year and maintained its investments mainly on the cash-and-carry format, which accounted for R$42 billion (US$11 billion).  Sales of Atacadão, Carrefour’s cash-and-carry stores, increased 12% compared to 2018.  The company opened 20 cash-and-carry store locations throughout the year and ended 2019 with 186 Atacadão stores.

Grupo Pao de Acucar (GPA), also controlled by a French group, Casino, ranked second on the list of major Brazilian retailers.  In 2019, GPA registered sales of R$61.5 billion (US$15.6 billion), which represented an increase of 14.7% compared to the prior year.  As the leading company, GPA concentrated investments on the cash-and-carry format, 19 stores were turned into Assai, GPA’s cash-and-carry brand. Assai amounted sales of R$30.4 billion (US$8 billion) in 2019.  ABRAS did not include Grupo Big, former Walmart, in the 2019 ranking, as the new company did not provide its sales results to the association.  Nevertheless, Grupo Big is listed as the third largest Brazilian retailer. Grupo Big operates 550 stores in 18 Brazilian states, plus the Federal District.  The company maintains seven hypermarkets brands in addition to its cash-and-carry format, Maxxi and Sam’s Club.

In 2019, the retail industry represented 5.2% of the country’s GDP.  Food retail executives considered the year of 2019 as an important shift of trends and, before the COVID-19 outbreak, an upward trend was expected for 2020.  Despite the unprecedented demand for food items in the beginning of the social isolation period, the forecast for 2020 is uncertain.  However, as an essential segment, the food retail sector will likely perform better this year compared to other sectors of the Brazilian economy.

In Brazil, the 500 leading retail companies represented 78% of the industry’s overall revenues of R$378.3 (US$96 billion) in 2019.  With R$296.8 billion (US$75.1 billion) in gross sales, this group registered an increase in revenues of 11.2% compared to 2018. Although these leading retailers have always registered better results compared to the sector as a whole, in 2019 the 500 largest companies achieved higher efficiency levels vis-à-vis the past years.  In 2019, the group operated 8,042 stores, in which supermarkets represented 45% and convenience stores summed 42%.  Other operations include cash-and-carry, neighborhood stores, and hypermarkets, which accounted for 6%, 5%, and 2% of the total number of stores.  

Brazil is a country of continental size and regionalism plays a crucial role.  The country’s 26 states and the Federal District are divided into five regions: Southeast, South, North, Northeast and Center-West.  According to the Brazilian Supermarket Association (ABRAS) research, in 2019 the Southeast region, which includes the states of Sao Paulo and Rio de Janeiro, accounted for 53.6% of retail revenues and 51.7% of total stores.  The Southeast region registered expansion and was responsible for more than half of the retail business.  Alone, the state of Sao Paulo represented 27.8% of total industry sales.  The South region, the second largest in retail sales, represented 29% of the overall revenues.  The South also accounted for 27.7% of all stores.  The Northeast region, one of the least wealthy regions in Brazil, accounted for 9.9% share of sales and 11.5% of stores.  The Center-West and North regions remained relatively minor players in the retail sector.  The Center-West accounted for 4.6% of sales and 6.2% of total stores, while the North had registered 2.7% of overall revenues and 2.9% of total number of stores.

Although imported products are not part of the basket of goods typically purchased by Brazilian middle-income households, rising income plays a key role in generating changes in consumption of these items. The improvement of economic indicators affects consumption as it expands the base of consumers and consequently the number of individuals willing to trade up. The Brazilian Institute of Geography and Statistics (IBGE) considers that 69 million households exist in Brazil. According to a research publicized in October 2018, Brazilian families had lost income in the past nine years, while wealthy families became even wealthier, showing the inequality gap continues to widen. Upper-income households have an average monthly income of R$23,850 (US$6,037) and 69% of this amount is earned from work. The wealthiest comprise 1.8 million families with an average of 3.07 individuals per family. This group concentrates 20% of overall income.

Post advised U.S. suppliers and other stakeholders that when launching new-to-market products, Brazilian buyers are hesitant to purchase full containers of single products while, on the other hand, U.S. suppliers are often unwilling to deal with small volumes.  Oftentimes exporters are cautious to do business with a single supermarket chain as their perception of reaching consumers through a single source does not seem attractive.  Post advises this perception does not always correspond to the reality.  It is a matter of strategy, as retailers may achieve significant market penetration. 

Best Product Prospects:

Post reports that Brazilian importers are generally looking for well-known brands and high-end products.  They usually prefer products with one year shelf-life or more.  In addition to the product itself, packaging, status and level of innovation are important attributes.  Products that combine these characteristics are more likely to successfully enter the market.  The food categories that are most frequently exported to Brazil from the United States are: dairy products, fresh fruit, processed fruit, processed vegetables, fruit and vegetable juices, tree nuts, chocolate and cocoa products, snack foods, breakfast cereals, condiments and sauces, prepared food, wine, beer, distilled spirits, non-alcoholic beverages (ex. juices) and fish products.  Other food categories that are getting more supermarket shelf space are products for special diets, such as lactose and gluten free products.

 

Food Service Sector:

 

Post reports that in the Pre-Covid 19 environment the Brazilian food service industry registered a 5% increase compared to the previous year, reaching R$428.5 billion (US$117 billion).  According to food service operators, Brazil has a solid food service industry which is becoming more dynamic.  The performance of online delivery platforms and changes on nutritional habits will likely change the profile of the industry. In the near future, new trade agreements may also play a key role.  After twenty years of negotiations, Mercosul and Brazil concluded a trade deal to be ratified.  The current government has also demonstrated willingness to negotiate a trade agreement with the United States.

Post reports that according to the Brazilian Food Processors’ Association (ABIA), there are approximately 1.3 million foodservice outlets across Brazil, with over 95% of establishments characterized as small-to-medium size, family-owned operations.  Large and multinational foodservice chains represent less than 5% of food service companies. The food service sector is marked by informality; therefore analysts frequently reference sales of the food processing industry directly to this channel in order to estimate the size of the sector.

In 2018, the food service sector purchased US$47.2 billion.  ABIA estimates total revenues of the Brazilian food service sector at US$117 billion.  Analysts reported that the food service sector expanded 3% in 2019.  Restaurants and Fast Food Chains detain the lion’s share of 35% of the segment, followed by Bakeries (15%), Bars (13%) and Snack Bars (11%), Institutional Catering (7%), Hotels and Motels (4%) and Air Catering (2%). 

Although large processing companies have the necessary logistic structure to supply these small-medium size companies throughout Brazil, wholesalers seem to be the most viable option for many suppliers trying to reach the overwhelming majority of small and medium-sized food service operators.  Within all eight segments there are opportunities to identify buyers willing to import directly; however, it is fair to say that restaurants, bars, bakeries, snack bars, and hotels/motels tend to purchase imported products solely through wholesalers and distributors while fast-food chains and catering (all types) are more likely to reach volumes that justify a direct import. Brazilian companies are considered conservative when it comes to importing.

Aversion to risk becomes even more accentuated during challenging economic scenarios.

Volume is the determining factor for a direct import operation.  If the foodservice buyer cannot be cost efficient to justify logistics and bureaucracy, wholesalers, distributors, and trading companies become important players.  In Brazil, there are very few distributors of imported foods specialized in the HRI sector, the companies that provide such services are the ones that manage imports or processed products for large fast-food chains, such as McDonald’s, Burger King, and Taco Bell.  In general, distributors and trading companies deal with retailers and food service customers if the imported product is branded.  If the product is an ingredient, the local distributor and trading company tend to target the food industry and food service.  Recently, the market share of the various food service segments has been quite stable, which has helped suppliers understand the needs of each group and aggregate services.

Post suggests that in this sector U.S. exporters should look for opportunities to occupy niche markets.  The growth in the Hotel Restaurant Institutional (HRI) sector has led import companies to create specific divisions to assist the sector.  Restaurants, snack shops, bakeries and pastry shops tend to buy imported products from local companies.  Direct imports rarely occur in this sector as imports seldom reach the appropriate volume to justify such an operation.  Nevertheless, executives from this sector frequently travel to the U.S. and Europe to investigate new trends.  They are opinion leaders and can influence buying decision.

 

Food-Processing Sector:

 

Post reports that in 2019, Brazilian food industry sales amounted to R$699 billion (US$177 billion), an increase of 7% percent compared to the previous year.  The outstanding result is due to several economic and social factors, including the relatively low interest rates and inflation being at the lowest levels in years.  These factors increased disposable income and stimulated consumption.  In 2019, Brazil imported US$2.8 billion of intermediate products, a decrease of 2% compared to the previous year. 

U.S. exports of intermediate goods to Brazil decreased by 10% in the same period.  A severe depreciation of the Brazilian real against the U.S. Dollar in 2019 was a challenge for U.S. companies.  Despite a decrease in exports, the United States remains the second largest exporter of intermediate products to Brazil, only behind Argentina, which benefit from duty-free treatment as a Mercosul member.

For 2020, Brazil continues to present opportunities for U.S. exporters of intermediate products.  High performance ingredients that add value to products present good market potential as trends such as health and wellness expand in the country.  However, the COVID-19 pandemic is expected to cause severe economic impacts in Brazil, leading to higher risk aversion from importers who are waiting to see the adverse effects in the market.

The sector is comprised of over 36,100 companies in which the vast majority is small and medium sized industries.  The sector is composed by 36,100 companies, where approximately 94% are considered micro and medium sized firms.  The retail sector sales amounted to US$95 billion and the food service purchases from the local food processing industry accounted for US$46 billion, an increase in local currency of 5.9% and 6.9% respectively.  The food and beverage sector is responsible for 9.6% of the Brazilian GDP and employs approximately 1.6 million workers.  The food and beverage sector represents 80% and 20% in sales value, respectively.  The product category with the highest growth rate in 2019 was meat, with an increase of 11% compared to the previous year.

Following an international trend, Brazilian consumers are increasingly moving towards a healthier lifestyle.  Also, an increasing number of consumers are giving more importance to transparency from manufacturers about the ingredients used in their products.  They are interested in how the product is manufactured, and they are considering products with cleaner labels with nutritional ingredients described in simple terminology.  Although still a niche, the plant-based products market has been growing considerably year-over-year in the country and it will likely remain an important trend for the next few years. There is also a growing demand for on-the-go healthy products and also products fortified in supplements, nutrients, and vitamins.

For 2020, the food industry is expected to keep growing as the Brazilian economy slowly recovers from the recession, though it is still uncertain how the COVID-19 outbreak will affect the food industry.  In addition to that, the Brazilian Health Regulatory Agency (ANVISA) is revising the current nutritional labeling legislation.  The objective of the review is to make nutritional data on labels more visible and readable.  Therefore, although consumers continue to be price-sensitive and more careful with food purchases, premium products and ingredients with competitive prices, more differentiation, and perceived added value still have a competitive advantage.

Best Product Prospects:

The U.S. exports eight categories of intermediate products present in list of major products exported to Brazil.  They are:

  • Food Preparations
  • Animal Feed Prep
  • Enzymes and Prepared Enzymes
  • Other edible mixtures preparations of fats, oils, etc
  • Odoriferous Substances
  • Essential Oils
  • Hop Cones, In the Form of Pellets
  • Peptones and Derivatives
  • Mucilages and Thickeners
  • Vegetable Saps And Extracts of Hops
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