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FLANDERS INVESTMENT & TRADE MARKET SURVEY
THE FOOD INDUSTRY
IN BRAZIL
Transport Infrastructure, Transportation and Logistics in Romania | december 2016 1
THE FOOD INDUSTRY IN BRAZIL
A key for the Brazilian economy
December 2016
Yves Lapere, Economic & Commercial Attaché
FIT- Flanders Investment & Trade
Embaixada da Bélgica
Rua Maria Figueiredo, 595 cj 82 - Paraíso
04002-003 São Paulo - SP
Brazil
2
TABLE OF CONTENTS
1. Introduction ................................................................................................................................................................................ 3
2. General information on the economic situation of Brazil ............................................................................ 4
Economic growth in Brazil in the last decade ....................................................................................................... 4
Economic Forecast Brazil .................................................................................................................................................... 5
3. General information food industry Brazil ................................................................................................................ 5
Importance of the food industry for Brazil ............................................................................................................ 5
Production of crops and livestock in Brazil ............................................................................................................ 6
The trade balance of the food industry .................................................................................................................... 7
Trends in the Brazilian food industry ......................................................................................................................... 8
4. Focus sectors .............................................................................................................................................................................. 8
Beef ................................................................................................................................................................................................... 8
Poultry .......................................................................................................................................................................................... 10
Pork ................................................................................................................................................................................................. 11
Milk and Dairy........................................................................................................................................................................... 12
Beverages .................................................................................................................................................................................... 14
Non-alcoholic beverages .............................................................................................................................. 14
Coffee ....................................................................................................................................................................... 16
Field crops .................................................................................................................................................................................. 18
Wheat ....................................................................................................................................................................... 18
Corn ........................................................................................................................................................................... 19
Soybeans ................................................................................................................................................................. 21
Soybean oils ........................................................................................................................................................ 23
Sugarcane ............................................................................................................................................................. 23
5. Evaluation of the food industry in Brazil .............................................................................................................. 25
The food industry in Brazil | December 2016 3
1. Introduction
In this report we aim to give a general sketch of the food industry in Brazil. Both the domestic
market and the export market will be discussed. Several facts about the Brazilian food industry
are already general knowledge while other elements are still unknown. This analysis has as a
goal to fill this gap of knowledge and to give a cohesive overview of the food industry in Brazil.
Besides a general overview, several sectors will be studied in more detail: beef, pork, poultry, milk
and dairy, beverages (soda and coffee) and field crops.
The Brazilian economy has evolved dramatically over the past years. First, it was one of the new
rising stars in the world economy and member of the BRIC countries and now it is considered
one of the ill kids. This message is overly colored and does not stroke with the reality but it
should be noted that the Brazilian economy went through some heavy storms. Figure 1 shows
the evolution of the Brazilian Real against the Euro. It can be seen that from a relatively strong
currency the Brazilian Real devaluated heavily against the Euro in 2014-2015. It seems that this
trend is reverting for 2016. This is a good first impression of the turmoil of the Brazilian
economy. Thus, in this report we want to spread a nuanced message about the performance of
the Brazilian economy in general and more in detail of the food industry.
Moreover, the importance of the food industry cannot be underestimated for the Brazilian
economy as we will elaborate further on in this study. It should not be forgotten that the food
industries are a diverse sector which incorporates agriculture, packaging and the preparation of
food. The food industry can also be seen as a part of the agribusiness which is a key driver for
economic growth in Brazil. Therefore, it is highly relevant and important to study the food
industry in Brazil. Moreover, by gaining knowledge on the ins and outs of the food industry, this
report can help companies to discover business opportunities in this growing and rapidly
market.
Figure 1: Evolution of the Euro against the Brazilian Real1
1 Information available at https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-brl.en.html
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2. General information on the economic situation of Brazil
Economic growth in Brazil in the last decade
Figure 2: Growth rate of the gross domestic product of Brazil (1990-2014)
In the last decade the Brazilian economy has been growing significantly (figure 2). Increased
capital flows, macroeconomic stability (e.g. stable inflation) and increased demand for some of
its important export products (e.g. soybeans and raw sugar) created important impulses for
economic growth in Brazil2.
As a result of economic growth and policies from the government, poverty reduced significantly
in Brazil in the last decade. For example, between 2003 and 2014, 29 million people were able to
leave poverty3. Moreover, the middle class has become the dominant group in Brazilian society
while in the past this was the lower class. However, it should be noted that there is strong
difference in wealth between members of the middle class (e.g. upper class >5310 BRL4 middle
class 1232 BRL < X > 5310 BRL and the lower class < 1232 BRL5). Hence, certain people from the
middle class can with another classification still be considered poor. However, since the start of
the recession in 2014 this trend has reverted and the lower class started to grow again6. This
increasing middle class had important positive effects on the demand in the domestic market.
Thus, the reduction in poverty was an important factor that contributed to the economic
growth of Brazil as it strengthened the internal market. This was especially beneficial for the
food industry7. It should be acknowledged that the increase in domestic demand was also
boosted by low interest rates and consequently was partially credit fueled.8
2 Information available at https://www.ecb.europa.eu/pub/pdf/other/eb201601_focus01.en.pdf 3 Information available at http://www.worldbank.org/en/country/brazil/overview 4 Brazilian Real 5 Data are in terms of market prices of 2010 6 Information retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação 7 Information available at http://dc.itamaraty.gov.br/imagens-e-textos/Industry05-TheFoodIndustry.pdf 8 Information available at http://www.worldbank.org/en/country/brazil/overview
The food industry in Brazil | December 2016 5
Since 2011 prices for important export commodities have dropped. As a result, the growth rate of
the GDP slowed down. Moreover, structural problems of the Brazilian economy that were not
addressed in the past, surfaced. For example, lack of competition on the Brazilian market, a
complicated tax system and a deficient infrastructure (mainly logistics). In addition to this,
confidence of the financial markets decreased in emerging markets with high external
imbalances such as Brazil. In a reaction, the Brazilian government increased the interest rate to
avoid capital leaving the country. As a consequence, this increased the interest payments on
public debt and attributed to an increasing public debt. To summarize, two important factors
contributed significantly to the current economic downturn namely the drop in commodity
prices and domestic factors which includes the drop domestic demand, rising borrowing costs
and unstable monetary policy9.
Economic Forecast Brazil
The current political instability in Brazil, makes clear economic forecasts difficult. Especially given
the significant effects structural reforms can have on the performance of the Brazilian economy.
Still, the Brazilian government expects the economy to pick up at the end of 201610. Increasing
business confidence can be an indicator of the recovery of the economy but there are no signals
yet that the domestic demand is again growing nor is the unemployment decreasing11. However,
the drop in domestic demand is slowing down and the export is supported by the weak
currency.
Despite these economic difficulties in Brazil the food industry remains an important driver for
growth and employment. In the next section, a closer look will be given to the economic
importance of the food industry for the Brazilian economy.
3. General information food industry Brazil
Importance of the food industry for Brazil
In 2015 the food sector represented 9.5% of the Brazilian GDP. The food industry is composed of
two important sectors namely the beverage and the food sector. The food sector generated 562
billion BRL12 net revenues from which 109.1 billion BRL came from beverages and 452.8 billion
BRL from food. In 2004, the food industry only accounted for 9% of the GDP and was
responsible for a net revenue of 404.2 billion BRL13. It was responsible for 17% of the added value
of the manufacturing sector. In 2014 the food industry already accounted for 22.4% of the added
value of the manufacturing sector. In 2015 this number rose to 26.5% of the total value of the
manufacturing sector. This illustrates the importance of the Brazilian food industry for the
manufacturing sector. However, in 2015, it was the first year since 2004 that the net revenues
decreased. The drop in net revenues was more significant for food than for beverages. In
9 Information available at https://www.ecb.europa.eu/pub/pdf/other/eb201601_focus01.en.pdf 10 Information available at http://www.bloomberg.com/news/articles/2016-03-03/brazil-s-economy-shrinks-less-than-
forecast-in-fourth-quarter 11 Information available at http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-
outlook-volume-2016-issue-1/brazil_eco_outlook-v2016-1-7-en#page2 12 Numbers are in market prices of 2014 13 Retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação
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addition, the growth rate of the output of processed foods also decreased and became negative
in 2015. Despite the decrease in output and net revenues, the food industry remains important
for Brazil and it can be an important driver for economic recovery given its strong performance
in the export sector.
Moreover, the food industry employed 8.9 million people (out of 207 million people) in 2015 in
Brazil which accounts for 21.6% of all the jobs in the manufacturing sector. In 2014 in total
34.800 companies were active in the food industry from which 93.1% were micro or small
companies, 5% are medium sized companies and 1.9% are big companies14. The distribution of
the different types of companies present in the Brazilian market has remained stable over time.
Important sectors within the food industry with regards to the net revenues are the meat sector,
coffee, tea and grains, sugar, dairy, oils and fat, wheat and its derivatives and fruit and
vegetables15. Sugar is still important but is decreasing over time while ready to eat meals and
frozen food are increasing strongly. Several of these sectors will be described more in detail
further in this paper.
Production of crops and livestock in Brazil
Sugar cane, corn, soybeans, oranges and rice are in terms of volume the five biggest sectors in
Brazil when it comes to the production of crops and production of these crops is still growing.
Other important crops that are produced extensively in Brazil are potatoes, tomatoes, wheat,
bananas and seeds. However, its production has stagnated or decreased in the past years.
Chicken, beef and pork are key sectors for the Brazilian meat industry16. Other important
products produced in Brazil are powder milk, chocolate, bonbons and candies and fluid
milk17.Top export and import products of the food industry in Brazil.
Important export sectors in terms of value are meat, sugar, soymeal, fats and oils and fruit,
vegetables and its byproducts for Brazil. Brazil is the biggest exporter of sugar and orange juice,
meat, poultry meat. It is the second biggest exporter in the world of soybeans, soluble coffee
and of processed food in general in terms of volume. However, in value Brazil is only the fifth
largest exporter of processed foods18.
The main goods in value from the food industry that are exported towards Belgium are
vegetables and fruits, coffee & tea. These goods are followed by meat, fish and seafood. Exports
sectors that show growth are cereals and sugar, lac, gums, resins, vegetables, sap and extracts,
fish, edible fruits and fats and oils19.
The main importers of Brazilian processed food are Argentina, Uruguay, the United States, Indonesia and Paraguay20. The main products Brazil imports are wheat, salmon (100% from Chile), malt (important market for Belgium), food preparations, frozen fries (important shares for Belgium and the Netherlands), wine, olive oil and inputs for animal feed.
14 Retrieved from ABIA- Associação Brasileira das Indústrias da Alimentação 15 Retrieved from ABIA- Associação Brasileira das Indústrias da Alimentação 16 Information available at http://www5.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6673-eng.pdf 17 Retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação 18 Retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação 19 Retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação 20 Information available at http://www5.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS- SEA/PDF/6673-eng.pdf
The food industry in Brazil | December 2016 7
The trade balance of the food industry
Almost 80% of the processed food and beverages were sold on the domestic market and 20%
was exported21. This industry accounted for 18% of the exports of Brazil in 2015. The agribusiness
in total accounted for almost 38% of the total exports of Brazil.
The trade balance of the Brazilian economy tends to be historically positive. This is also the case
when only taking the trade balance for processed foods into account. For processed foods, the
balance tilts even more in the direction of exports and imports are only marginally important.
However, it would be wrong to assume that foreign companies were not able to participate in
this growing market in Brazil. Figure 322 not only shows the increasing importance of export for
the food industry but also an increasing penetration coefficient. These coefficients display the
amount of domestic demand that is met by imports and not by local products. It can be
observed that while the Brazilian market is mostly served by local producers, the share of
foreign producers participating in this market increased in the last 10 years. This indicates that
there is room for foreign producers on the Brazilian market. The big multinationals Nestle, Kraft,
Unilever, Bunge and Cargill are all present in the Brazilian market23.
Figure 3: The export and penetration Coefficient for the food industry in Brazil
Source: Euler Hermes24
21 Retrieved from ABIA- Associação Brasileira das Indústrias da Alimentação 22 Information available at http://www.eulerhermes.com/mediacenter/news/Lists/NewsDocuments/Industry_Report-Brazil_Food-Jan14.pdf 23 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Exporter%20Guide_Sao%20Paulo%20ATO_Brazil_1-4-2016.pdf 24 Information available at http://www.eulerhermes.com/mediacenter/news/Lists/NewsDocuments/Industry_Report-Brazil_Food-Jan14.pdf
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Trends in the Brazilian food industry
A first important trend in the Brazilian market is the growing importance of processed foods
compared to natural products. Illustrative is that in 1980 44% of the food consumption were
not-processed foods. In 1990 this number had already decreased to 30% and in 2015 only 20% of
the total consumption were natural products. This change towards processed foods can be
partially attributed to the increased participation of women in the labor force and the
decreasing prices for kitchen equipment like ovens and microwaves25.
Other trends that can be observed in the food market are the rise of certain new niche products.
Diet and light products, traditional processed foods, functional foods, organic foods, ready to
drink fruit juices and nutritional foods26. These trends can be linked to the economic
development of Brazil. Moreover, obesity is in on the rise in Brazil. Factors that can explain this
fact are urbanization and the associated busy lifestyle27.
Mintel, a market intelligence agency, identified four important trends for the Brazilian food
industry28. Firstly, they expect sustainability to become more and more important for the
Brazilian public. Consequently, they expect more companies to advertise their product as
sustainable and good for the environment. Secondly, health will become a key priority for the
average Brazilian but budget concerns will remain present. As a consequence, there is a large
public for cheap but healthy options. Thirdly, in line with the cheap but healthy foods, Mintel
expects an increasing awareness of the public for the story behind products and its ingredients.
They are searching for authentic claims. Fourthly, similar to other countries, gluten, lactose and
meat free products are expected to become popular.
4. Focus sectors
In the next part of the report a closer look will be given to several important subsector of the
Brazilian food industry.
Beef
Brazil is the second biggest beef producer in the world after the United States. Brazil had a
cattle of 220 million in 2016. Hereby, it has the second largest beef herd in the world after India
but it has the largest commercial beef herd. The United States is the biggest beef producer in the
world while they only have a herd of 90 million. This indicates that there is a lot of room for
productivity improvements for the Brazilian beef sector. Figure 4 gives an overview of the
Brazilian beef market in 2014. Around 80% of the produced beef is designated for the domestic
market and 20% for export. Brazilian beef production can be divided in 5 big groups, namely
25 Information available at http://www.s-ge.com/sites/default/files/private_files/BBK_Brazil_%20Food_and_Beverage_Market_Report_May2012.pdf 26 Retrieved from Retrieved from ABIA - Associação Brasileira das Indústrias da Alimentação 27 Information available at http://www.s-ge.com/sites/default/files/private_files/BBK_Brazil_%20Food_and_Beverage_Market_Report_May2012.pdf 28 Information available at http://www.mintel.com/blog/food-market-news/four-key-food-and-drink-trends-for-brazil-in-2016
The food industry in Brazil | December 2016 9
fresh beef, offals, processed, casings and salted. In ton 70% of the total production will be fresh
beef, 14% offals and 8% processed food29.
Until 2013 Brazil was the biggest beef exporter in the world. In 2014 this position was taken over
by India. The main export markets for Brazil are Hong Kong (21 %), Egypt (14%), Russia (13%), and
the European Union (9%)30. An important upcoming market for the beef industry is China. ABIEC,
the association of Brazilian beef producers expects China to become the biggest importer of
Brazilian beef31. This is the result of the decision by the Chinese government to lift a three-year
ban of Brazilian beef. Before, beef still found its way to China through the Hong Kong market
but in significantly smaller amounts. Moreover, the weak currency of 2015 and lower prices of
Brazilian meat created important competitive advantages32. Since June 2016 Brazil has taken over
the position of Australia as the main beef exporter to China33. Important steps also have been
taken to stop a ban on beef exports from Brazil to the United States after worries related to the
foot and mouth disease. Hereby, Brazil was only allowed to export processed meats to the
United States since 2001. From mid-2016 Brazil can export again fresh beef to the United States34.
This could lead to an export of 100 000 ton of fresh beef to the United States over a time period
over 5 years.35 Further opening of new markets can help to boost the exports of Brazilian beef.
As mentioned before, Brazil has huge potential to increase the productivity of its beef sector.
New grain feed systems and genetics could help to improve the weight of the carcass which is
currently lower than in other beef producing countries.36 Also the slaughter rate in Brazil which
is around 15 to 20 % is remarkably lower than in other countries like Australia (30 to 35 %) and
the United States (35 to 40 %). Other factors hampering the Brazilian beef productivity are
inefficiencies in the supply chain, deficient infrastructure and the lower amount of meat that
can be subtracted from the carcass37. ABIEC, the association of Brazilian beef exporters indicates
that a major hurdle to improve the productivity will be the organization of the production
chain38. The Brazilian government also sees increasing the productivity of the beef industry as a
way to protect the Amazon.39
29 Information available at http://www.abiec.com.br/download/relatorio-anual-2015.pdf 30 Data for 2015 31 Information available at http://www.brazilianbeef.org.br/noticia.asp?id=1418#.V4fHPfkrLIU 32 Information available at http://www.thecattlesite.com/news/49504/brazils-beef-exports-to-rise-as-china-doubles-volume/ 33 Information available at http://www.abc.net.au/news/2016-06-30/brazil-uruguay-beef-overtakes-australia-in-china/7556272 34 Information available at http://www.dhabi-steel.com.br/#!carne-beef/c1m7k 35 Information available at http://www.reuters.com/article/us-usa-usda-meat-imports-idUSKCN0P92EL20150629 36 Information available at https://www.rabobank.co.nz/media-releases/2016/160517-brazil-on-the-rise-south-american-beef-expert-tells-nz-producers/ 37 Information available at http://www.brazilianbeef.org.br/noticia.asp?id=1442#.V4fvFfkrLIU 38 Information available at http://www.abiec.com.br/eng/3_pecuaria.asp 39 Information available at http://www.brazilianbeef.org.br/noticia.asp?id=1321#.V4fczPkrLIU
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Figure 4: overview of the Brazilian beef industry in 2014
Poultry
Another important sector in the food industry is poultry. It accounts for roughly 1.5% of the
Brazilian GDP and employs around 3.6 million people direct or indirect.40 Brazil is the biggest
exporter of poultry in the world before the United States and the European Union and it
belongs to the top 3 of poultry producing countries together with the United States and China.
Moreover, it is the third biggest domestic market in the world after China and the European
Union for poultry.
Chicken production reached its peak in 2011 in term of volume. Hereafter, production decreased
but since 2014 this trend is reverted. A similar trend can be observed for the export of poultry in
terms of output. However, in terms of revenues a positive trend was already presented in 2013
but revenues decreased significantly in 2015 while the output had increased in the same year.
Lower revenues can be linked to higher production costs due to higher prizes for soybeans and
corn41.
Around 69% of the poultry production is sold on the domestic market and around 31% is
exported. The most important regions for the export of poultry for Brazil are the Middle-East
and Asia. The Brazilian poultry export industry also benefited from trade restrictions placed on
the United States (its main competitor) after a high pathogenic avian influenza (H5N1) outbreak.
For example, China and South Korea placed trade restrictions on the United States. In contrast,
Brazil never had a case of HPAI, thus making this is a clear competitive advantage for Brazil. In
addition to this, the current weak currency helps to boost Brazilian exports42.
40 Information available at http://www.brazilianchicken.com.br/home/nossahistoriahttp://www.brazilianchicken.com.br/home/nossahistoria 41 Information available at http://abpa-br.com.br/storage/files/versao_final_para_envio_digital_1925a_final_abpa_relatorio_anual_2016_portugues_web1.pdf 42 Information available at http://apps.fas.usda.gov/psdonline/circulars/livestock_poultry.PDF
The food industry in Brazil | December 2016 11
Several factors are seen as key elements to explain the success of the broiler meat industry in
Brazil. Firstly, the integrated system of production which was implanted in the sixties similar to
the American system heavily boosted productivity43. Secondly, the stronger ties that have been
created between farmers and plants. As a result, a more dense and cohesive vertical supply came
into existence. Thirdly, the behavior of consumers is another factor that attributed to the good
performance of the poultry industry. In the past the preferences of people were tilted towards
beef but recently this is changing towards chicken. Elements that can explain this shift are the
healthier image of chicken, it is quick and easy to prepare and people start to eat more proteins44.
42.78 kilo of chicken per person was consumed in 2014. Lastly, the Brazilian climate, the rich soil,
the presence of large quantities of land and strong investments in research and technology in the
past years also had a positive impact on the performance of the poultry industry45.
Pork
Brazil is the fourth biggest producer and exporter of pork in the world. Around 85 % of the
production of pork was designated for the internal market and 15 % was exported in 2015. The
export of pork is dominated by four big players in the world namely, the United States, the
European Union, China and Brazil. Import of pork is marginally small in Brazil. Since 2004
output in the pork industry increased up to 3 488.4 million tons a year in 2012. Output decreased
in 2013 but positive growth could be observed in 2014 and 2015. In 2015 a production of 3642
million ton of pork meat was reached, a new record high. On average Brazilians consumed 15.1
kilo of pork in 2015 while in 2007 this was only 13.0 kilo per person on average.
The export of pork in terms of volume has varied between 624 million tons and 505 million tons
between 2004 and 2015. The record high was reached in 2005 and the record low in 2014. In 2015,
555 million ton of pork was exported. Variations at the level of volume are rather small
compared to variation in revenues. The highest amount of revenues was reached in 2014 when a
revenue of 1606 thousand dollars was reached while only 505 million ton of pork meat was
exported. The most important export markets for Brazil are Russia and Asia and more
specifically Singapore and Hong Kong46. Strong growth in pork exports could be observed
towards Russia, Argentina, Chile and China47.
In 2016 revenues in the pork industry will be negatively affected by the rise in the price of corn
which is an important input for the production of pork as fodder is responsible for almost 70%
of the total production cost. As a result, in the first half of 2016 exports of pork rose significantly
to compensate for the higher corn prices and to benefit optimally from the lower exchange rate.
It is expected that this trend will continue in the second part of 201648. A similar trend but less
strong could be observed for the poultry industry. As a result, also the domestic price of pork
43 Information available at http://abpa-br.com.br/files/publicacoes/fcc1856de5f036bb47a8a246a0781e26.pdf 44 Information available at http://www.fao.org/AG/againfo/home/events/bangkok2007/docs/part1/brazil_.pdf 45 Information available at http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1516-635X2015000100087 46 Information available at http://abpa-br.com.br/storage/files/versao_final_para_envio_digital_1925a_final_abpa_relatorio_anual_2016_portugues_web1.pdf 47 Information available at http://www.thepigsite.com/swinenews/42076/2016s-first-half-tough-for-brazilian-pig-poultry-producers/ 48 Information available at http://www.thepigsite.com/swinenews/41987/brazils-limited-corn-supply-challenges-poultry-pork-sectors/
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increased in 2016. This could lead to changing consumption pattern in Brazil as it adds up to the
effect of the economic crisis. In the past the pork industry benefitted from the increasing beef
prices as this led consumers to shift from beef towards pork and chicken.
The common method to measure productivity in the pork industry is pigs per sow per year.
Figure 5 shows the value for pigs per sow per year for the most important pork producing
countries. It can be observed that the productivity of Brazil is at the level of Russia but it is
substantial lower than the productivity levels of Canada, the United States and the EU. Moreover,
countries with a higher level of productivity are also noting higher levels of productivity growth.
Thus, increasing the productivity of its pork sector could be an important driver for growth in
the pork industry and it could help to compensate for the higher feed prices. Currently, the
lower exchange rate makes the need for structural reforms less urgent but in the future to
remain competitive the Brazilian industry needs to make productivity gains.
Figure 5: Pigs per sow, 2008-201349
Milk and Dairy
In the next section, we will discuss the milk and dairy sector another important driver for
growth which has been less affected by the crisis than other sectors. Moreover, what makes this
sector very interesting is that in the past Brazil was a large importer of milk and dairy products.
However, this trend has reversed over time and Brazil is trying to find its way as an exporter of
milk and dairy products. This was only possible due to the opening up of new markets and
increasing productivity which was necessary for Brazil to become competitive in this market.
Nowadays, the milk and dairy industry is responsible for 3.6 million direct jobs in Brazil.50
In 2014, 25 489 million metric tons of milk was produced, production for 2015 is expected to be
around 26 101 million metric tons and 26 623 million metric tons for 201651. Interestingly, these
49 Information available at https://www.usitc.gov/publications/332/pork_and_swine_summary_its_11.pdf 50 Information available at http://dc.itamaraty.gov.br/imagens-e-textos/agronegocios-ing12.pdf 51 Data for milk production are often ex-post changed
The food industry in Brazil | December 2016 13
numbers only take the official market into account which is the milk that is inspected by the
government. Estimates for the production of the informal market lay around 11 199 million
metric tons. Roughly speaking one third of the total milk production in Brazil is not under the
inspection of the government52. This relationship also holds for the estimates for 2015 and 2016,
indicating that the growth rate of the formal and the informal market is similar. The milk hub in
Brazil is the State of Minas Gerais which produced 26% of the total production and managed to
increase its production with almost 15% in 2015.
Despite a decreasing domestic demand due to the economic crisis, the consumption of milk
increased by 2% in Brazil in 2015 to a total of 10 982 million metric tons. This positive trend is
expected to continue in 2016, a consumption of 11198 million metric tons is expected for 2016.
The increasing consumption of milk was mostly driven by a surge in industrial use53.
An important trend in the milk industry is the increasing popularity of lactose free milk. As a
result, companies are investing in these technologies. Moreover, to decrease their production
costs larger companies are trying to increase their production by acquisitions, mergers and
investments in new plants. This trend where larger companies expand their production capacity
through joint-ventures and take-overs can also be observed in the dairy sector. As a result, small
and medium sized enterprises need to invest more in new technologies and new products to
keep their place in this competitive market.
Diverse climate conditions in Brazil can hamper the overall increase in productivity. As a result of
the dissimilar climates, different techniques are used within the country. Therefore, technological
improvements cannot always be used everywhere in the country. However, this can also be seen
as an advantage as it makes the Brazilian market more flexible in case a crisis occurs54.
Dairy are all type of products which contain milk or are derivatives from milk. Relevant dairy
products in relation to Brazil are butter, cheese, yoghurt and milk powder55. The production and
consumption of cheese grew by 2% in 2015. A similar observation can be made for milk powder.
Rising production was mostly stimulated by growing exports. Increasing consumer demand was
responsible for the rise in consumption. An important trend within the cheese industry of the
Brazil is the increasing amount of varieties that are offered to the public. These new products
need to fill the desire of the public for European style cheese. This growing niche sector is very
important for the smaller producers who are trying to differentiate themselves from the
competition by offering higher quality cheeses56.
Exports and imports are small for the milk industry in Brazil and mostly takes place with its
neighboring countries namely Argentina and Uruguay. Brazil is also a small player on the export
52 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Annual_Brasilia_Brazil_10-20-2015.pdf 53 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Annual_Brasilia_Brazil_10-20-2015.pdf 54 Information available at https://adsagsd.wordpress.com/2012/12/14/summary-of-the-dairy-industry-in-brazil/ 55 There are no official data from the government for these sectors. Consequently, numbers represent estimates of both the formal and informal market. 56 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Annual_Brasilia_Brazil_10-20-2015.pdf
14
market of cheese. However, new market opportunities in Russia for cheese, butter and milk
powder combined with the increasing productivity of the dairy and milk industry, could lead to
increasing export levels in this sector for Brazil. However, in order to do so obstacles to improve
the quality of the milk need to be overcome57. Due to a higher level of production of cheese and
the decreasing value of the BRL, imports of cheese are decreasing for Brazil. A similar, trend can
be observed for the butter industry.
While cheese and butter are still marginal and insignificant export products for Brazil, export in
the dairy sector is mainly driven by the exports of milk powder which was responsible for 76 %
of all the export in the dairy industry. However, it should be noted that almost all the export
goes to Venezuela making Brazil sensitive for changes in the demand and market situation of
Venezuela58.
Beverages
Non-alcoholic beverages
In the next section we will focus on the non-alcoholic beverage industry in Brazil and a separate
section will be dedicated to coffee. A separate rapport related to the beer industry can be found
online on our website.
The sector of non-alcoholic drinks in Brazil generated a net revenue of 109.1 billion59 BRL in 2015.
Several trends can be observed in the beverages industry in Brazil. Table 1 shows data from the
Brazilian association of soft drink producers and non-alcoholic beverages for the production
and consumption of all type of non-alcoholic beverages in Brazil. A strong increase in
production can be observed for almost every sector except for sodas, soya based drinks and
concentrated juices. However, the consumption and production of carbonated soft drinks is still
very high in Brazil. In 2010 Brazilians consumed on average per person 88.9 liters of soda per
year, in 2014 this level dropped to 75.1 liters per year. In contrast in 2014 the average
consumption of water from a Brazilian brand was 59.6 liters per person per year while in 2010
this was only 34.3 liters per year per person. It should be noted that these numbers do not take
filtered water from the tap into account. Also in comparison to the rest of the world soda
consumption is high in Brazil. Brazilian consumption is close to the top 10 of highest soda
consuming countries in the world but still significantly lower than the United States, Chile and
Argentina. A survey conducted by Cint also indicates that on average soda is the most consumed
beverage for Brazilian before local beers and local juice6061.
The strongest growth can be observed for fruit juices, ready to drink juices and teas. It is
expected that due to the economic crisis growth for luxury drinks as energy drinks, isotonic
drinks and ready to drink teas will decrease and the growth of cheaper and healthier
57 Information available at https://adsagsd.wordpress.com/2012/12/14/summary-of-the-dairy-industry-in-brazil/ 58 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Dairy%20and%20Products%20Annual_Brasilia_Brazil_10-20-2015.pdf 59 In market prices of 2015 60 Information available at http://www.statista.com/statistics/561114/brazil-regular-beverage-consumption/ 61 However, other sources cite coffee as the second most popular beverage.
The food industry in Brazil | December 2016 15
alternatives like bottled water, juice, fruit drinks and fruit drinks in powder will keep rising6263. In
2013 there was remarkable drop for isotonic drinks but in 2014 the market stabilized at the same
output level as in 2012.
The Brazilian beverages industry is mostly dominated by big corporations like Coca-Cola and
Inbev (Ambev) but opportunities for smaller and local industries lay in the niche sectors like
ready to drink teas and energy drinks64. Coca-Cola and Inbev (Ambev) are responsible for 81% of
the total output and 90% of the total revenue. Given the strong market presence of these two
players, they have the power to control the market and to hamper the entrance of other
players65 (e.g. several brands on the market and sometimes an excessive amount of brands to
avoid competition from other companies in their segment). Moreover, they can resist the
economic crisis better. For example, the exclusivity contracts of these companies help to
mitigate the effect of the crisis. Therefore, the market opportunities lay in the niche sectors
which focus on current trends (e.g. health, sustainability and price-quality).
Another trend which developed in Brazil due to the difficult economic situation is the
introduction of family size packages which are put in the market as bigger portions for less
money. In addition to this, smaller packages also find their way to the market. These ready to go
formats are mostly popular in the big metropolitan areas66. The World Cup and the Olympic
Games are also import drivers for growth in the beverage industry.
Table 1: Production and Consumption of Brazilian Beverages in 201467
Volume (In
thousand liters)
Growth in
volume
compared to
2013 (in %)
Consumption per
person per year
Ready to drink teas 137,789 9,8 0,7
Water 12.088.245 6,2 59,6
Soya based drinks 273.273 -11,7 1,3
Energy drinks 140,639
9 0,7
Isotonic drinks (sport
drinks)
113.700 5,8 0,6
Ready to drink juices
(nectars or sumo)68
1.306.441 14,9 6,4
Fruit drinks (in
powder)
4.993.326 4,8 24,6
Fruit drinks (ready to
drink)
503.033 14,9 2,5
62 Data for 2015 was not made available yet by ABIER-Associação Brasileira das Indústrias de Refrigerantes e de Bebidas não Alcoólica 63 Information available at http://www.euromonitor.com/soft-drinks-in-brazil/report 64 Information available at http://www.euromonitor.com/soft-drinks-in-brazil/report 65 Information available at http://afrebras.org.br/setor/bebidas-nao-alcoolicas/ 66 Information available at http://www.euromonitor.com/soft-drinks-in-brazil/report 67 Information available at http://abir.org.br/o-setor/dados/ 68 The level of juice in juices is higher than in fruit drinks
16
Soft drinks 15.350.222 -6,0 75,1
Concentrated juices 669,616 -1,2 3,3
Total of all
Nonalcoholic drinks
36.567.992 4,0 180,3
Coffee
Until 1929 coffee was the main export product of Brazil. It was an important driver for the early
economic development of Brazil and it used to be called the green gold. The great depression
ended the golden times for the coffee business in Brazil. Moreover, Brazil lost it almost
monopoly of the coffee export market when more new competitors entered the market69.
Around 50% of the total export of Brazil before 1929 was coffee. During the sixties, more than
60% of the Brazilian export was coffee which made the Brazilian economy very dependent on
the world prices and demand for coffee. Nowadays, the importance of the coffee export
decreased significantly and it varies around 2% of the total exports70.
Currently, Brazil is the largest exporter and producer of coffee in the world and the second
largest consumer of coffee71. The coffee sector employs direct and indirect more than 5 million
people72. Thus, despite its declining importance in the total exports of Brazil, coffee remains a
key sector for the Brazilian economy.
Brazil produces two types of coffee namely Arabica and Robusta. In total 290000 producers
realized a total production of 43 million 60 kilogram bags of coffee73. Since 2012 the production
of coffee has been decreasing but forecasts expect production to grow again in 2016 mostly due
to favorable weather conditions for the Arabica coffee bean74. On average 75 % of the
production is Arabica coffee and 25% is Robusta coffee in Brazil. The quality of Arabica coffee is
considered superior to Robusta. As a result, the price of Arabica is significantly higher but its
productivity is lower. Therefore, Robusta is also commercially interesting as it is more resistant
to diseases75. Due to its higher prices Arabica is mostly exported while Robusta is used to serve
the domestic market. The production of Robusta in the world is increasing. It is expected that by
2020 45% of the total production will be Robusta76. The biggest producer of Robusta is Vietnam
and Brazil holds the second place.
In 2015 Brazil exported 37.1 million bags of coffee77 and was responsible for 30% of the world
trade of coffee78. Other important exporting countries are Vietnam, Columbia and India. In
69 Information available at http://www.cecafe.com.br/en/about-coffee/the-history-of-coffee/ 70 Information available at http://www.morethanshipping.com/worlds-largest-coffee-producer-and-exporter-brazil/ 71 Information available at http://www.cecafe.com.br/en/about-coffee/production/ 72 Information available at http://www.ecf-coffee.org/about-coffee/coffee-facts 73 Information available at http://www.abic.com.br/publique/cgi/cgilua.exe/sys/start.htm?sid=52 74 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Coffee%20Annual_Sao%20Paulo%20ATO_Brazil_5-16-2016.pdf 75 Information available at http://pt.slideshare.net/cafeicultura/caf-arbica-e-robusta-uma-anlise-da-produo-consumo-e-dos-blends-nos-diversos-pases-carlos-brando 76 Information available at http://portal.cocapec.com.br/noticias/o-aumento-da-participacao-do-cafe-robusta-na-producao-mundial/ 77 Bags of 60 kilogram coffee 78 Information available at http://www.abic.com.br/publique/cgi/cgilua.exe/sys/start.htm?sid=52
The food industry in Brazil | December 2016 17
contrast to declining production of coffee, Brazilian coffee exports have been on the rise except
for 2012.
The word used by Brazilians when they refer to breakfast is “café da manhã” which means
morning coffee. This little fun fact, gives an indication about the importance of coffee for
Brazilian society. As noted before, Brazil is the second biggest consumer market of the world
behind the United States. The consumption of coffee per capita was 6.12 kilogram of green
coffee in beans which is equivalent to 81 liters of coffee per year per person while in 1990 this
was only 3.39 kilos of green coffee in beans79. In comparison Brazil belongs to the top 10 of
countries with the highest level of coffee consumption per capita. Finland with 10 kilogram of
green coffee in beans per person stands at the top of the list80. The Brazilian Coffee Industry
Association81 (ABIC) expects positive growth for the consumption of the coffee per capita in
Brazil despite the crisis and this up worth trend is expected to continue in the following years.
Research from Euromonitor indicates few people believe that the crisis will alter the volume of
coffee they consume but is possible people will switch to cheaper brands. People under thirty
are the most likely to change their behavioral patterns as they are the group that consumes the
most coffee outside of the house82.
COFFEE CAPSULES
In the western world coffee capsules have already became an important niche market. In Brazil
this market is relatively new but it has a lot of growth potential. In 2014 in only 1% of the
Brazilian household’s coffee capsules were being used while coffee is available in 98% of the
Brazilian households. However, it is expected that by 2020 this number will climb to 20% despite
the economic downturn. The most common method in Brazil to make coffee is by using coffee
powder. However, the popularity of coffee capsules is increasing because of their practicality,
convenience and their large variety. Hence, coffee capsules are mostly consumed by the higher
class in Brazil as often they are willing to pay extra for the reduction in time that can be
obtained by using capsules. In total coffee powder accounted for 86.4% of the value of total
consumption and capsules were only responsible for 1.7% of the value of the total consumption.
Nonetheless, revenues for capsules increased with 54% in 2014. Capsules are also in line with the
gourmet trend that emerged some years ago in Brazil. People are looking for more diversity,
higher quality and sometimes more special products. This creates interesting opportunities for
foreign producers as often these trends already exist in Europe. The Brazilian Coffee Industry
Association (ABIC) expects that revenues for coffee capsules will triple and reach 3 billion BRL by
2019. At the beginning of this new trend, mostly the big players in the coffee market were
dominating this segment but since 2015 more and more small players entered the market of
coffee capsules83.
79 Information available at http://www.abic.com.br/publique/cgi/cgilua.exe/sys/start.htm?sid=61#expect2015.2 80 Information available at http://www.cecafe.com.br/en/about-coffee/consumption/ 81 Associação Brasileira da Indústria de Café 82 Information available at http://www.cecafe.com.br/en/about-coffee/consumption/ 83 Information available at http://www.abic.com.br/publique/cgi/cgilua.exe/sys/start.htm?sid=61#segment2015.2
18
Field crops
Important field crops for Brazil are wheat, corn, sugarcane and soybeans. Brazil is the largest
soybean exporter in the world and the second largest producer of soybean. In addition, Brazil is
the second biggest producer of corn in the world and the third biggest producer. In contrast
stands the position of Brazil in the wheat industry where it is a relatively small player in the
export market.
Wheat
The consumption of wheat has steadily been increasing in Brazil. In 2013-2014 a growth of 4%
could be observed and in 2014-2015 a growth of 5%. This trend is not new in Brazil and emerged
together with the growing middle class. Together with the increasing wealth of the public, also
their diet changed towards more wheat oriented products and this despite the higher prices84.
However, rising inflation and the economic crisis have reverted this trend for the time period
2015-2016.85
The production of wheat is more volatile than the consumption of wheat as it is heavily affected
by the climate and the expected prices. For example, between October 2013-October 201486 wheat
production went up 20% because at the time of planting prices were high. However, due to
higher than expected production of wheat in the rest of the world, prices were lower than
expected in the end. This resulted in a drop of 6% for the time period 2014-2015 to 5 million
metric tons of wheat. It is expected that exports will further decrease in 2016 as more producers
will switch to more profitable crops like corn and soybeans87.
The quality produced by Brazilian producers is lower than that of other producers. As a result,
there is a significant import of wheat. Domestic millers do not use 100% of Brazilian wheat but a
blend that contains only 30% of locally produced wheat and 70% of imported higher quality
wheat. In total Brazil imported 7.3 million metric tons of wheat in 2012-2013. This volume remains
steady between 2014-2016. In the past most of the imported wheat came from Argentina but
since export restrictions implemented by the Argentinian government, the United States became
in 2014-2015 the most important exporter of high quality wheat towards Brazil88. However, it lost
this position when Argentina entered the market again in 201589.
84 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-21-2014.pdf 85 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Update_Brasilia_Brazil_6-17-2016.pdf 86 Further on when 2013-2014 is used, we refer to the period from October to October. 87 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Update_Brasilia_Brazil_6-17-2016.pdf 88 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-21-2014.pdf 89 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-30-2016.pdf
The food industry in Brazil | December 2016 19
Brazil itself exported 1753 million metric tons of lower quality wheat to Africa and the Middle
East where it is mostly used for flat bread between October 2012 and 201390. Despite expectations
that exports would drastically decrease, exports remained relatively stable. However, numbers
for 2015-2016 show a significant decrease in export, a trend that is expected to continue in the
upcoming years91. Major world export countries of wheat are the United States, the European
Union, Russia, Canada and Australia.
Corn
The importance of corn for the Brazilian economy has been on the rise especially since the
export boom in the last years. Brazil always has been one of the biggest corn producing and
consuming countries in the word (i.e. they are the third biggest producer in the world) but
recently they also became the second biggest exporter of corn in the world92.
In 2015 Brazil produced 85 million metric tons of corn or 8.4 of the total production of corn in
the world and the double from what it produced in 2000. One of the elements that contributed
to the strong performance of Brazil in the corn industry is the abundance of land. In the past
the land that could be used for the cultivation of corn has expanded meaningfully due to the
use of new technologies which created the opportunity to also use less fertile soil for the
cultivation of corn. Hereby, the before unused land of the center east of Brazil became very
important for the harvest of soybeans, corn and cotton. Furthermore, new seeds were developed
that were more suitable for low fertile ground in a tropical climate. A second important element
that can explain the strong performance of Brazil in the production of essential commodities
(e.g. soy, corn, beef, pork and poultry) is the focus of the government in the seventies on self-
sufficiency. As a result of this import substitution agriculture developed strongly everywhere in
the country. On the down side, these policies gave little incentives to producers to be
competitive with the rest of world. Only with the opening of the markets in the nineties,
Brazilian producers started to focus intensively on increasing their productivity. Thirdly, the
possibility to use double cropping due to the climate, decreased the productions cost
significantly. In most cases corn will be double cropped after soybeans (another possibility is
cotton), this results in what they call the little harvest or “safrinha”93.
Recently this little harvest has become more important for the production of corn than the first
harvest. This is the result of the increasing area of land that is used for double cropping. In 2015
64% of the total production of corn came from the “safrinha”, in 2005 this was only 22%. First-
crop corn is mostly used to serve the domestic market and especially the market of animal feed
(corn is an important input for the pork and poultry industry) while the second-crop corn is
mostly exported as visualized in figure 6 (information is obtained from the United States
department of Agriculture). The harvest time of this second-crop corn (June-September) has
important and positive implication on the production and export of corn. In the past there was
90 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-21-20 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Update_Brasilia_Brazil_6-17-2016.pdf 14.pdf 91 Information available at 92 Information available at https://research.rabobank.com/far/en/sectors/grains-oilseeds/Brazil-Harvest-2015-16-Soybean.html 93 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf
20
a trade-off between the export of corn and soybeans due to a lack of capacity and
infrastructure at the Brazilian ports. Given the fact that soybeans are denser and more valuable
they were given priority. Due to the harvest time of this second-crop corn, corn can be exported
after the peak export season of soybeans94. However, there is still room for improvement at the
level of logistics which could favor the export of both corn and soybeans95.
In addition to this, export quotas for Argentinian producer, drought in the United States and
high prices in the world market have created strong incentives for Brazil to increase the export
of corn. Brazil has become a strong competitor of the Unites States and Argentina in the corn
industry. In the last ten years the average growth rate of the export of corn was 21% for Brazil96.
However, a sharp decrease in exports can was noted in 2013-2014 and 2014-2015 after a record
high was reached in 2012-2013. This drop in exports can mainly be attributed to lower prices on
the global market97. It is expected that the export of corn will peak to a new record high for the
period 2015-2016. Stimulating factors for export are the weak BRL and an increasing world
demand for Brazilian corn. The side effect of this boom in corn exports are the higher prices for
corn on the domestic market. This has a negative impact on the production cost of feed and
results in higher production costs for the meat industry (another important export sector for
Brazil)98. Therefore, due to pressure on the domestic market, higher imports of corn are expected
for 2016.
Figure 6: Production of Corn and Exports in Brazil (2000-2015)99
94 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf 95 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-21-2014.pdf 96 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf 97 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Grain%20and%20Feed%20Annual_Brasilia_Brazil_3-21-2014.pdf 98 Information available at https://research.rabobank.com/far/en/sectors/grains-oilseeds/Brazil-Harvest-2015-16-Soybean.html 99 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf
The food industry in Brazil | December 2016 21
Besides high levels of production and export, the level of consumption of corn is also high in
Brazil. Figures from the Unites States department of Agriculture shows that since 2006
production of corn exceeds domestic demand (see figure 7). Demand for corn mostly comes
from the feed industry and the demand from the food industry has remain relatively stable over
time. The increasing demand and export for meat are important drivers for the growing demand
for corn of the feed industry. Increasing wealth of the public can be linked to a higher demand
for meat and this results in a higher demand for corn. This compensates the negative effect that
higher wealth has on the domestic use of corn in the food industry. Since 2011, the demand for
corn by the feed industry has been stagnating, this was partially due to the higher price for corn
on the domestic market100.
Figure 7: consumption of corn in Brazil (2000-2015)101
Soybeans
Brazil is the second largest producer of soybeans in the world after the United Sates. Until 2013
it was also in volume the second most harvested crop in Brazil after sugar canes but in 2014 this
position was taken over by corn102.
Figure 8 represents data from the association of Brazilian soybean producers (Aprosoja Brasil103)
on the average usage of soybeans in Brazil. On average 44% of the total production of soybeans
is exported, the rest will be processed 49% and 7% will go to the stock. Almost 80% of the
soybeans will be converted in bran and the rest will be processed to oil. 52% of the total amount
of bran will be exported and the rest will be used to serve the domestic market of animal feed.
The oil obtained from the soybeans is for 77% designated to the domestic market where it is
used for cars, cooking… and 23% will be exported104. These are indicative numbers which can vary
over time. For example, when the demand for biodiesel is high, the amount of processed
soybeans can be higher or it can alter the relationship between biodiesel and cooking oil.
100 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf 101 Information available at http://www.ers.usda.gov/media/2103048/aes93.pdf 102 Information available at http://www5.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6673-eng.pdf 103 A Associação dos Produtores de Soja do BRASIL 104 Information available at Information available at http://aprosojabrasil.com.br/2014/sobre-a-soja/uso-da-soja/
22
Figure 8: the use of soybeans in Brazil 105
The production of the soybeans is expected to hit a record for the year 2015-2016 with an
estimated production of 100 million metric tons which is meaningfully higher than the previous
year and the assumption is that this trend will continue106. Similar to corn, the expansion of
otherwise unexploited land that can be used for the production of soybeans is important factor
that can explain the success of soybean production in Brazil. Moreover, compared to its main
competitors, the direct cost of producing soybean are higher but they can compensate for this
by significant lower land costs107.
Brazil is since 2014-2015 the biggest exporter of soybean seeds when they exported in total 50.612
million metric tons and exports of soybeans are expected to keep growing due to strong
demand from China. As a result, a record of 57.200 million metric tons is projected for 2015-
2106108. 75% of the total export of soybeans of Brazil goes to China and Spain stands second with
5%.
105 Information available at http://aprosojabrasil.com.br/2014/sobre-a-soja/uso-da-soja/ 106 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Oilseeds%20and%20Products%20Annual_Brasilia_Brazil_4-1-2016.pdf 107 Information available at https://www.agritechnica.com/fileadmin/downloads/2015/Programm/Forum_3/F3-13-11-1400_Balieiro.pdf 108 Information available at http://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf
The food industry in Brazil | December 2016 23
As already noted before, insufficient capacity and logistics in Brazil are important hindrances for
the export of soybeans and corn. The two main ports in Brazil, Santos (in the state of Sao Paulo)
and Paranagua (in the state of Paraná) have invested in capacity. However, this has not been
sufficient and further improvements need to be made in all Brazilian ports so that they are
better prepared for increasing exports and the sometimes difficult climate conditions (e.g.
rain)109.
Soybean oils
Around 20% of the processed soybeans are used for the creation of soybean oil which can be
used for cooking or as an input for biodiesel. In the year 2013-2014110 7.76 million metric tons of
soybean oil was produced in Brazil. This was a strong increase compared to the previous years
but stagnation in this market is forecasted for the upcoming years111. Exports, domestic demand
and the market for biodiesel have an important impact on the production of soybean oil.
Brazil is the second biggest biodiesel producer in the world after the United States. Soybeans
are the main input for biodiesel and they account for 77% of all the inputs used in biodiesel.
Other inputs are animal feeds and cotton seeds. In 2015 3.94 billion liters of biodiesel were
produced in Brazil. The full capacity of the industry is even the double of the 2015 production,
thus growth in the domestic demand can be met by domestic production. It is expected that the
domestic production of biodiesel will grow after the Brazilian government changed the
regulations on how much biodiesel can be blended with diesel. The current target for biodiesel
was raised by the government112.
However, due to the economic crisis forecasts about the consumption of biodiesel and soybean
oil in general are uncertain. Together with a decline in exports, a stagnation of the production
of soybean oil is forecasted for Brazil despite the higher production of biodiesel113.
Sugarcane
The sugarcane industry and its derivatives are responsible for 900000 direct jobs and an added
value of 2% of the total GDP of the Brazilian economy. Hereby, Brazil is the largest producer of
sugar canes and of sugar in the world and the second largest producer of ethanol. Moreover, it
is the most important exporter of sugar.114
Similar to the use of soybeans, sugarcane can be used for a wide range of options. Its main
derivatives are sugar and ethanol. In 2015 41% is used to produce sugar and the rest 59% is used
for the production of ethanol. It is forecasted that this relationship will shift towards more
109 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Oilseeds%20and%20Products%20Annual_Brasilia_Brazil_4-1-2016.pdf 110 Data are for the October - September marketing year 111 Information available at http://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf 112 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Oilseeds%20and%20Products%20Annual_Brasilia_Brazil_4-1-2016.pdf 113 Information available at http://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf 114 Information available at http://unica.com.br/documentos/documentos/cana-de-acucar/pag=0
24
sugar due to a shortage of sugar on the world market and the relative low price of ethanol due
to government policies that subsidized gasoline to keep inflation low115.
Brazil is responsible for 25% of the total production of sugar and 50% of the world production.
Brazil produced in 2014/2015 35.5 million tons of sugar. Almost 65% of the total production of
Brazil will be exported (e.g. in 2014/201524.2 million tons of sugar were exported). As a
consequence, the world price of sugar has a significant impact on the profitability of the sector.
In contrast, the majority of the ethanol production is designated for the domestic market. In
2014/2015 25 billion of a total production of 28 million tons of ethanol was used for domestic
consumption116. The main export market for sugar are China and the United Arab Emirates and
for ethanol the United States and South Korea form the two most important markets which
account for 80% of the total exports117.
In the past, the production of sugar cane has been highly profitable due to the higher prices of
sugar on the world market and the mandatory use of ethanol in a blend with gasoline. In 1977
the first law was passed that made it mandatory to have a blend of gasoline with 4.5% of
ethanol.118 The introduction of flex fuel cars in 2003 formed an important boost for the
popularity of ethanol as these cars can run or on the gasoline blend with ethanol or just on
ethanol. Thus, leaving it up to the customer to decide which input has the best price-quality
ratio119. As a result production of sugar cane grew meaningfully in the past decade in Brazil as
can be seen from table 2. However, due to decreasing sugar prices and subsidies for gasolines,
prices for both sugar and ethanol decreased. As a result, the profit margins in the sector
narrowed and many producers who had just invested in an expansion of their capacity came
into trouble. As numbers from the association of sugar cane producers (UNICA120) shows since
2011 more and more production units had to close121. Therefore, despite increasing sugar prices, it
is expected that the sugar cane production will only grow slowly as many units still have
significant amount of debts122.
Table 2: Sugar Cane production in Brazil123
2000/2001 256 818 2001/2002 293 043 2002/2003 320 650
2003/2004 358 763 2004/2005 385 198 2005/2006 385 128 2006/2007 427 675 2007/2008 495 724
115 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Sao%20Paulo%20ATO_Brazil_8-4-2015.pdf 116 Information available at http://unica.com.br/documentos/documentos/cana-de-acucar/pag=0 117 Information available at http://unica.com.br/documentos/documentos/cana-de-acucar/pag=0 118 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Sao%20Paulo%20ATO_Brazil_8-4-2015.pdf 119 Information available at http://sugarcane.org/the-brazilian-experience/brazilian-transportation-fleet 120 União da industria de cane-de-açûcar 121 In this numbers the amount of production units bought by competitors after bankruptcy are not taking into account. 122 http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Sao%20Paulo%20ATO_Brazil_4-15-2016.pdf 123 Information available at http://www.unicadata.com.br/
The food industry in Brazil | December 2016 25
2008/2009 569 215 2009/2010 602 194 2010/2011 620 410 2011/2012 559 215 2012/2013 588 478
2013/2014 651 295 2014/2015 633 927 2015/2016 666 824
Figure 9: Production units in the sugar cane industry124
It is forecasted that the domestic consumption of sugar will decrease due to the recession as the
demand to luxury items like cake and cookies will decrease and the increasing awareness of the
public on the danger of sugar125. A positive trend for the consumption of ethanol is expected
since a new law that came into practice in March 2015. This new law increased the amount of
ethanol that can be blend with gasoline from 25% to 27.5%. In addition, policies that kept the
prices of petrol low were abolished by the Brazilian government. As a consequence, ethanol has
become competitive again in the market and forecasts for see a growing domestic demand for
ethanol126.
5. Evaluation of the food industry in Brazil
It can be stated that the food industry is extremely important for the Brazilian economy and
due to its strong performance in the export market, it can be an important driver for economic
recovery. Several factors contributed to the good performance of the Brazilian food industry.
Firstly, the current weak BRL gives the food industry a clear competitive advantage in the export
market. Secondly, the opening up of new markets positively affected trade for Brazil. Market
liberalization with the real plan in 1994 helped the Brazilian producers to become more
competitive. Thirdly, the growing middle class formed an important driver for growth in the
food industry. The current drop in domestic demand, is partially compensated by an increase in
export.
124 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Sao%20Paulo%20ATO_Brazil_8-4-2015.pdf 125 Information available at http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Sao%20Paulo%20ATO_Brazil_4-15-2016.pdf 126 Information available at http://www.bbc.com/news/business-33114119
26
Given the fact that certain stimulating factors for the Brazilian economy are only temporary
(weak currency) or have a temporary effect, it remains utterly important to improve the
productivity. Moreover, structural changes need to be made if the Brazilian food industry wants
to keep its leading position as exporter in several sectors: meat (poultry, beef and pork),
beverages (fruit juice), corn and soybeans.
As noted before, the Brazilian food market is mostly served by local producers. However, the
share of domestic demand met by imports has been increasing over time. This implies that also
foreign investors managed to absorb some of the growth of the food industry in Brazil. Still, this
is mostly only possible for the larger companies. Nevertheless, there are market opportunities for
the smaller and medium-sized companies in Brazil related to the improvement of productivity in
Brazil and the need to optimize the supply chain. Moreover, new technologies and product
innovations will be crucial for the niche markets in Brazil. Most of these trending niche market
are also present in Europe and mostly already further developed. Consequently, opportunities lay
here for foreign companies.
The taste of the Brazilian public for premium quality brands or gourmet products and new
varieties increased together with their economic development. This changing behavioral pattern
of consumers has important implications for trade with the European Union. Due to
transportations costs and taxes, European products are very expensive in Brazil. As a result, they
cannot compete with local products but they enter the Brazilian market as premium quality
brands. Moreover, European products are seen as products of high value and quality while this is
not always the case for American products. Therefore, the increasing taste for high quality
products, creates important niches in the Brazilian market that could be filled up by European
companies. Despite, the economic crisis, it is expected that this trend will continue once the
Brazilian economy recovers from its current downturn.
The information in this publication is provided for background information that should enable you to get a picture of
the subject treated in this document. It is collected with the greatest care based on all data and documentation
available at the moment of publication. Thus this publication was never intended to be the perfect and correct answer
to your specific situation. Consequently it can never be considered a legal, financial or other specialized advice.
Flanders Investment & Trade (FIT) accepts no liability for any errors, omissions or incompleteness, and no warranty is
given or responsibility accepted as to the standing of any individual, firm, company or other organization mentioned.
Date of publication: February/2017