The Brazilian packaging industry is the largest in South America and its key end-user market segments include consumer packaged goods, agro-products, light engineering goods and household durables. After recording a period of sustained growth, the country’s industry was affected by the global financial crisis in 2009.
However, according to an iCD Research industry study, the country’s large manufacturing base and well-developed agro-export industry have contributed to the rising income levels of the country’s population, a factor which is expected to drive packaging demand in future years. Of the BRIC (Brazil, Russia, India and China) countries, the Brazilian packaging industry ranks after China and India, and possesses an expanding domestic and export market. In addition, the Brazilian packaging industry is expected to improve as a result of the 2014 FIFA World Cup and 2016 Olympic Games.
Outlook of metal packaging remains strong
Despite having a lower market share than paper and plastics, metal packaging offers the highest growth opportunity in the industry. The majority of the leading companies in the Brazilian metal can production industry have announced expansion plans through brownfield and greenfield projects, reflecting confidence in market growth. In the rigid plastics category, PET packaging is the fastest-growing sector, while in terms of flexible packaging, Bemis, after its acquisition of Dixie Toga, is expected to continue to expand its production facilities in the regional market. Growth in glass packaging is likely to remain low compared with other categories.
Agro-products industry to drive growth
The Brazilian agro-products industry, with a global share of 25% of the world food market, is growing as a result of a significant number of global retailers making Brazil a global sourcing hub. Consequently, the food industry, which accounts for more than 40% of packaging consumption, is expected to drive growth. Global sourcing has led to the adoption of international standards of packaging to facilitate regional and continental shipments. New packaging formats such as stand-up pouches are expected to record growth in Brazil with applications in juices, milk, tea and water packaging.
Investment in the domestic market
The Brazilian domestic market remained a favourite destination for global companies in the FMCG (fast-moving consumer goods) sector as several announced new investments. Coca Cola, for example, announced plans to invest approximately US$5.8 billion in Brazil during 2010-15. Additional investment is also expected in the retail sector. Such levels of investment highlight the expectation of higher consumer spending, driven by robust economic growth in Brazil, which in turn will boost demand across packaging segments.
Consolidation of retail and industry
In the last number of years the Brazilian packaged consumer goods supply chain has experienced greater consolidation. The creation of Brazil Foods, as a result of the merger of Brazilian food majors Perdigao and Sadia, is expected to trigger further consolidation. Consolidation among major retailers in Brazil has led to the adoption of standardised packs and sizes in order to improve logistics and effective warehousing practice. This has benefitted the packaging industry by allowing it to compete over standardised products and specifications.
Tax rates, exchange rate fluctuations, environment laws and high borrowing costs
High taxes, legislation relating to food, safety and the environment, energy prices and exchange rate fluctuations are some of challenges currently faced by the Brazilian packaging industry. Due to the complex supply chain, the Brazilian packaging industry has numerous stakeholders, each of whom is represented by trade associations. Although there is a separate agency representing the packaging industry, the affiliation of member companies is usually to its core industry. Consequently issues faced by the industry regarding high corporate taxes and import duties on packaging machineries remain unresolved.
Among the end-user market segments, the food and pharmaceuticals markets are highly regulated by the government. In recent times, however, environmental concerns have become a major impediment for the growth of plastic packaging, such as the law which prohibits the use of plastic bags in supermarkets in Rio de Janeiro. In addition, the plastic packaging industry faces the challenges of the irregular supply of raw materials from petrochemical companies, and fluctuations in price. Brazil also remains a high-cost capital country, and as the majority of domestic packaging businesses are small or medium-sized, high borrowing costs affect their ability to expand.
Brazilian metal packaging exports are expected to slow down
Metal product exports are an important component of Brazil’s foreign trade and contribute to its trade surplus. Brazil enjoys a comparative advantage in both steel and aluminum production with its large mineral reserves, low labour costs and highly integrated and modernised production facilities. However, exports slowed considerably during 2008-09 as a result of the global financial crisis, and low prices and weak demand in international markets have prompted producers to reduce production. Metal packaging exports are forecast to be slower over the forecast period, with increased domestic demand expected in the run up to international events such as the World Cup and Olympic Games.
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