2013-08-29 08:54:36 - New Food market report from Business Monitor International: "Brazil Food & Drink Report Q4 2013"
We have revised down our 2013 real GDP growth forecast for Brazil to 2.6%, from 3.3% previously, as economic activity data remains weak, interest rates are set to continue heading higher, and our Infrastructure team increasingly believes that numerous projects are unlikely to be completed in advance of the end of the government's PAC II growth acceleration programme and the FIFA World Cup in 2014.
Our core view for relatively weak private consumption remains in play. High household debt levels and weaker purchasing power (exaggerated by the recent collapse in the currency) is likely to constrain private consumption growth considerably over the coming quarters. With real private consumption growth expanding by just 2.1% year-on-year (y-o-y) in Q113, and continued headwinds in
the form of high inflation and interest rate hikes on the horizon, we believe that Brazil's consumer sector will grow more slowly in 2013 than we previously expected. As such, we are revising down our forecast for real private consumption growth in 2013 to 1.8% y-o-y, from 2.2% y-o-y previously.
Full Report Details at
Food and retail consumption is likely to outperform among the country's private consumption items, and we project generally strong sales growth for the main companies in the sector. We also believe that a moderation in input prices (grains) could help margins for these companies to recover in the coming months.
Headline Industry Data (local currency)
* 2013 per capita food consumption = +10.4% y-o-y; forecast compound annual growth rate (CAGR) to 2017 = +8.6%.
* 2013 alcoholic drink sales = +10.5% y-o-y; forecast CAGR to 2017 = +10.3%.
* 2013 soft drink sales = +9.2% y-o-y; forecast CAGR to 2017= +8.7%.
* 2013 mass grocery retail sales = +7.7% y-o-y; forecast CAGR to 2017 = +8.2%.
Key Company Trends
Away From Beef, Towards Poultry And Dairy Sectors: Out of all the emerging regions we cover, we believe Latin America will see the slowest meat consumption growth in the coming years, with beef consumption particularly subdued. This will in turn affect beef production in large producers such as Brazil and Argentina. Meat consumption per capita in the region, especially beef demand, is among the highest in the world despite the low levels of growth in recent years. Indeed, meat consumption in Latin America averaged 60.0kg per capita in 2012, compared with 72.5kg for Europe and North America, and 23.5kg in Asia and Africa (excluding developed markets such as Australia, Hong Kong and New Zealand). Latin America is therefore nearing developed market standards in terms of meat consumption.
Frosts, Hoarding Present Downside Risks To Exportable Surplus: We maintain our forecast for Brazilian coffee output in 2013/14 to come in below official estimates, as we see downside risks to production on the back of recent frosts in the country. We forecast production to reach 46.0mn 60kg bags in 2013/14, a 9.0% y-o-y decline, as the coffee crop is currently in a down-year. This compares with the 49.6mn bags forecast by Brazil's Companhia Nacional de Abastecimento. The current coffee harvest is only 44.0% complete, and we believe increasing risks of frosts in the country's coffee-growing regions will delay the harvest and could even freeze coffee pods.
Carrefour Remains Committed To China And Brazil: French retailer Carrefour has confirmed its commitment to securing growth in both Brazil and China while restructuring its domestic operations. Following a string of asset sales in recent months, the company's pledge to drive sales in Brazil and China demonstrates their potential in terms of mitigating the effect of austerity-hit consumers in maturing European markets on sales. Carrefour's expansion in these key markets will very likely play a significant role in spurring its revival.
Key Risks To Outlook
Downside Risks To Growth Forecast: Should inflation increasingly eat into consumers' purchasing power, weighing on private consumption growth, and should infrastructure projects remain hampered by delays, we could see real GDP growth underperform our 2.6% forecast this year.
Upside Risks To Interest Rate Forecast: Should consumer price inflation persist above the upper limit of the central bank's 4.5% += 2.0% tolerance band in the coming months, and inflation expectations continue to head higher, we could see more aggressive monetary tightening than we currently expect in the next few months. Indeed, such a scenario would likely bring the Selic rate to 9.50% or 10.0% by year-end, exceeding our end-2013 forecast of 9.25%.
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