Latin America F&B

Industry Report - Food & Beverage - August 2008 Adding Value to Information Since 1900 Latin America Food & Beverage Sectors A Company and Industry Analysis August 2008 CONTENTS Current Environment — Key Points • The recent economic downturn in the US, the world’s leading economy and one of Latin America’s Current Environment largest trading partners, started to affect some Latin American countries over the last six months. • The Latin American F&B industry faced challenges in the first half of 2008 with rising oil prices, • Sector Overview rising agricultural commodity prices and the depreciation of the US dollar. • Sector Performance • Even so, in the first half of 2008, the F&B industry in Latin America showed solid growth, with • Leading Companies • Mergers, Acquisitions and most leading companies reporting favorable earnings. Alliances • The rising concern over the growing demand for junk food among children led to the passage of several laws that would make junk food a little harder for children to obtain by national and Industry Profile municipal governments across the region. • Several large Latin American conglomerates invested in securing their market positions while • Industry Overview expanding production, thanks to strengthening local currencies and healthy economic prospects. • Industry Segments - Processed Foods Industry Profile — Key Points - Dairy Products • The demand for F&B in Latin America has grown simultaneously with the region’s economy over - Alcoholic Beverages the last two years, with most economies riding high on the global demand for commodities, both - Non-Alcoholic Beverages mineral and agricultural. • Policy and Regulatory • Demand for convenience or ready-to-eat foods are at their highest levels. Additionally, consumers Environment are trending towards healthier eating patterns. • In Argentina, the F&B industry represents about 8.5% of the country’s gross domestic product, or Market Trends and Outlook US$16.32 billion, figures from the Argentine Foreign Agricultural Service show. Chile is also one of the fastest growing F&B markets in the region, and is ranked 17th among the world’s leading • Snacks Market Continues to Grow food exporting countries. • Organic Food Market Expands • In Latin America, Brazil is the largest dairy product consumer, followed by Mexico, with the two • Food Sector Continues to countries consuming nearly 60% of the 45 billion liters of milk produced in the region Attract Investment • The beer industry in Latin America performed somewhat poorly in 2007, despite healthy growth in • Market Outlook volume terms in the Argentinean and Mexican markets. Country Profiles Market Trends and Outlook — Key Points • Consumers are moving, slowly and at different rates, away from traditional home-cooked meals, as • Argentina incomes grow. • Brazil • Global organic food and drink sales are soaring, as consumers increasingly seek healthy and more • Chile nutritious options. • Colombia • Latin America is a very attractive market, especially for the F&B industry, with foreign investment • Mexico in the food processing industry picking up significantly since the 1960s. • Lifestyles in Latin America are becoming increasingly demanding and hectic, with more women in Currency Conversion Table the workforce, longer working hours, and population expansion in urban areas. The Scope of this Report • The F&B industry in Latin America may be further affected in the second half of 2008 by a Key References spillover from slower US economic growth and high oil and commodity prices. F&B companies Comparative Data are expected to see rising raw materials costs and consumers may face high and volatile food Reports Coverage prices. 1 http://webreports.mergent.com Industry Report - Food & Beverage - August 2008 Publisher Jonathan Worrall Director John Pedernales Managing Editor Peter O’Shea Research Analyst Pong Wui Yeo Website: http://webreports.mergent.com Customer Service: 1800 342 5647 or 704 559 7601 email: [email protected] Sales Enquiries: Fred Jenkins - Executive Vice President, Sales 704 559 6897 email: [email protected] Copyright Statement The Latin America Industry Reports are Copyright 2008 by Mergent, Inc. All Information contained herein is published by Mergent, Inc., headquartered in copyrighted in the name of Mergent, Inc. and none of such information may be copied or otherwise reproduced, repackaged, further transmitted, transferred, disseminated, redistributed or resold, or stored for subsequent use for any Fort Mill, South Carolina, USA. Each such purpose, in whole or in part, in any form or matter or by any means whatsoever, by any person without prior written consent from Mergent. industry sector report is updated every six http://www.mergent.com months. Mergent, Inc., a leading provider of Disclaimer global business and financial information on All information contained herein is obtained by Mergent, from sources believed by it to be accurate and reliable. Because of the possibility of human and publicly traded companies, operates sales mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind. NO WARRANTY, EXPRESS offices in key North American cities as well as OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY INFORMATION IS GIVEN OR MADE BY MERGENT IN ANY FORM OR London, Tokyo and Sydney. MANNER WHATSOEVER. Under no circumstances shall MERGENT have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analyzing, editing, transcribing, transmitting, communicating or delivering any such information, or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if Mergent is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, any such information. 2 http://webreports.mergent.com Industry Report - Food & Beverage - August 2008 Current Environment Sector Overview Globally, the food and beverage (F&B) industry has such as Argentina, Brazil, Chile and Mexico, legislation undergone significant changes over the past decade, driven and initiatives by national and municipal governments, by technological advances, shifts in consumption patterns and parents’ associations, made junk food a little harder and growing competition. However, the recent economic for children to obtain. downturn in the US, the world’s leading economy and one of Latin America’s largest trading partners, started to Sector Performance affect some Latin American countries particularly over the last six months. In the first half of 2008, most key F&B players in Latin America saw their stocks perform remarkably well, as The Latin American F&B industry also faced challenges higher F&B spending boosted companies’ earnings. in the first half of 2008 with rising oil prices, rising Grupo Bimbo SAB de CV (MEX: BIMBO) led the rise in agricultural commodity prices and the depreciation of F&B stocks, with an increase of 20% in its share price in the US dollar. The unpredictable and high oil prices the first half of 2008. Mexican bread maker Bimbo’s sales caused a rise in food production costs, which affected increased 8.6% to MEX$19.03 billion (US$1.89 billion) consumer food prices, including processed meats, dairy in the first quarter of 2008, thanks to higher prices and products and beer. This to some degree was countered by better product mix. the strong demand for F&B products in the region, with Latin American economies strong and with steady income In the first half of 2008, Perdigao SA (BVSPA: PRGA3) growth among consumers. and Fomento Economico Mexicano SAB de CV (FEMSA) (MEX: FEMSAUB) saw their share prices rise 10.1% and In the first half of 2008, the F&B industry in Latin 9% respectively. Perdigao, a leading Brazilian processor America showed solid growth, with most leading of poultry and pork, reported that its net sales grew 62% companies reporting favorable earnings. For example, to R$2.46 billion (US$1.56 billion) in the first quarter of most key F&B companies such as Coca-Cola FEMSA 2008, compared with R$1.52 billion (US$151.13 million) SAB de CV (MEXL KOFL), Sadia SA (BVSPA: SDIA4), in the equivalent quarter of 2007. The increase reflected Molinos RIO de la Plata SA (BUE: MOLI) and Compania the good performances in both the domestic and export Cervecerias Unidas SA (BSAN: CCU) saw significant markets with the strengthening of the company’s sales growth in earnings driven by higher sales and increases bases in Brazil and overseas. Mexican beverage producer in operating income. These leading players have built FEMSA’s net income was up 16.5% to MEX$2.04 billion competitive advantages based on stronger and more (US$202.83 million) in the first quarter of 2008, compared internationally recognized brands, economies of scale, with MEX$1.75 billion (US$173.99 million) in the first research and development (R&D) capacity and efficient quarter of the previous year. The rise was due to income global distribution systems. The achievement of greater from operations growth that more than offset lower gains economies of scale in production, marketing and, above in its monetary position and a hike in income taxes. all, distribution, has been important to the competitiveness of large multi-brand F&B companies, and has determined However, the share prices of a few Latin American F&B their ability to dominate the industry. companies fell sharply in the first half of 2008, with that of Compania Cervecerias Unidas SA (BSAN: CCU/NYSE: Consumer demand over the past six months also changed CU) seeing the biggest decline of 18.8%. However, the the structure of the F&B sector, leading to new market decline did not reflect the company’s recent financial results, strategies to promote food and drinks based on their including strong second quarter sales and an anticipated perceived impact on weight, well-being and health.

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