Latin American industry remains untapped market
- Published: March 01, 1995, By Sacharow, Stanley
With the recent advent of NAFTA, SAFTA, GATT and the Miami Summit, the industrial world has focused on the many Latin American nations.
There is a huge and growing converting market in the 38 Latin American and Caribbean nations with many markets being worldwide leaders in their area of expertise. Also, while currency devaluation and minor upheavals are still commonplace, the era of revolutions, US dominated, banana republics and dictatorial regimes are things of the past. It's astounding to realize not only do few Americans know Latin American history or geography, but even less realize the potential that exists in the over $10 billion converting/packaging market. Most pundits predict by 2000, Latin America will be a stronger market for US products than Europe.
The three major markets in Latin America are Mexico, Brazil and Argentina. Chile, with its huge fish industry, comes in a strong fourth. There is a strong and growing flex-pack industry in Peru and even a polyethylene extrusion facility in tiny Belize, pop. 185,000, producing film for use as banana shrouds.
Mexico and the recent collapse of its peso has caused much confusion and concern in the international financial community. However, its packaging and converting industry remains strong and competitive. Consumer demand is still high and because of the peso devaluation, it's anticipated more worldwide firms will be looking at greenfield expansion or joint-venture possibilities.
Many areas of Mexico are remote and transportation is limited. Packages that can sustain the rigors of distribution and extend shelf life are of value to the Mexican consumer. Some of the packaging improvements that need to be made are relatively simple, such as including a bar code in the package graphics.
Dr. Juan Careaga, consultant in the Mexican flex-pack industry, told me "we expect more converting plants to open up in Mexico because of the peso devaluation. Our products will now be much less expensive on the world market. Although we're quite concerned about the devaluation, I expect it to stabilize in the next few months."
Another problem is the high price of imported resin for Mexican converters. Heavily dependent on this resin, converters have to source it domestically. This causes problems in performance standards and quality-control testing. In one case, the cost of polyethylene resin from the US doubled, and the price must be passed on to the consumer adding to the inflationary spiral.
The Brazilian packaging market has been estimated at $5.5 billion and rapidly growing. The stability of Brazilian reais coupled with the recently enacted free-trade agreement with Argentina and Chile could push annual growth to over 15%. Increasing consumerism at the lower to middle-class level has led to fantastic product growth in the entire country.
Flexible packaging output has been estimated at $750 million and growing by over 300% in 1998. It's the most common type of package form used in Brazil. Scores of excellent converters work in Brazil, including Toga, Itap SA, Empax Embalageno Ltd. and Alcan Aluminio do Brasil SA. Three major producers now provide oriented-polypropylene film and are geared for export to worldwide markets.
Graham Wallis, principal at Datamark, a leading Brazilian market research firm in the converting/packaging area, prepared a summary. He noted with US $5.5 billion annual sales in 1993, the Brazilian packaging industry compares well in size with European packaging markets with the advantage the Brazilian market still has an enormous potential for growth. The forecast for the year 2000 is of the order of US $7 billion based on projected growth of the current situation excluding new types of packaging or substitutions.
The use of packaging is well developed with large companies, such as Nestle, Unilever, Coca Cola and Brahma, a major brewer, purchasing well over US $100 million annually. In all, more than 60 companies purchase more than US $10 million of packaging annually, 30 of which purchase more than US $20 million. Over 200 companies purchase more than US $1 million per year.
On the supply side, there are relatively few companies, perhaps 10, with sales in excess of US $100 million. About 100 companies have sales of more than US $1 million.
The range of packaging supplied is considerable. Brazil is self-sufficient in conventional types of packaging, although there are opportunities for the introduction of recent packaging innovations. Standards of quality are high with print quality approaching European levels. Several suppliers have achieved ISO 9000 classification or are in the process of implementation. Brazil has more ISO 9000 certificates than the rest of Latin America combined.
The Argentine market is large and varied. There is excellent packaging-machine production and many converters serving the domestic-food industry. Stand-up pouch production is available on domestically-built Emzo machinery with total Latin American use estimated at 150-million pouches annually.
One of the largest areas of future growth is SAFTA, the South American Free Trade Agreement. Modeled after NAFTA, SAFTA is now in place and includes Brazil, Argentina, Paraguay and Uruguay. All tariffs ended on 95% of goods traded among these nations, and they adopted a common 12% tariff on goods from outside their borders.
Brazil, once a hostile rival of Argentina, has become its largest trading partner, displacing the US. Argentina is the leading recipient of Brazilian foreign investment. With flights now shuttling hourly between Buenos Aires and Sao Paulo, manufacturers calculate their economies of scale according to the size of the new, expanded market, 190 million people and $800 billion in economic activity. The skeptical talk, that once lampooned the Southern Common Market as a club of the poor, is forgotten.
"There are now over 300 joint business ventures between Brazil and Argentina," Jose Arthur Denot Medeiros, Brazil's negotiator for the common market, known in Portuguese as Mercosul, a contraction for Southern Common Market, said. "Five years ago, there were only five or 10 Brazilian companies in Buenos Aires."
"Peru's economy is already getting ready to join Mercosul in two or three years," Alberto K. Fujimori, president of Peru, said.
For readers interested in learning more about the Latin American market, the Guide to the Latin American Packaging/Converting Industry is currently in preparation by the Packaging Group Inc. For further information, call 908/636-0885; fax, 908/390-1402.
