Dean Best

Best bits: Looking outwards to the emerging markets

By Dean Best | 10 April 2012

FMCG companies continue to target emerging markets as they look to build international businesses

FMCG companies continue to target emerging markets as they look to build international businesses

An early start this morning (10 April) to travel up to just-food HQ and, as I tuned into the BBC's World Business Report, a business headline caught my attention - the latest trade data coming out of China.

Figures from the world's second-largest economy are keenly watched for signs of a recovery in global demand and, in March, exports were up almost 9%, higher than expected and an indication that demand could be recovering. However, the data was mixed. It showed a deceleration in the amount China imported last month. Imports increased 5.3% in March, compared to a leap of nearly 37% in February.

Now, both export and import growth was higher in February but the increase in exports surprised analysts, who expected a lower rate of growth in March - and led China to report a trade surplus for the month. Exports to the US were up over 10%, although shipments to the EU fell 3% year-on-year, a further indication that a recovery is unlikely to be global in nature and set to be uneven.

The growth in China's imports in March was below economists' forecasts and added weight to the claims that domestic demand is slowing. The country's GDP is forecast to have risen around 8.5% in the first quarter of the year - a rate of growth Western markets would crave - but the numbers, which will be released on Friday, could show the slowest rate of growth in three years and could check expectations from multinational investors looking to enter into or expand in the country.

China featured prominently in our coverage last week - indeed, as I type, four out of the five most-read stories on the site focus on emerging markets. Data from the IGD said China had replaced the US as the world's largest food market, fuelling talk about the country's potential.

The IGD also forecast that, by 2015, India would become the world's number three grocery market in value terms, reinforcing the pull of the BRIC markets to multinationals. However, investors would do well to be on top of a couple of possible developments in India. Business headlines on India last week centred on the Indian government's proposal for a retrospective tax on any overseas deal involving an Indian asset, an idea that has attracted criticism from business organisations around the world. Meanwhile, in our sector, tougher controls on health claims made by Indian food companies on product labels are expected to come into force within the next six months.

Our emerging markets coverage last week also looked at a new plant for Ferrero in Mexico - the country's first production site in a country it has operated in for 20 years - and Nestle's plans for a new dairy facility further south in Chile.

Ferrero plans to use the Mexican site to produce confectionery for both that market and over the border in the US. Both countries have fiercely competitive confectionery sectors, although some analysts noted that Kraft Foods, the largest candy maker in Mexico, focuses more on sugar confectionery and gum than Ferrero's key category of chocolate. It will take Ferrero time, however, to build its market share in Mexico, even with a production presence. It also faces challenges in the US, where industry watchers argue it will have to create a niche for its products in a saturated market.

And, further south in Chile, Nestle will build a dairy plant, a year after a move to merge its liquid and chilled dairy business in the country with Fonterra's local arm Soprole fell through amid concern from local farmers. Analysts at BMI say Chile's dairy sector has been growing "strongly" in recent years and they argue multinational investment will continue due to the country's cheap land, cheap labour and trade agreements with countries demanding more dairy products.

When faced with the mature markets of the West - with their slow economic growth, ageing populations - FMCG companies need to act faster and try to gain a foothold in the emerging markets of today, which, for all the inherent risks involved with investing in these countries, will for certain be the economic powerhouses of tomorrow.

In just-food's 2012 Confidence Survey, which asked our readers to outline their thoughts on trading this year, 57% said their businesses will spend more money trying to increase their presence outside their domestic market. It is clear that, even in tough trading conditions, building an international business remains a priority for many in the industry.

We discussed the highlights from the survey in a webinar on Thursday. If you were unable to tune in, a replay of the event is available on the site here.

Sectors: Baby food, Bakery, Canned food, Cereal, Chilled foods, Commodities & ingredients, Condiments, dressings & sauces, Confectionery, Dairy, Dried foods, Emerging markets, Fresh produce, Frozen, Ice cream, Meat & poultry, Natural & organic, Private label, Retail, Seafood, Snacks, World foods

Companies: Ferrero, IGD, Nestle, Kraft Foods, Fonterra

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