Earlier this week, Brazil’s finance minister, Guido Mantega, admitted the country’s economy was going through a “mini crisis”.

Brazil’s currency, the real, has seen its value tumble, notably against the US dollar. Inflation remains stubbornly high, in part due to the currency devaluation. Consumers have become more cautious, a reaction to higher prices and fears unemployment is growing. 

After economic growth slowed sharply in Brazil last year, it is expected to pick up pace in 2013 – but forecasts have been downgraded as this year has progressed and GDP is expected to increase at a lower rate than in much of the country’s recent buoyant period.

Mantega, however, was insistent Brazil’s current situation would have “minimal impact”. The economy, he claimed, “remains strong”.

The “mini crisis” has put pressure on FMCG businesses operating in Brazil, causing companies to adapt, rolling out products that aimed to offer consumers better value-for-money. The pressure on the real has also put pressure on packaged food companies’ raw material bills. Brazilian cookie and pasta manufacturer M. Dias Branco, for instance, cited the appreciation of the US dollar against the Brazilian real for a spike in wheat costs, which it said was factor in its margins falling in the first half of the year despite higher sales.

However, many consumer goods companies have, for all the challenges in Brazil, made upbeat remarks about their recent performance in the country – and their prospects.

“We have double-digit growth in Brazil,” Unilever CEO Paul Polman said last month. “We see our Knorr brand, behind the baking bags and the bouillons, getting stronger. We see Magnum growing behind a very focused plan on ice cream and doing well there, thank you very much. And Latin America will always have its ups and downs in some of the countries, depending on the political situations or some of the other battles, but we are getting good returns and we continue to grow double-digit there.”

General Mills, the US food giant, was also confident about its business in Brazil. “In the [categories] we are competing, we’re not seeing a dramatic slowdown, we’re seeing mid single-digit growth rates and we’re able them to grow frankly double-digit on top of that,” Chris O’Leary, COO of General Mills’ international operations, told analysts.

Some industry watchers believe, even if companies have seen their growth in Brazil slow, their performance is strong. “Many of the global food companies reported strong results in Brazil in Q2 despite the country’s economic slowdown,” says Andrew Cosgrove, global consumer products analyst at Ernst & Young. “Even those who did report some deceleration still achieved double digit growth for the most part and performance remains far stronger than that they are achieving in the mature economies.”

For many in the consumer goods sector, the outlook for Brazil is bright. The chief executive of CBD, Brazil’s largest retailer, has said this year has proved “challenging” but, looking ahead, is confident about the economic foundations of the country.

“I do believe that this country is working based on good fundamentals,” Enéas Neto told analysts last month. “For those of you that are older than 20, 25 years of age, you know that Brazil is experiencing a very special moment in history. Therefore, we have many reasons to believe that the consumer market will grow. The unemployment level was very low and we see an emerging class looking for products with better added value.”

It is that emerging middle class that gives businesses confidence in Brazil’s potential. The growth in that part of Brazil’s population is seen as a key factor in the country’s prospects. That said, analysts believe FMCG companies can benefit from the potential for the wider population to become more affluent.

“The biggest medium term opportunity is the continued high growth in the acquisitive middle class, the ‘C’ class of the population – and the increasing purchasing power of the general population,” Fiona Araujo, Ernst & Young’s advisory markets leader for consumer products in Brazil, says.

Analysts as Business Monitor International estimate GDP per capita in Brazil will rise by almost a quarter by 2017.

“The opportunities are across the board, due to the fact that Brazil is so vast, with significant regional and city variations and so the needs and opportunities vary greatly. Growth can take place across a portfolio of products, rather than just one category. One interesting trend is that Brazilian consumers are increasingly willing to spend more on premium products and continue to spend and consume at encouraging levels, despite the economic outlook,” Araujo insists.

FMCG companies operating in Brazil – or thinking of entering the market – can exploit the fact parts of the country have more potential for growth than others.

One should not look at Brazil – the world’s fifth-largest country – as one entity. The poorer north and north-east are seen as regional markets with particular growth potential. “The affluent southern states of Rio de Janeiro and São Paulo are home to about a quarter of the Brazilian population, but account for nearly half the country’s GDP,” Business Monitor International says.

Packaged food businesses have ramped up their presence in those parts of the country. In 2011, PepsiCo and the then Kraft Foods opened plants in the states of Bahia and Pernambuco respectively. “The south, which includes Sao Paulo and Rio, are the richest and the north and north-east are the poor regions. They have been showing the fastest growth in GDP so that’s why many manufacturers, including the local ones and multinationals, have been targeting and investing in facilities in those areas,” Euromonitor analyst Meika Nakamura says.

Of course, Brazil’s status as an emerging market means it lacks the infrastructure and distribution network seen in developed economies. As the less affluent parts of Brazil, the north and north-east are regions where logistics can prove problematic. The disparity between different parts of the country is cited as a medium-term challenge for FMCG companies.

“The limiting factors in the medium to long term are around logistics and the disparity in infrastructure across the country. In particular the north where there is patchy and inconsistent infrastructure, and the south which has a more solid network,” Ernst & Young’s Aurajo says.

The near-term outlook for Brazil’s economy appears less buoyant than in the last decade. The IMF recently lowered its forecast for Brazil’s GDP growth for 2014, while household debts could mean consumption lags previous years. FMCG companies will have to adapt accordingly; developing new products to cater for the country’s more cautious consumer.

However, in all, most consumer goods companies and industry watchers, while acknowledging the immediate challenges in Brazil’s stuttering economy, insist the country still offers significant potential for growth.

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