BMI View: We have improved our short-term outlook for Chile's food and drink industry in line with the country's st rong economic readings and positive consumer outlook for the rest of 2015 and 2016 . We believe that strong job generation in the manufacturing sector, combined with lower fuel prices, will boost household spending over the coming quarters. We forecast the overall industry growth to remain strong across our forecast period registering a healthy 6.1% CAGR between 2014 and 2019 .
Headline Industry Forecasts (local currency)
Total food consumption growth year-on-year (y-o-y) in 2015: +6.6%; compound annual growth rate (CAGR) 2014-2019: +6.1%
Per capita food consumption growth (y-o-y) in 2015: +5.7%; CAGR 2014-2019: +5.3%
Total soft drinks value sales growth (y-o-y) in 2015: +6.0%; CAGR 2014-2019: +4.7%
Alcoholic drinks value sales growth (y-o-y) in 2015: +5.5%; CAGR 2014-2019: +4.6%
Total mass grocery retail value sales growth (y-o-y) in 2015: +5.8%; CAGR 2014-2019: +5.5%
Key Industry Trends
Salmon Exports Decline Amid Increased Antibiotic Use: According to reports in late July 2015, t he decision by Chile's salmon farmers to use heavy antibiotics to treat the Piscirickettsiosis bacteria has led to a decline in sales as US retailers such as Costco move to antibiotic-free Norwegian salmon. The increased antibiotic use had sparked health concerns in the US food industry, leading Costco to announce a reduction in Chilean salmon imports in April. Costco, which used to purchase 90% of its salmon fillet requirements from Chile, now plans to buy 60% of its salmon from Norway, cutting Chilean imports to 40% (Reuters).
Construction Begins On Phytosanitary Inspection Facility: In July 2015, c onstruction work has started on a new phytosanitary inspection facility worth USD2.8mn in Cabrero in Bio Bio province of south central Chile, reports America Fruit. The move will result in significant time and cost savings for fruit exporters supplying to the US. The plant inspection site is a public-private project funded by the Agricultural and Livestock Service (SAG), USDA-APHIS and the Chilean Fruit Exporters Association (Asoex). 'The facility will handle shipments of blueberries, pears and apples. Last season around 1.5mn cartons of fruit were shipped from this region and we expect this to increase to about 5mn in the future,' said SAG's national director, Angel Sartori. The facility is expected to become operational by 2016.
Marine Harvest To Reorganise Chilean Business : Norway-based Marine Harvest plans to restructure its Chilean business owing to weak prices for Atlantic salmon in the country's primary markets. Marine Harvest will cut nearly 200 jobs together with a reduction in smolt stocks to about 11mn from 17mn. The company noted that it is taking the steps to control losses at Marine Harvest Chile until the Chilean salmon market recovers. The company also plans to develop new markets for Chilean salmon by launching value-added concepts and new products.
Chile Targets UK For Further Prune Export Growth: Shipments of Chilean prunes into the UK rose 11% in 2014 to 3,340 tonnes. Announcing the figures, Chile Prunes Association Vice President Andres Rodriguez said the industry will continue to consolidate its position in the UK as it is an important market for the sector. He said the association would be pushing the 'Prunes from Chile' brand to maximise the potential for exports to the UK. Jennyfer Salvo, head of the marketing department at export association ProChile, said: 'The Prunes from Chile brand embodies the climatic, geographical and phytosanitary characteristics that enable Chile to produce food of the highest quality,' reports America Fruit.
Port Strike To Hit Exports: Chile's main union for port workers has called for an indefinite strike from June 18 2015 at all national ports, which is likely to hit produce exports. The move comes in response to the lack of progress made by the government in discussions over key labour reform issues. 'They have made all the amendments (to the present law) that they wanted to and believe the new legislation is a great panacea, but it is not. And this is not something that affects just port workers but all workers,' said UPC leader Julio Castillo, reports Asia Fruit. Workers at the Port of San Antonio are expected to join the strike while Terminal Pacifico Sur at the Port of Valparaiso has not yet confirmed its support for the latest action, noted Castillo.
B ancoEstado To Provide Credit Facility For Cherry Growers: In May 2015, Chilean bank BancoEstado , in a coordinated effort with producer organisations Fedefruta and Fruseptima, has agreed to provide a new credit facility to help cherry growers install roofing in orchards. Under the scheme, BancoEstado will provide a loan to finance investments in roofing, to protect cherries from rain damage. The five-year loan will be offered at a low interest rate and will not have to be repaid until fruit has been sold on the export market. Chile lost around 15% of the 2014/15 cherry crop following heavy rains in November 2014, with areas such as Maule losing about 40% of production.
Key Risks To Outlook
With considerable exposure to Chinese demand, Chile is particularly vulnerable to a potential hard landing in this major export market, which could trigger a further drop for headline growth figures. With Chinese growth expected to cool over the next three years, reverberations will inevitably be felt in Chile, affecting both disposable incomes and consumer confidence, which are vital ingredients for growth in the country's food and drink sector. With around a third of government revenue coming from copper mining activities, reduced global demand for the commodity (in particular from China) would have a negative effect on government consumption, further dampening economic growth and consumer confidence.