Shaping South and Central America

James Quirk speaks to leading industry analysts about growth and end-user trends in South and Central America’s flexible packaging and folding carton sectors.

 

South and Central America – a region of some 430 million people spread across 19 countries – has seen strong economic development in recent years.

 

Growing economies and a burgeoning middle class have increased consumption of flexible packaging and driven improvements in local production and the supply chain.

 

According to US-based analyst PCI Films Consulting, the South and Central American flexible packaging market has grown by an average of 5.3 percent per annum since 2005, reaching US$4.5 billion in 2011. That figure means the region represents just over six percent of global demand, which is estimated to be US$71 billion.

 

The consultancy published a regional flexible packaging market report last year, which analyzed data up to the end of 2010. It put the sector’s worth at US$4.3 billion, predicting an upturn in growth in 2011 but then a slowdown in the years to follow.

 

Paul Gaster, an analyst at PCI Films Consulting, says the prediction has thus far proved correct: the figure increased to US$4.5 billion in 2011. However, he said, the region’s growth rates are unlikely to be sustained at their current levels over the next few years.

 

The region’s largest flexible packaging markets of Brazil and Argentina have been experiencing a steady five percent annual growth in recent years, with smaller markets such as Peru, Colombia and Ecuador approaching 6-7 percent. South and Central America emerged unscathed from the global recession of 2008 and 2009. Internal growth remained strong, and the flexible packaging market grew in turn.

 

Brazil, says PCI, remains the region’s powerhouse – accounting for 48 percent of total demand. If you add Colombia and Argentina, that figure rises to 67 percent. The Brazilian food industry is described as “modern” by international standards, for example, and 40 percent of food supplied to Brazil’s 200 million population now comes through the supermarket channel.

 

Major end-use growth areas include food – especially processed and fresh meat, and particularly in Brazil, where it makes up some 20 percent of the local flexible packaging market. In more general terms, says Gaster, the region has benefitted from increasing relative prosperity and disposable income.

 

PCI Film Consulting predicts continuing growth in flexible packaging output by regional converters at an average of 4.6 percent a year to 2015, a slight drop on the figure between 2005 and 2010.

 

The spread of supermarket retailing, growing populations and increasing numbers of single person households, working women and young consumers will contribute towards flexible packaging growth. There are prospects for further consolidation among producers, and environmental considerations will tend to benefit flexible packaging as pressure is applied to manufacturers to reduce packaging volumes and post-packaging waste.

 

According to the PCI Films report, most of the flexible packaging demand is satisfied by internal producers, with only one percent imported and two percent exported outside the region. However, some raw materials, notably PET film, still come in from China and India. There is substantial BOPP and PE film production, though only one regional PET film producer.

 

As the flexible packaging market has continued to develop, demand for higher barrier, higher specification packaging has increased and local converters have made investments to substitute the volumes previously imported.

 

Dramatic variations in these regional import and export figures are unlikely, and Gaster says: 'South America does not have the same ease of cross-border trade as Europe. But with regards to the importing of high-quality materials from regions such as North America and Europe, Brazil in particular is seeing growth.

 

High-quality machinery has been installed in the country in recent years – particularly thanks to the acquisition of Alcan Packaging by Bemis in 2009 – and the growing economics of the local market means that packaging is increasing in quality.

 

American group Bemis, through its subsidiary Itap Bemis, is the largest flexible packaging converter present in the region. Strong previously, it was able to take a more dominant position with the purchase of Alcan Packaging’s Brazilian flexible packaging interests, and now the company has sales of US$280 million in Brazil alone.

 

‘The Central and South American flexible packaging market is now well served by local production,’ says Gaster. ‘Any multinational converter still planning to grow its business in the region would do well to consider forging alliances with or acquiring local converters.’

 

The challenges faced by flexible packaging converters in South and Central America are mainly the same as in other parts of the world. Gaster cites bureaucracy – above all in Brazil – as a regional-specific challenge that converters need to overcome.

 

Though PCI Films doesn’t hold specific data, Gaster points to gravure as the most popular print process used by flexible packaging converters in the region – unlike the US, where flexo is most prevalent, and more like the Far East, where gravure is thought to make up 80 percent of the market.

 

Digital, while making inroads in the US and Europe, has a much smaller footprint in South and Central America within the flexible packaging market.

 

Pauline Tung, an analyst at US-based research firm Freedonia, paints a similar picture. The consultancy projected the region’s demand for converted flexible packaging to increase by 3.8 percent annually in the five years up to 2013. This figure is slightly higher than the global average, but represents a slight slowdown in growth from the 2003-08 period, with the pace of economic expansion and growth in the region’s food and beverage output also slowing.

 

According to Tung, the food market will continue to represent the majority of demand, and advances will be supported by trends toward US-style product retailing practices and the advent of large supermarkets and retail stores carrying a host of packaged consumer goods. This will also include a greater emphasis on packaged single-serving items, snacks, confections, frozen entrees, ready-made meals and microwaveable prepared foods. However, she says, growth in this market will be limited by a deceleration in food and beverage shipments.

 

The outlook for the region, then, can be described as one of steady, if unspectacular, growth. With the exception of Argentina – whose market has begun to slow in recent months due to the country’s economic problems – the flexible packaging market in most countries in South and Central America can expect to witness continued growth in the short and medium term, even if not quite at the same levels of recent years.

 

According to Tung, the folding carton market in South and Central America is estimated at US$2.5 billion. Demand, she says, is expected to increase by around six percent up to 2016, with Brazil remaining the region’s largest market by some distance.

 

‘Gains will be helped by continued economic growth, advances in personal consumer spending – albeit at a decelerated pace – and expansion of the middle class population. This will boost food expenditures, the main market for folding cartons in the region.

 

‘However, the region’s food industries feature contrasting levels of development, with several countries still having a relatively small food processing sector with considerable growth potential.’

 

Folding cartons will continue to face competition from both rigid and flexible plastic packaging, says Tung. Pouches, for example, especially stand-up types, have seen rapid growth in food markets such as candy, snacks and dry foods, thanks to features such as greater aesthetic appeal, resealability, freshness protection and portability.

 

 

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