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Monday 20 October 2014

Brazil’s thirst for wine slows

23rd July, 2013 by Patrick Schmitt

Declining economic growth rates, high levels of inflation and protectionist threats are hampering sales of imported wine in Brazil, according to Rabobank.

brazil flag

Brazilian flag. Source: pulseamerica.co.uk

In its latest quarterly report, Rabobank focuses on the Brazilian market, and records a marked slowdown in wine imports to a country once declared a major growth opportunity.

Rabobank analyst Stephen Rannekleiv pointed out that fiscal tightening to control inflation has slowed economic growth, while inflation itself has eroded spending power. Furthermore, the Brazilian real has depreciated by approximately 25%, presenting a major challenge for exporters targeting the market.

Rannekleiv also noted that threats of domestic market safeguards such as raising the tariff on wine imports have created additional hurdles and uncertainty for foreign suppliers. 

Although the government has agreed not to impose fiscal measures to protect its domestic wine industry, retailers have been asked to provide improved merchandising for domestic wines, which were rapidly losing share to imports.

Nevertheless, Rannekleiv still believed there will be opportunities for wine in the Brazilian market, particularly for strong brands.

Brazilian wine imports

Brazilian wine imports by volume and value (2002-2012). Source: Brazilian Ministry of Development, Industry and Foreign Trade

“Despite recent slower growth, the market environment is evolving rapidly, and large retailers are reviewing their management of the wine category by eliminating slower-rotating labels, resulting in an increased opportunity for bigger brands.”

Continuing, he noted, “We have also seen an increase in the direct-to-consumer market and a new tax environment that has increased transparency in the import and distribution category, thereby encouraging greater foreign and domestic investment [Brazil recently harmonised its tax code eliminating differentials between states].”

Summing up, he said: “So while the market is likely to remain challenging in the short term for foreign suppliers, there are some promising developments and our long-term outlook is positive.”

From 2006 to 2010 the Brazilian economy enjoyed annual growth rates of 4-8%, with the exception of 2009 when the country experienced the impact of the global recession.

Rabobank noted that fiscal tightening to control inflation has slowed economic growth since 2010, and forecasts growth rates of around 2% for the coming years.

Of particular concern for wine importers to Brazil is the lack of adequate infrastructure for transportation, exacerbated by frequent strikes among port workers, which can mean containers of wine are left in ports for long periods in hot temperatures.

However, Rabobank reported that in December last year, the Brazilian government announced a five-year plan to invest over US$26 billion to upgrade ports and improve efficiency.

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