Argentina Packaging Industry Overview (2013)

Argentina is an important regional export market with a population of 40 million people. It is the second largest economy in South America and the fourth most populous country in Latin America. Exports to Argentina are mostly industrial inputs, intermediate goods, and capital goods, destined for such industries as computers, industrial and agricultural chemicals, agricultural and transportation equipment, machine tools, parts for oil field rigs, and refined fuel oil. Argentine, in turn, enjoys a very strong surplus in terms of bilateral agricultural trade, along with goods such as wine, fruit juices, crude oil, and intermediate goods such as seamless pipes, tubes, and other iron and steel products. The population and economic activity are highly concentrated in the Greater Buenos Aires area. The population is of largely European descent and continues to have strong ethnic, cultural, and business ties with Europe. In some respects, consumer preferences resemble those of Europeans more than those of other Latin America nationals. However, revenues are highly dependent on MERCOSUR trade, especially with Brazil. The packaging equipment market in Argentina relies heavily on imports by large domestic food processing companies and food exporters. Market growth is largely tied to investment in technology and the expansion strategies of these companies. U.S. and European products are highly regarded, particularly in the higher-end technology segment. Scarce financing available at the local market is an issue. Market Challenges The primary market challenges arise from slowing economic growth, inflationary pressures, and a host of import and foreign exchange restrictions imposed by the Argentine Government in late 2011 and early 2012. The Argentine economy is expected to slow somewhat in 2013 compared with 2012, with GDP growth of 3% in 2013. This reduction in forecasted growth is due to lower growth in neighbouring Brazil which is Argentina’s primary trading partner, anticipated lower revenue from soybean exports, and disruptions to local production caused by import and foreign exchange restrictions. Strong commodity prices and automobile exports to Brazil have been key factors in Argentina’s rapid growth over the past several years as has growth in government spending. An increased focus on maintaining Central Bank reserves in the face of a diminishing trade surplus together with an import substitution model have led Argentina to increase its use of non-tariff trade barriers. The expansion of the list of items requiring non-automatic import licenses (NAILs) to import was expanded from 400 to 598 HS codes in 2011 and controls on access to foreign exchange were also implemented. The imposition of foreign exchange controls on October 28, 2011 added yet more complexity for both importers and exporters of goods to and from Argentine. Furthermore, the Argentine Government implemented a regime on February 1, 2012 whereby all importers are required to request approval from the Argentine Tax and Customs Authority (AFIP) prior to making purchases from abroad. Reports of production slow-downs and bottlenecks resulting from delays in the granting import licenses under the NAILs regime began to appear in the latter half of 2011. The addition of the pre-approval requirement for all imports from AFIP has added to the general level of uncertainty in the business community. As a result of the aforementioned government controls on trade and access to foreign exchange, and slower domestic growth, many firms in Argentina are putting on hold or delaying plans for expansion or the adoption of new product lines until both the economic climate and regulatory regime become clearer and more predictable. Most printing capital products in the HS 8443 categories (Mercosur Harmonized System Code) are exempted from import duties and pay a reduced VAT (IVA) of 10.5 percent. Market Demand (Packaging Industry) The overall Argentine packaging business in Argentina is comprised of about 10,000 companies which, as a reference, had a total production of US$ 9.8 billion of packaging, (or 1.5 million tons) in 2010, representing approximately 1.5 percent of the Argentine GDP. The local packaging manufacturing industry has been experiencing increased volume levels and quickly turned its attention to export markets as the devaluation of the peso led to a more competitive position abroad for domestic producers. Packaging equipment imports dominate the highest complexity technology market. These imports are mainly from Europe and the U.S. However, there is a growing local production market. Local companies also import parts and assemble equipment locally. After a significant drop in 2010, imports started to pick up in 2011 reaching US$62.9 million and regaining previous import levels. Food exporting companies continued to invest in equipment to create new types of packaging and improve and increase production. This growth has been powered by strong commodity prices and increased exports of food companies. However, since food commodities international price is at its historical record, there may be quotas and further restrictions for exports of grains, beef, milk and other products to guarantee food product availability for the Argentine local market. Nonetheless, imports of equipment are expected to continue growing at moderate rates during 2013 and beyond. Argentina’s strength in agricultural and food products continues to present opportunities for exporters of food processing and packaging equipment (FPPE) in niche markets. While local production figures are almost non-existent, imports have traditionally been estimated to account for 70 to 85% of the total market. Imports of packaging equipment (HS842230) reached an exceptional peak in 2011, triggered by a large purchase of equipment for wineries and vegetable oil extraction and processing. ARGENTINA IMPORTS Harmonized System Code 842230 MACHINERY FOR FILLING, CLOSING, SEALING, CAPSULING OR LABELING BOXES, BOTTLES, BAGS OR SIMILAR CONTAINERS Year Trade Value 2007 $46,538,937 2008 $60,554,583 2009 $54,547,200 2010 $46,542,741 2011 $62,994,098 Source: http://comtrade.un.org Italy has traditionally been the market leader, and accounted for a 36% of the import market in 2011, having exported US$40.5 million of packaging equipment to Argentina. Germany ranked second with 25.4% of the import market, followed by imports from Brazil (6.3%) and Spain (6.2%). Market Demand (Printing Industry) According to the Argentine Industrial Union (UIA), the printing and graphic arts industry represents 7.3 percent of the industrial GDP and ranks third among the Argentine industrial sectors. This industry is comprised of approximately 6,400 companies, 81 percent of which are small and medium-sized companies, employing approximately 50,000 people in total. Following the crisis of 2001, almost half of the graphic industry capacity was idled, and had to cope with the rapidly rising costs of imported inputs. However, consumption of graphic arts material and investment in equipment started recovering in 2003, triggered by a stronger local demand and the increased export activity of the local manufacturing industries. Local printing companies needed to expand capacity, reduce costs and update technology to satisfy this demand. They invested in new equipment, such as the modernization of the pre-press and the finishing sectors. Between 2010 and 2011, local companies imported equipment worth US$ 887 million. Given the fact that equipment has an average life cycle of 5-10 years, and that technological updates play an important role in business performance, companies can be grouped according to the age of their equipment as follows: companies with relatively modern equipment (65%); companies with leading- edge equipment (22%); and companies with outdated equipment (13%). Since most of the investment in technology is financed with the companies’ own resources, purchases of cutting-edge technology are often postponed, due to a lack of adequate credit, among other factors. Demand is increasing for refurbished equipment and parts. The recent approval of an import duty exemption for used printing equipment that cannot be supplied by Argentine manufacturers allows many local SMEs to access imported technology. Two of the leading sub-sectors accounting for the recovery of the Argentine printing industry were flexible packaging for food products and self-adhesive labels, both triggered by the increase in domestic consumption and exports of packaged foods. Packaging is one of the most dynamic sectors related to the printing business, since it has been expanding rapidly and requires constant innovation. Technologies for process integration and in-line foil lamination save cost and printing times. Anti-counterfeiting and product safety technology, protecting packaging through holographs and systems such as RFID (radio frequency identification) is increasingly required by several industries. Digital printing technology is available in all the areas of the printing sector in Argentina: commercial; printing; publishing; currency; packaging; and labelling. ARGENTINA IMPORTS Harmonized System Code 8443 Printing machinery used for printing by means of plates, cylinders and other printing components of heading Year Value 2007 $347,346,765 2008 $404,968,244 2009 $299,920,828 2010 $400,237,573 2011 $487,959,368 Source: http://comtrade.un.org The import market has been recovering, after reaching its lowest in 2007 with US$347 million. It grew to US$404 million in 2008, and dropped slightly in 2009, with US$ 299 million, then it recovered on 2010 with US$ 400 million. Total imports jumped to $487 million in 2011. Import market shares changed in 2007 as imports from Asian countries (China and Japan) and Brazil, jumped displacing Germany and Italy as the traditional import market leaders. The trend is expected to continue in the future. Imports from China reached 22 % market share, followed by imports from Japan with 15%, Germany with10% and Brazil with 5% Key Suppliers Italian and German equipment is highly regarded in the local market and known for excellent quality and competitive prices. Other companies competing with UK products are from France and Spain. Import market shares changed in 2007 as imports from China, Japan and Brazil jumped displacing Germany and Italy as the traditional import market leaders. Local production equipment has significantly increased driven by the surge of food exports, and increased local consumption, and taking advantage of lower costs of production and a devalued peso. Local production also caters to a stronger demand from small to medium sized companies in the interior provinces of Argentina, since many companies in these areas are not able to face the expenses involved in importing new technology. While, in general, it does not compete in the same niche as UK higher-end technology, local equipment has improved in quality and is increasingly being exported to neighbouring countries. The local economic scenario has allowed exports to the EU, the US and Latin America. In fact, the GAFME, Argentine consortium of packaging manufacturers and exporters, was created in November 2006 to assist in reaching international markets. Some of the main equipment produced by local manufacturers are: blister packaging machines, stand-up pouch, dossifiers of solid, powder, automatic packaging, overlap and flexible packaging equipment. The most important domestic companies that supply the Argentine market are: Manuel San Martin S.A.; Bisignano S.A.; Mainar S.A.; Edos S.A.; Tecmar S.R.L.; Emitec S.A.; Tover S.A.I.C, among others. Prospective Buyers In the coding and marking niche, the “Continuous Inkjet” technology is the one more used for Argentinean companies and "Drop and Demand" is the secondary technology. In the last years had been increasing the demand of Piezo Technology. Many Argentinean companies are improving the traceability of their products and are in need to add barcodes to their products. The main users of packaging equipment are private companies in the food and beverage sector. Approximately 80 percent of the imports are carried out by some 50 food companies. Healthcare/pharmaceutical companies are increasingly demanding packaging equipment, although figures are still relatively low in comparison to food. Other segments such as household consumer goods and cosmetics continue to follow the trend. Most of the leading importers are foreign companies established in Argentina, such as Tetra Pak, importing from Italy and other countries; Krones, from Germany, the second largest importer of food and beverage packaging equipment; Bayer (pharmaceuticals), importing mainly from Germany; Danone (dairy and beverage), importing mostly from France; and Italian companies established in Argentina, such as Della Toffola, in the Mendoza winery area, accounting for large imports of beverage packaging equipment from Italy. End users for printing equipment can be grouped according to their contribution to the total sector invoicing as follows: graphic printing and publishing (newspapers, magazines, books): 30 %; flexible packaging: 20%; labelling: 14%, commercial printing (brochures, cards, etc.): 12%, securities and authentication: (10%); cases: (10%). The rest is distributed among continuous forms (2%), envelopes (1%), and others (1%). Commercial printing houses are largely made up of small and medium sized companies. The flexible packaging, and labelling and pouches sub-sectors are dominated by 7 large companies accounting for most of the invoicing. A few international companies are present in Argentina, sometimes through associations with local players. These companies include, among others, Quad Graphics, Donnelly Cochrane, Quebecor (Canadian), Tetra Pak (Sweden) as well Aluflex and Edelpa (Chile). Market Entry Strategy Many UK firms have been very successful in this market. UK products have a strong reputation for quality and technological innovation. As in many countries, personal relationships are fundamental when doing business in Argentina. Success requires taking the time to develop a close personal relationship with the representative, agent, or distributor. Marketing Sauven printers in Argentina requires a higher level of research, preparation, and involvement. International companies typically market their products through an Argentine agent/representative or a distributor. Working with a distributor has several advantages. Distributors can provide strategic support for positioning brands in the market through promotion and advertising. Furthermore, they understand the local culture and can assist with after-sales service. This value-added service is increasingly important for customers, and contributes to a positive image of Sauven doing business abroad. It is strongly recommended that an Argentine lawyer be consulted prior to entering into any type of agreement with an Agent/Distributor and engaged prior to substantive negotiation of the terms of the agreement. No special legislation has been enacted to regulate the cancellation of agency/distribution agreements, although a company could incur additional costs associated with the cancellation of an agency agreement under Argentine labour law. Given the complexity of the legal and commercial environment, contracts are generally negotiated in writing through the exchange of reversal letters or via a basic instrument. The parties may not elect foreign laws to govern the agreement. If a contract is executed abroad to avoid Argentine law, Argentine courts will not enforce it. Some practical tips to successfully approach Argentine end users are the following: • Appoint a representative or distributor • Have Spanish language capacity • Furnish materials in Spanish • Have a long-term outlook • Personalize approach • Be consistent in attention to service and delivery • Provide credit terms • Engage with frequent communication, visits and follow-ups • Must consider Argentina’s unique economic, demographic, and cultural characteristics that distinguish it from other Latin American countries. • Visit or exhibit at local and regional trade shows • Protect trademarks and intellectual property and engage qualified local professionals and lawyers in contract negotiations. Labelling and Marking Requirements Under Argentine law 22,802/83, the Bureau of Trade Regulation (Direccion de Lealtad Comercial) of the Ministry of Economy’s Secretariat of Industry, establishes labelling requirements for products in Argentina. The law requires that product labels bear all the information that the customer needs, and that information is true and valid. The Secretariat of Industry in the Ministry of Economy ensures transparency in all business transactions and enforces the labelling regime. Law 22,802 of 1983, known as the Merchandise Marking Act, supersedes Law 11,275 of 1923. The current law states the general and basic labelling requirements for domestic or imported products, as follows: Article 1: - All packaged products sold in Argentina will bear the following information on a printed label in a visible manner on the package or container: a) Name (description of product) b) Country of origin c) Quality, purity, or blending description d) Net weight All non-packaged products commercialized in country will have to comply with requirements a), b) and c), as stated above. Methods of Payment Letters of credit (L/Cs) may be used to pay for UK exports to Argentina. A number of banks in Argentina open letters of credit once the bank has approved a line of credit for the Argentine company. Multinationals, large and medium sized firms are still the main users of L/Cs. However, to a lesser degree, L/Cs are also used by small firms. Another payment option may be direct payment from Argentine importers’ overseas bank accounts. Bank drafts and documentary collections are also of common use. While they do help safeguard the exporter's title to goods until payment has been received, all credit and country risk remains with the exporter. There is no obligation for the bank to cover these risks. However, documentary collections are less costly than letters of credit and, where the exporter is comfortable with these risks, they offer a practical and efficient solution. According to local sources, the majority of sales to Argentine importers are currently taking place on open account. Small- and medium-sized Argentine companies in key sectors continue to have liquidity, favouring technological upgrades in production lines. As a result, open account sales generally take place between small- and medium-sized firms. Sauven should consider open account payment terms only if they have a great deal of trust in the local importer and feel confident in the client's ability and willingness to pay. Trade Events Envase-Alimentek 2013 Date: August 6-9, 2013 Location: Costa Salguero Exhibition Center, Buenos Aires, Argentina Website: www.envase.org Tecnofidta 2014 Date: Sept. 16-19, 2014. Location: Costa Salguero Exhibition Center, Buenos Aires, Argentina Website: www.tecnofidta.com International Exhibition of the Graphics Arts Industries and Suppliers Date: Location: La Rural, Buenos Aires, Argentina Website: http://www.argentinagrafica.com/ Organizer: FAIGA – Argentine Federation of the Graphic Industry Website: http://www.faiga.com/ Ramón L.Falcón 1657 - (C1406GNG) Buenos Aires - Argentina T.E.: (54-11) 4-631-5120 Fax: (54-11) 4-633-7327 Expo Grafica Date: Location: Estadio Polideportivo Islas Malvinas, Mar del Plata, Argentina Organizer: Talamo Address: Sgo. Del Estero 3043, Mar del Plata Phone: (54-223) 495-1385 E-mail: info@agenciatalamo.com.ar Website: www.expografica2008.com.ar Feria Internacional de Rubros Graficos y Afines Date: Location: Forja Parque Ferial, Córdoba Organizer: Doble C Address: La Mancha 2406 (X5014JOB) Cordoba, Argentina Phone: (54-351)457-5008 E-mail: info@expoimpresion.com.ar Website: www.expoimpresion.com.ar Resources For additional information and useful links please visit the following web sites: • Directorate General of Copyright, Argentina: http://www.jus.gov.ar/derecho-de-autor.aspx • National Institute of Industrial Property, Argentina: http://www.inpi.gov.ar • Argentine Chamber of Commerce (Cámara Argentina de Comercio): http://www.cac.com.ar/ • Coordinator for Food and Beverage Industries (COPAL) http://www.copal.com.ar •Asociación de Proveedores de la Industria de la Alimentación (ADEPIA) http://www.adepia.org Associations and Chambers FAIGA – Argentine Federation of the Graphics Industry Address: Ramon L. Falcon 1657 (C1406GNC) Buenos Aires Phone: (54-11) 4631-5120 Fax: (54-11) 4-633-7327 E-mail: contacto@faiga.com Website: http://www.argentinagrafica.com/ ASOCIACION DE IMPORTADORES Y EXPORTADORES DE LA REPUBLICA ARGENTINA (AIERA) (Association of Argentine Importers and Exporters) Mr. Daniel Solda, President Mr. Adriano A. De Fina, Manager Email: aiera@aiera.org.ar Internet: http://www.aiera.org/ Telephone: +54 11 4342-0010 CAMARA DE COMERCIO EXTERIOR DE CORDOBA (Chamber of Foreign Trade of Cordoba) Ing. Néstor Haag, President Lic. Carlos Pelliza, General Manager Email: cacec@cacec.com.ar; gerencia@cacec.com.ar Internet: http://www.cacec.com.ar/ Telephone: +54 - 351 – 4214804 CAMARA DE IMPORTADORES DE LA REPUBLICA ARGENTINA (Argentine Chamber of Importers) Mr. Diego Antonio Perez Santisteban, President Email: cira@cira.org.ar; gg@cira.org.ar Internet: http://www.cira.org.ar/ Telephone: (5411) 4342-1101