Colombia Packaging Industry Overview (2013)

The Republic of Colombia is the fifth largest economy in Latin America with the third largest population of approximately 46 million inhabitants. Aided by major security improvements, steady economic growth and moderate inflation, Colombia has become a free market economy with major commercial and investment ties to the United States, Europe, Asia and Latin America. The Colombian Processed Food and Packaging Equipment market caters to an industry that produces approximately US$ 22 billion in revenue per year. The food industry is comprised of 10 sub sectors: Sugar mills, rice mill, cereal mills, oils and fats, dairy products, chocolates and candy, meat products, animal food products, bread and pasta and others. The beverage industry is also comprised of three subsectors: Beer, Carbonated Soft Drinks & Juices and spirits. In 2010 the Food Industry grew on a whole (+ 6.31% from ‘09) while the beverage industry decreased in sales (- 9.63%), driven in part by an unprecedented tax increase imposed on the beer market, to cover the cost of an emergency relief program. Within these industries, the Dairy, Animal Food and Carbonated Soft Drinks & Juices were the three markets highlighted as the most attractive in terms of supply machinery and equipment. To put into perspective the importance of the Food and Beverage import market, this industry accounts for 5.4% of all the Colombian imports. In other words, if Colombia imported approximately US$ 40 billion in 2010, US$ 2.16 billion is the amount of imported goods that came into the country to supply the food and beverage companies. Opportunities Of the main obstacles that the Food, Beverage and Packaging industries face on a day-to-day basis; logistics/transportation, a cultural lack of innovation, and contraband are probably the key issues that foreign and domestic companies are challenged with. Nevertheless, the industry has been growing in average a 5 percent per year. After more than 5 years in the works, the USA legislative body (Senate and House of Representatives) has approved the USA – Colombia Free Trade Agreement (FTA). As of October 12, 2011, the US has agreed to enter a period of non-tariff trade that will come into action as soon as both governments finish the implementation phase. Over 80% of US exports of consumer and industrial products entering to Colombia will become duty free immediately (upon finished the implementation phase), with the remaining 20% of products being phased into zero tariffs over the following 10 years. With average tariffs on US industrial exports ranging from 7.4% to 14.6%, the newly signed FTA will significantly increase the competitiveness of US food machinery and packaging equipment into the Colombian market. Colombia is not a producer of this type of machinery; therefore the FTA will bring more opportunities for the US industry. Overview The Colombian manufacturing sector is divided into 61 industry groups. The food processing and packaging industry (FPP) ranks among the top 14 manufacturing groups. The industry employs about 19.3% of the domestic labor force, concentrated in the five main metropolitan areas: Bogota, Medellin, Cali, Cartagena and Barranquilla. U.S. FPP equipment enjoys an excellent reputation and wide acceptance in the domestic market. High quality, outstanding customer service, a favorable exchange rate and lower shipping costs make U.S. products stand out in this market. The total market for FPP grew consistently during 2007-2009. In 2010, the market declined 10.7% as the market value in 2010 through December is projected to reach $156.3 million. The decline is attributable to the favorable exchange rate vs. the U.S. dollar and a decline of nearly 33% of Colombian FPP equipment and products exports to Venezuela. Despite the reduced value of the total market and the import segment, imports from the U.S. grew, as December 2010 estimates for U.S. imports are $33.75 million. Conversely, imports from U.S. strongest competitors have declined, negatively affecting their market shares. In 2009 U.S. equipment represented 22.5% of total FPP imports, and the total market size increased 5% to $175.1 million, when compared to 2008, despite the global economic crisis. The 2010 forecast is positive for U.S. imports increasing by 11.2%, equivalent to 25.6% of total imports. Imports of FPP equipment from the United States increased at a rate of 11% in 2009. Despite the global economic crisis this is still one of the more robust sectors of Colombian industry, which grew well above the 2009 GDP growth rate of 0.4%%. U.S. equipment is well positioned given its high quality and excellent technical and support service. It is also the fastest growing supplier, whose total share rose from 13.4% in 2007 to 21.3% in 2008. In 2009, U.S. FPP equipment reached 22.4% of all imports, and it is expected to reach almost 26% and 28% in 2010 and 2011 respectively. The strongest U.S. competitors include: Italy, Brazil and Germany, with current market shares below 17%. During 2007-2009, production of food and beverage goods increased, mostly as a result of government support programs that encouraged technological advancement and export preparedness of small and medium companies, known as PYMES. It is expected that commercial relations with Venezuela will be re-established by 2011. Bilateral commerce with Venezuela will boost local exports and therefore the need of importing better and newer technology. Thus, PYMES remain excellent prospects to import U.S. equipment that features small/medium production capacity. Colombian food and beverage exports remain the second largest, as part of the agro industry macro sector which represented 27% of all Colombian exports in 2008 after manufactures, with 47%, as a result of government efforts and significant improvements in production and industry competitiveness. The recent floods that deeply affected some regions of the country will cause food prices to rise, given that some raw materials will be scarce and others will need to be imported, providing opportunities for U.S. and other foreign agricultural products. U.S. FPP manufacturers can also have a potential opportunity, given that equipment and machinery was damaged and needs to be replaced. Competition from local equipment producers in this sector is modest. The quality of local technology has improved for basic equipment and spare parts manufacturing. Local production is still undeveloped, when compared to the U.S. and other countries, especially in terms of competing with the latest technologies such as nanotechnology and electronic/robotics used for production/packaging lines. The prospective US-CTPA will emphasize the importance of improving the competitiveness of this sector, and will broaden sales and export opportunities for U.S. manufacturers. The US-CTPA will gradually eliminate the current 5 to 15% Colombian tariffs on U.S. products. Best Products/Services: Colombia is the third largest dairy products producer in Latin America, after Brazil and Mexico. The accelerated growth of the dairy industry has already surpassed projections for 2011. The dairy sub-sector, along with the following services and equipment offer the best market potential for U.S. exporters: • Dairy production equipment. • Bottling services (alcoholic and non-alcoholic). • Brewery equipment. • Mixing, grading and filtering apparatus • Heat exchangers. • Filling, sealing and capping. • Preserved/canned meat and fish products. • Horticulture packaging equipment. • Printing and labeling equipment. Oils and fats processing is another promising industry segment, given that Colombia produces nearly 37.7% of total regional production and is listed among the top four producers of crude palm oil in the world. The sugars and syrup segment, followed by canned meat, poultry and fish products, as well as fresh vegetable and fruit packaging, are also promising industry niches. Another key prospect is snack processing and packaging equipment. Beverages have been the fastest growing segment so much so that the National Industry Association-ANDI has recently created a Beverage Chamber, to provide assistance to companies devoted to this sector. Opportunities: In terms of production, economic impact and growth projection, the domestic food and beverage processing industry has sustained its rapid growth thanks to a larger population, a growing middle class and an increased purchasing power-as well as disposable money-to acquire higher end and value added products. Hence, it remains a promising sector for U.S. businesses, given the constant local demand for food that is processed and packaged for a longer shelf-life. Bottling and packing machines and equipment, as well as finished materials and recipients, are also products with solid market potential. Medium-term opportunities will be determined by the continued and increasing purchasing local capacity and the escalating demand for food. The sector is highly diversified. End-users of equipment and technology in most of the subsectors vary widely in terms of revenues and production. Market opportunities for U.S. manufacturers also vary broadly, determined by equipment size and production capacity. Although there are a significant number of large food processors capable of handling large production capacity (such as SAB Miller-Bavaria, Nacional de Chocolates, Colombina, Postobon and Frito Lay), the largest segment with the highest purchasing potential is the PYME group, which requires less installed capacity. The prospective U.S.-CTPA will also make newer and better technology more available and affordable to local food manufacturers, which permanently seek to improve their production systems and build a distinctive domestic and international reputation. At the same time, the TPA allows re-manufactured equipment to enter the market which will lower costs, especially for smaller companies. . In addition, a stronger Colombian peso combined with lower or no tariffs will make U.S. exports more attractive. Finally, Colombia’s implementation of Free Trade Agreements (FTAs) with Europe, and Canada will increase competition for U.S. manufacturers. Resources: • Alejandra Henao, Commercial Specialist. Email: Alejandra.Henao@trade.gov • Alimentos magazine, Axioma Comunicaciones Ltda.: www.revistalabarra.com • Banco de la República (Central Bank): www.banrep.gov.co • Bancoldex (Foreign Trade Bank): www.bancoldex.com • Colombian Customs and Income Tax Offices (DIAN): www.dian.gov.co • Colombian Export Promotion Bureau: www.proexport.gov.co • Colombian Government: www.gobiernoenlinea.gov.co • Economic Commission for Latin America and the Caribbean-ECLAC: www.eclac.org/estadisticas/ • GEBIA-Grupo Estudios Biotecnología de Alimentos: http://soebi.wordpress.com/ • International Packaging Exhibition, 2007, Bogota-Colombia: www.andinapack.com • Merchants Association (FENALCO): www.fenalco.com.co • National Industries Association (ANDI): www.andi.com.co • Noticias colombianas blogspot: http://noticiascolombianas.blogspot.com/2008/07/laindustria- de-alimentos-y-bebidas.html