Argentina Food and Drink Report 2009

For the last five years GDP growth in Argentina has averaged above 8%, boosted by the surging price of commodities and a consumer spending boom. However, the country has been hit hard by the falling price of commodities and the drying up of credit and the economic outlook looks very uncertain. The five-year long economic boom is over and the government's current attempts to micro-manage the economy and stimulate aggregate demand through fiscal policy look likely to have stored up trouble for the future BMI is forecasting that the Argentine economy will grow by only 0.6% in 2009 and will contract by 0.9% in 2010. This is expected to have a significant impact on consumer spending and could also change buying patterns in the food and drink sector.

Argentina's economy is highly reliant on exports leaving it particularly exposed to a global economic slowdown. The reduction in export revenues has had an impact across the business sector and also had a damaging impact on consumer confidence, which, as of November 2008 was down by 24% on the same period a year ago. This has naturally had an impact on consumer spending, the first signs of which have emerged in a slowdown in inflation; in November Argentina's official annual inflation rate fell to 7.9% - its lowest level for nearly four years.

In response to the economic slowdown the Argentine President Cristina Fernandez de Kirchner has announced a US$3.8bn package of low cost loans to boost consumer demand and help the country's struggling exporters. However, unless the global economic situation improves rapidly, these measures are likely to be nowhere near enough to prevent a sharp contraction in consumer demand.

This is likely to lead to a significant change in consumer buying patterns. Not only will sales growth slow, or even start to contract, we are likely to see rising demand for lower priced products including private label and long-life items. We also envisage a reduction in demand for products seen as less essential, including alcoholic drinks, confectionery and soft drinks. Food consumption is therefore expected to increase at a reduced rate over the next five years. Between 2008-2013 total food consumption is expected to increase by over 100% in local currency terms. However, the majority of this increase can be attributed to inflation and a more realistic figure is given by the increase in food consumption in US dollar terms. The exchange rate varies according the year and therefore effectively factors out inflation from the growth rate. By this measure total food consumption is expected to increase by 48% between 2008 and 2013, but is expected to virtually stagnate in 2009.

Although the organised retail sector may be able to secure additional market share thanks to the price benefits that modern retailing offers, the very high like-for-like growth rates witnessed over the last few years are almost certainly going to come to an end.