Dairy consumption in Latin America significantly lags behind other regions from the globe. At USD99 per capita, consumers in Latin America spend less than half of their counterparts in Western Europe or North America on dairy. While milk and cheese is a part of the Latin American diet, in the majority of countries, in particular in rural areas, dairy is consumed in unpackaged or artisanal format. This presents both challenges and opportunities for the industry. The convenience and longer shelf life of industrialized dairy products is incentivizing consumers to switch; however, macroeconomic headwinds are putting pressure on costs, in turn challenging the growth of packaged variants.

With retail sales of USD25 billion, Brazil is Latin America’s leading dairy market. The dairy market in Brazil is dictated by drinking milk, which accounted for 40% of retail sales in 2017. Milk is a staple product in Brazil, being consumed not only by children, but also by adults for breakfast and lunch, as a snack or dessert, in addition to being added to coffee, desserts and meals. Unlike Brazil, cheese is the most widespread and dynamic dairy product in Mexico, Argentina, Chile and Columbia. In Mexico, sales of cheese for the first time overtook those of drinking milk in 2013. Hard cheese as opposed to soft cheese drove category sales, as a result of successful marketing initiatives to position Manchego (the most popular cheese) as an ingredient in cooking.

Unlike the developed markets of Western Europe and North Africa, where private label commands a lion’s share of sales, in Latin America dairy remains relatively fragmented. Private label barely has a presence. In Brazila third of the market is dominated by smaller local companies. This is almost as close as the combined share of the top five dairy players. However, consolidation is becoming increasingly pronounced, in particular in Chile and Colombia. Over 2008-2016, the share of the top five players increased from 54% to a staggering 72% in Chile.

In Latin America, most growth in dairy is contingent upon population growth. The population’s impact on GDP is even more prevalent in countries such as Peru, Bolivia, Colombia and Costa Rica. However, lifestyle trends will be increasingly important to drive sales in big markets such as Mexico and Brazil. With over USD8.9 billion of additional sales over 2017-2022, Brazil is set to account for the majority of Latin America’s forecast growth. This is more than the combined growth expected in Mexico, Argentina and Peru.

Whilst Brazil is going to be the biggest contributor to Latin America’s dairy sales over 2018-2023 in terms of retail value, it is projected to be one of the slowest growing markets in the region in terms of its percentage growth. Hence, manufacturers should employ a two-tier growth strategy, whereby they target the high-end of the market through premium indulgent dairy products, such as on-the-go flavoured milk or drinking yoghurt fortified with super grains and super fruits, while they keep a wider variety of staple products such as powder milk, condensed milk and ambient yoghurt to appeal to the lower-end of the market.

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