Colombia Food and Drink Report Q2 2012

We have revised up our 2012 forecast for real GDP growth in Colombia, from 4.5% to 4.7%, as we believe economic growth will remain strong into H112. Growth will be driven by a combination of private consumption and fixed investment, supported by strong foreign direct investment.

Private consumption continues to be the major accelerator for Colombian real GDP growth; we expect this to continue over the next few years, boosted by strong credit expansion and low unemployment. In addition, Colombia’s large proportion of low-income consumers means the country has one of the lowest per capita food consumption rates within the region, leaving much room for growth.

Headline Industry Data (in local currency):

2012 per capita food consumption = +5.9%; forecast 2011-2016 = +46.3%.

2012 alcoholic drink sales = +3.3%; forecast 2011-2016 = +23.9%.

2012 soft drink sales = +4.9%; forecast 2011-2016 = +33.4%.

2012 mass grocery retail sales = +7.5%; forecast 2011-2016 = +59.2%.

Key Company Trends Bullish Outlook For Colombian Food And Drink: The outlook for the food and drink sector (production, distribution and retail) in Latin America is positive, as a combination of still-strong real GDP growth, rising incomes, supportive demographics and consolidation within the sector are expected to drive profitability. Our top picks are Brazil and Mexico, and we remain neutral on Chile, although we note upside risks. We also have a constructive outlook for the Colombian food and drink sector as consumers are coming from a significantly lower base than the region’s larger economies.

Ripley To Launch In Colombia: Chile-based department store operator Ripley is set to become the latest Latin American retailer to enter the Colombian retail market. The retailer plans to open its first outlet in Colombia in H113. Ripley intends to invest US$272mn in the country through to 2015.

Key Risks To Outlook Monetary Policy: At the domestic level, monetary policy and banking sector regulation could pose important downside risks to our outlook. While our core view is for the central bank to cut rates in 2012, if supply and demand-side inflationary pressures remain strong there is a chance Banco de la República could opt for a rate hike in the next few months, posing a downside risk to our growth forecast. In addition, given the rapid expansion of credit in 2011, we see potential for stricter regulation to dampen credit growth in 2012, thus weighing on consumption.

Potential Impact Of Chinese Or European Slowdown: The external risks to our outlook remain focused on China and Europe, as a hard landing in China or a severe recession in the eurozone could substantially impact Colombian growth in 2012. We believe these events would manifest though a number of different channels, with trade likely impacted by a collapse in oil prices, Colombia’s major commodity export, and investment hurt by a drying up of financing.