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The 2006-2011 World Outlook for Manufacturing Breakfast Cereal FoodsPublished by: Icon Group International, Inc. Published: Apr. 5, 2005 - 187 Pages Table of Contents1 INTRODUCTION 10 1.1 Overview 10 1.2 What is Latent Demand and the P.I.E.? 10 1.3 The Methodology 11 1.3.1 Step 1. Product Definition and Data Collection 12 1.3.2 Step 2. Filtering and Smoothing 15 1.3.3 Step 3. Filling in Missing Values 16 1.3.4 Step 4. Varying Parameter, Non-linear Estimation 16 1.3.5 Step 5. Fixed-Parameter Linear Estimation 16 1.3.6 Step 6. Aggregation and Benchmarking 17 1.3.7 Step 7. Latent Demand Density: Allocating Across Cities 17 2 SUMMARY OF FINDINGS 18 2.1 The Worldwide Market Potential 18 3 AFRICA, EUROPE & THE MIDDLE EAST 20 3.1 Executive Summary 20 3.2 Afghanistan 21 3.3 Albania 22 3.4 Algeria 23 3.5 Andorra 24 3.6 Angola 24 3.7 Armenia 25 3.8 Austria 26 3.9 Azerbaijan 27 3.10 Bahrain 27 3.11 Belarus 28 3.12 Belgium 29 3.13 Benin 30 3.14 Bosnia and Herzegovina 30 3.15 Botswana 31 3.16 Bulgaria 32 3.17 Burkina Faso 33 3.18 Burundi 33 3.19 Cameroon 34 3.20 Cape Verde 35 3.21 Central African Republic 35 3.22 Chad 36 3.23 Comoros 37 3.24 Congo (formerly Zaire) 37 3.25 Cote d'Ivoire 38 3.26 Croatia 39 3.27 Cyprus 39 3.28 Czech Republic 40 3.29 Denmark 41 3.30 Djibouti 42 3.31 Egypt 42 3.32 Equatorial Guinea 43 3.33 Estonia 44 3.34 Ethiopia 44 3.35 Finland 45 3.36 France 46 3.37 Gabon 47 3.38 Georgia 48 3.39 Germany 49 3.40 Ghana 49 3.41 Greece 50 3.42 Guinea 51 3.43 Guinea-Bissau 51 3.44 Hungary 52 3.45 Iceland 53 3.46 Iran 53 3.47 Iraq 54 3.48 Ireland 55 3.49 Israel 56 3.50 Italy 56 3.51 Jordan 57 3.52 Kazakhstan 58 3.53 Kenya 59 3.54 Kuwait 60 3.55 Kyrgyzstan 61 3.56 Latvia 61 3.57 Lebanon 62 3.58 Lesotho 63 3.59 Liberia 63 3.60 Libya 64 3.61 Liechtenstein 65 3.62 Lithuania 65 3.63 Luxembourg 66 3.64 Madagascar 67 3.65 Malawi 67 3.66 Mali 68 3.67 Malta 69 3.68 Mauritania 69 3.69 Mauritius 70 3.70 Moldova 71 3.71 Monaco 71 3.72 Morocco 72 3.73 Mozambique 73 3.74 Namibia 73 3.75 Netherlands 74 3.76 Niger 75 3.77 Nigeria 75 3.78 Norway 76 3.79 Oman 77 3.80 Pakistan 78 3.81 Palestine 79 3.82 Poland 79 3.83 Portugal 80 3.84 Qatar 81 3.85 Republic of Congo 81 3.86 Reunion 82 3.87 Romania 83 3.88 Russia 84 3.89 Rwanda 85 3.90 San Marino 85 3.91 Sao Tome E Principe 86 3.92 Saudi Arabia 87 3.93 Senegal 88 3.94 Sierra Leone 88 3.95 Slovakia 89 3.96 Slovenia 90 3.97 Somalia 90 3.98 South Africa 91 3.99 Spain 92 3.100 Sudan 93 3.101 Swaziland 93 3.102 Sweden 94 3.103 Switzerland 95 3.104 Syrian Arab Republic 96 3.105 Tajikistan 97 3.106 Tanzania 98 3.107 The Gambia 98 3.108 Togo 99 3.109 Tunisia 100 3.110 Turkey 100 3.111 Turkmenistan 101 3.112 Uganda 102 3.113 Ukraine 102 3.114 United Arab Emirates 103 3.115 United Kingdom 104 3.116 Uzbekistan 105 3.117 Western Sahara 106 3.118 Yemen 106 3.119 Zambia 107 3.120 Zimbabwe 108 4 ASIA 109 4.1 Executive Summary 109 4.2 Bangladesh 110 4.3 Bhutan 111 4.4 Brunei 112 4.5 Burma 112 4.6 Cambodia 113 4.7 China 114 4.8 Hong Kong 115 4.9 India 115 4.10 Indonesia 116 4.11 Japan 117 4.12 Laos 118 4.13 Macau 119 4.14 Malaysia 120 4.15 Maldives 121 4.16 Mongolia 121 4.17 Nepal 122 4.18 North Korea 123 4.19 Papua New Guinea 124 4.20 Philippines 124 4.21 Seychelles 125 4.22 Singapore 126 4.23 South Korea 126 4.24 Sri Lanka 127 4.25 Taiwan 128 4.26 Thailand 129 4.27 Vietnam 129 5 LATIN AMERICA 131 5.1 Executive Summary 131 5.2 Argentina 132 5.3 Belize 133 5.4 Bolivia 134 5.5 Brazil 134 5.6 Chile 135 5.7 Colombia 136 5.8 Costa Rica 137 5.9 Ecuador 138 5.10 El Salvador 139 5.11 Falkland Islands 139 5.12 French Guiana 140 5.13 Guatemala 141 5.14 Guyana 141 5.15 Honduras 142 5.16 Mexico 143 5.17 Nicaragua 144 5.18 Panama 144 5.19 Paraguay 145 5.20 Peru 146 5.21 Suriname 147 5.22 Uruguay 147 5.23 Venezuela 148 6 NORTH AMERICA & THE CARIBBEAN 150 6.1 Executive Summary 150 6.2 Antigua and Barbuda 151 6.3 Aruba 152 6.4 Bahamas 153 6.5 Barbados 153 6.6 Bermuda 154 6.7 British Virgin Islands 155 6.8 Canada 155 6.9 Cayman Islands 156 6.10 Cuba 157 6.11 Dominica 158 6.12 Dominican Republic 158 6.13 Greenland 159 6.14 Grenada 160 6.15 Guadeloupe 161 6.16 Haiti 161 6.17 Jamaica 162 6.18 Martinique 163 6.19 Netherlands Antilles 163 6.20 Puerto Rico 164 6.21 St. Kitts and Nevis 165 6.22 St. Lucia 165 6.23 St. Vincent and the Grenadines 166 6.24 Trinidad and Tobago 167 6.25 United States 167 6.26 Virgin Islands, US 168 7 OCEANA 170 7.1 Executive Summary 170 7.2 American Samoa 171 7.3 Australia 172 7.4 Christmas Island 173 7.5 Cook Islands 173 7.6 Fiji 174 7.7 French Polynesia 174 7.8 Guam 175 7.9 Kiribati 176 7.10 Marshall Islands 176 7.11 Micronesia Federation 177 7.12 Nauru 177 7.13 New Caledonia 178 7.14 New Zealand 178 7.15 Niue 179 7.16 Norfolk Island 180 7.17 Northern Mariana Island 180 7.18 Palau 181 7.19 Solomon Islands 181 7.20 Tokelau 182 7.21 Tonga 182 7.22 Tuvalu 183 7.23 Vanuatu 183 7.24 Wallis and Futuna 184 7.25 Western Samoa 184 8 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 186 8.1 Disclaimers & Safe Harbor 186 8.2 ICON Group International, Inc. User Agreement Provisions 187 AbstractWHAT IS LATENT DEMAND AND THE P.I.E.?The concept of latent demand is rather subtle. The term latent typically refers to something that is dormant, not observable, or not yet realized. Demand is the notion of an economic quantity that a target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is commonly defined by economists as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if a market is served in an efficient manner. It is typically expressed as the total revenues potentially extracted by firms. The “market” is defined at a given level in the value chain. There can be latent demand at the retail level, at the wholesale level, the manufacturing level, and the raw materials level (the P.I.E. of higher levels of the value chain being always smaller than the P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability). The latent demand for manufacturing breakfast cereal foods is not actual or historic sales. Nor is latent demand future sales. In fact, latent demand can be lower either lower or higher than actual sales if a market is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a number of factors, including the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the part of firms. In general, however, latent demand is typically larger than actual sales in a country market. For reasons discussed later, this report does not consider the notion of “unit quantities”, only total latent revenues (i.e., a calculation of price times quantity is never made, though one is implied). The units used in this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends) and not adjusted for future dynamics in exchange rates (i.e., the figures reflect average exchange rates over recent history). If inflation rates or exchange rates vary in a substantial way compared to recent experience, actually sales can also exceed latent demand (when expressed in U.S. dollars, not adjusted for inflation). On the other hand, latent demand can be typically higher than actual sales as there are often distribution inefficiencies that reduce actual sales below the level of latent demand. As mentioned in the introduction, this study is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. If fact, all the current products or services on the market can cease to exist in their present form (i.e., at a brand-, R&D specification, or corporate-image level) and all the players can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will still be an international latent demand for manufacturing breakfast cereal foods at the aggregate level. Product and service offering details, and the actual identity of the players involved, while important for certain issues, are relatively unimportant for estimates of latent demand. THE METHODOLOGY In order to estimate the latent demand for manufacturing breakfast cereal foods on a worldwide basis, I used a multi-stage approach. Before applying the approach, one needs a basic theory from which such estimates are created. In this case, I heavily rely on the use of certain basic economic assumptions. In particular, there is an assumption governing the shape and type of aggregate latent demand functions. Latent demand functions relate the income of a country, city, state, household, or individual to realized consumption. Latent demand (often realized as consumption when an industry is efficient), at any level of the value chain, takes place if an equilibrium in realized. For firms to serve a market, they must perceive a latent demand and be able to serve that demand at a minimal return. The single most important variable determining consumption, assuming latent demand exists, is income (or other financial resources at higher levels of the value chain). Other factors that can pivot or shape demand curves include external or exogenous shocks (i.e., business cycles), and or changes in utility for the product in question. Ignoring, for the moment, exogenous shocks and variations in utility across countries, the aggregate relation between income and consumption has been a central theme in economics. The figure below concisely summarizes one aspect of problem. In the 1930s, John Meynard Keynes conjectured that as incomes rise, the average propensity to consume would fall. The average propensity to consume is the level of consumption divided by the level of income, or the slope of the line from the origin to the consumption function. He estimated this relationship empirically and found it to be true in the short-run (mostly based on cross-sectional data). The higher the income, the lower the average propensity to consume. This type of consumption function is labeled "A" in the figure below (note the rather flat slope of the curve). In the 1940s, another macroeconomist, Simon Kuznets, estimated long-run consumption functions which indicated that the marginal propensity to consume was rather constant (using time series data across countries). This type of consumption function is show as "B" in the figure below (note the higher slope and zero-zero intercept). The average propensity to consume is constant. Is it declining or is it constant? A number of other economists, notably Franco Modigliani and Milton Friedman, in the 1950s (and Irving Fisher earlier), explained why the two functions were different using various assumptions on intertemporal budget constraints, savings, and wealth. The shorter the time horizon, the more consumption can depend on wealth (earned in previous years) and business cycles. In the long-run, however, the propensity to consume is more constant. Similarly, in the long run, households, industries or countries with no income eventually have no consumption (wealth is depleted). While the debate surrounding beliefs about how income and consumption are related and interesting, in this study a very particular school of thought is adopted. In particular, we are considering the latent demand for manufacturing breakfast cereal foods across some 230 countries. The smallest have fewer than 10,000 inhabitants. I assume that all of these counties fall along a "long-run" aggregate consumption function. This long-run function applies despite some of these countries having wealth, current income dominates the latent demand for manufacturing breakfast cereal foods. So, latent demand in the long-run has a zero intercept. However, I allow firms to have different propensities to consume (including being on consumption functions with differing slopes, which can account for differences in industrial organization, and end-user preferences). Given this overriding philosophy, I will now describe the methodology used to create the latent demand estimates for manufacturing breakfast cereal foods. Since ICON Group has asked me to apply this methodology to a large number of categories, the rather academic discussion below is general and can be applied to a wide variety of categories, not just manufacturing breakfast cereal foods. Step 1. Product Definition and Data Collection Any study of latent demand across countries requires that some standard be established to define “efficiently served”. Having implemented various alternatives and matched these with market outcomes, I have found that the optimal approach is to assume that certain key countries are more likely to be at or near efficiency than others. These countries are given greater weight than others in the estimation of latent demand compared to other countries for which no known data are available. Of the many alternatives, I have found the assumption that the world’s highest aggregate income and highest income-per-capita markets reflect the best standards for “efficiency”. High aggregate income alone is not sufficient (i.e., China has high aggregate income, but low income per capita and can not assumed to be efficient). Aggregate income can be operationalized in a number of ways, including gross domestic product (for industrial categories), or total disposable income (for household categories; population times average income per capita, or number of households times average household income per capita). Brunei, Nauru, Kuwait, and Lichtenstein are examples of countries with high income per capita, but not assumed to be efficient, given low aggregate level of income (or gross domestic product); these countries have, however, high incomes per capita but may not benefit from the efficiencies derived from economies of scale associated with large economies. Only countries with high income per capita and large aggregate income are assumed efficient. This greatly restricts the pool of countries to those in the OECD (Organization for Economic Cooperation and Development), like the United States, or the United Kingdom (which were earlier than other large OECD economies to liberalize their markets). The selection of countries is further reduced by the fact that not all countries in the OECD report industry revenues at the category level. Countries that typically have ample data at the aggregate level that meet the efficiency criteria include the United States, the United Kingdom and in some cases France and Germany. Latent demand is therefore estimated using data collected for relatively efficient markets from independent data sources (e.g. Euromonitor, Mintel, Thomson Financial Services, the U.S. Industrial Outlook, the World Resources Institute, the Organization for Economic Cooperation and Development, various agencies from the United Nations, industry trade associations, the International Monetary Fund, and the World Bank). Depending on original data sources used, the definition of “manufacturing breakfast cereal foods” is established. In the case of this report, the data were reported at the aggregate level, with no further breakdown or definition. In other words, any potential product or service that might be incorporated within manufacturing breakfast cereal foods falls under this category. Public sources rarely report data at the disaggregated level in order to protect private information from individual firms that might dominate a specific product-market. These sources will therefore aggregate across components of a category and report only the aggregate to the public. While private data are certainly available, this report only relies on public data at the aggregate level without reliance on the summation of various category components. In other words, this report does not aggregate a number of components to arrive at the “whole”. Rather, it starts with the “whole”, and estimates the whole for all countries and the world at large (without needing to know the specific parts that went into the whole in the first place). Given this caveat, this study covers “manufacturing breakfast cereal foods” as defined by the North American Industrial Classification system or NAICS (pronounced “nakes”). For a complete definition of manufacturing breakfast cereal foods, please refer to the Web site at http://www.icongrouponline.com/codes/NAICS.html. The NAICS code for manufacturing breakfast cereal foods is 311230. It is for this definition of manufacturing breakfast cereal foods that the aggregate latent demand estimates are derived. “Manufacturing breakfast cereal foods” is specifically defined as follows: 311230 This industry comprises establishments primarily engaged in manufacturing breakfast cereal foods. 3112301 ready-to-serve breakfast cereals 31123011 ready-to-serve corn flakes and other corn breakfast foods excluding infant cereals 311230111 Corn flakes and other corn breakfast foods 3112301111 ready-to-serve corn flakes and other corn breakfast foods mixed with fruit and nuts excluding infant cereals 3112301112 ready-to-serve corn flakes and other corn breakfast foods without fruit and nuts excluding infant cereals 311230112 wheat flakes and other wheat breakfast foods 3112301121 Ready_to_serve corn flakes and other corn breakfast foods (except infant cereals), without fruits or nuts 311230115 Oat breakfast foods 311230118 Rice and other grains and mixed grain breakfast foods and preparations 31123012 ready-to-serve wheat flakes and other wheat breakfast foods excluding infant cereals 3112301231 ready-to-serve wheat flakes and other wheat breakfast foods mixed with fruit and nuts excluding infant cereals 3112301241 ready-to-serve wheat flakes and other wheat breakfast foods without fruit and nuts excluding infant cereals 31123013 ready-to-serve oat breakfast foods excluding infant cereals 3112301351 ready-to-serve oat breakfast foods mixed with fruit and nuts excluding infant cereals 3112301361 ready-to-serve oat breakfast foods without fruit and nuts excluding infant cereals 31123014 ready-to-serve rice breakfast foods excluding infant cereals 3112301471 Ready_to_serve rice breakfast foods (except infant cereals), with fruits and/or nuts 3112301481 Ready to serve rice breakfast foods (except infant cereals), without fruits of nuts 31123015 ready-to-serve breakfast preparations of grains and mixed grains excluding oat, wheat, corn, and infant cereals 3112301591 Ready_to_serve breakfast preparations of other grains and mixed grains (except infant cereals), with fruits and/or nuts 31123015A1 Ready_to_serve breakfast preparations of other grains and mixed grains (except infant cereals), without fruits or nuts 3112304 Other cereal breakfast foods, incl infant, instant hot, & cooked before serving 31123041 Other breakfast cereal foods 3112304111 infant cereals 3112304121 instant hot cereals 3112304131 farina and other wheat cereals intended to be cooked before serving excluding instant and infant cereals 3112304141 rolled oats and oatmeal intended to be cooked before serving excluding instant and infant cereals 3112304151 Cereal preparations of other grains and mixed grains intended to be cooked before serving, except instant and infants’ cereals 311230M Miscellaneous receipts 311230P Primary products 311230S Secondary products 311230SM Secondary products and miscellaneous receipts Furthermore, the definition of NAICS code 311230 includes the following: Breakfast cereals manufacturing Corn breakfast foods manufacturing Farina, breakfast cereal, manufacturing Flour mills, breakfast cereal, manufacturing Grain mills, breakfast cereal Grain, breakfast cereal, manufacturing Granola, cereal (except bars and clusters), manufacturing Hominy grits, prepared as cereal breakfast food, manufacturing Infant cereals, dry, manufacturing Instant hot cereals manufacturing Mix grain breakfast manufacturing Oatmeal (i.e., cereal breakfast food) manufacturing Oats, breakfast cereal, manufacturing Oats, rolled (i.e., cereal breakfast food), manufacturing Rice breakfast foods manufacturing Wheat breakfast cereal manufacturing. Step 2. Filtering and Smoothing Based on the aggregate view of manufacturing breakfast cereal foods as defined above, data were then collected for as many similar countries as possible for that same definition, at the same level of the value chain. This generates a convenience sample of countries from which comparable figures are available. If the series in question do not reflect the same accounting period, then adjustments are made. In order to eliminate short-term effects of business cycles, the series are smoothed using an 2 year moving average weighting scheme (longer weighting schemes do not substantially change the results). If data are available for a country, but these reflect short-run aberrations due to exogenous shocks (such as would be the case of beef sales in a country stricken with foot and mouth disease), these observations were dropped or "filtered" from the analysis. Step 3. Filling in Missing Values In some cases, data are available for countries on a sporadic basis. In other cases, data from a country may be available for only one year. From a Bayesian perspective, these observations should be given greatest weight in estimating missing years. Assuming that other factors are held constant, the missing years are extrapolated using changes and growth in aggregate national income. Based on the overriding philosophy of a long-run consumption function (defined earlier), countries which have missing data for any given year, are estimated based on historical dynamics of aggregate income for that country. Step 4. Varying Parameter, Non-linear Estimation Given the data available from the first three steps, the latent demand in additional countries is estimated using a “varying-parameter cross-sectionally pooled time series model”. Simply stated, the effect of income on latent demand is assumed to be constant across countries unless there is empirical evidence to suggest that this effect varies (i.e., . the slope of the income effect is not necessarily same for all countries). This assumption applies across countries along the aggregate consumption function, but also over time (i.e., not all countries are perceived to have the same income growth prospects over time and this effect can vary from country to country as well). Another way of looking at this is to say that latent demand for manufacturing breakfast cereal foods is more likely to be similar across countries that have similar characteristics in terms of economic development (i.e., African countries will have similar latent demand structures controlling for the income variation across the pool of African countries). This approach is useful across countries for which some notion of non-linearity exists in the aggregate cross-country consumption function. For some categories, however, the reader must realize that the numbers will reflect a country’s contribution to global latent demand and may never be realized in the form of local sales. For certain country-category combinations this will result in what at first glance will be odd results. For example, the latent demand for the category “space vehicles” will exist for “Togo” even though they have no space program. The assumption is that if the economies in these countries did not exist, the world aggregate for these categories would be lower. The share attributed to these countries is based on a proportion of their income (however small) being used to consume the category in question (i.e., perhaps via resellers). Step 5. Fixed-Parameter Linear Estimation Nonlinearities are assumed in cases where filtered data exist along the aggregate consumption function. Because the world consists of more than 200 countries, there will always be those countries, especially toward the bottom of the consumption function, where non-linear estimation is simply not possible. For these countries, equilibrium latent demand is assumed to be perfectly parametric and not a function of wealth (i.e., a country’s stock of income), but a function of current income (a country’s flow of income). In the long run, if a country has no current income, the latent demand for manufacturing breakfast cereal foods is assumed to approach zero. The assumption is that wealth stocks fall rapidly to zero if flow income falls to zero (i.e., countries which earn low levels of income will not use their savings, in the long run, to demand manufacturing breakfast cereal foods). In a graphical sense, for low income countries, latent demand approaches zero in a parametric linear fashion with a zero-zero intercept. In this stage of the estimation procedure, low-income countries are assumed to have a latent demand proportional to their income, based on the country closest to it on the aggregate consumption function. Step 6. Aggregation and Benchmarking Based on the models described above, latent demand figures are estimated for all countries of the world, including for the smallest economies. These are then aggregated to get world totals and regional totals. To make the numbers more meaningful, regional and global demand averages are presented. Figures are rounded, so minor inconsistencies may exist across tables. Step 7. Latent Demand Density: Allocating Across Cities With the advent of a “borderless world”, cities become a more important criteria in prioritizing markets, as opposed to regions, continents, or countries. This report also covers the world’s top 2000 cities. The purpose is to understand the density of demand within a country and the extent to which a city might be used as a point of distribution within its region. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. Similar to country-level data, the reader needs to realize that latent demand allocated to a city may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, again, the category “satellite launch vehicles.” Clearly, there are no launch pads in most cities of the world. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is "consumed" by residents or industries within the world's cities. Without certain cities, in other words, the world market for satellite launch vehicles would be lower for the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to regions, countries and cities. This report takes the broader definition and considers, therefore, a city as a part of the global market. I allocate latent demand across areas of dominant influence based on the relative economic importance of cities within its home country, within its region and across the world total. Not all cities are estimated within each country as demand may be allocated to adjacent areas of influence. Since some cities have higher economic wealth than others within the same country, a city’s population is not generally used to allocate latent demand. Rather, the level of economic activity of the city vis-à-vis others. Get Full Details About This Report >> |
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