Charting the ongoing rise of the food industry in Brazil and Latin America

Brazil has become a global agricultural powerhouse. But how did it get there? And where is Latin America’s food industry headed next?

Six years ago, we announced a brand-new international office: DG Brasil, headquartered in São Paulo. At the time, Brazil was the fourth largest importer of food in the world and a leading exporter of coffee, soybeans, sugar, and poultry meat. Our office is strategically located in the southeast of the country, granting proximity to the largest concentration of food and beverage facilities in the nation.

But how did Brazil come to be such a powerhouse in the food industry? What’s changed over the last six years? And what will the future of food in Latin American look like?

An Agricultural Powerhouse

Latin America’s climate varies widely over the 7.412 million mi² that makes up the landmass: from hot and humid Amazonia to the arid conditions of northern Mexico; from the Atacama Desert to the cool and rainy sub-Arctic Cape Horn. For much of Latin America, which encompasses Mexico, Central America, the Caribbean, and South America, the combination of warmth, sunshine, rainfall, and vast stretches of arable land make it an ideal location for agriculture. And Brazil, which enjoys the tropical climate of the Amazon basin in its northern regions, has leveraged the happy accident of its location into a position as a global agricultural powerhouse.

Even before its independence from Portugal in 1822, Brazil was known for producing some of humankind’s favorite commodities: sugarcane, coffee, and tobacco. By the mid-16th century, sugarcane was Brazil’s most important export… but there was an ugly driver of that prosperity. To meet increased international demand for sugar, millions of enslaved people from Sub-Saharan Africa were purchased to work the fields. Of the 12 million enslaved Africans brought to the New World, approximately 5.5 million were brought to Brazil between 1540 and the 1860s, and Brazil was the last nation in the Western world to abolish slavery altogether, in 1888.

With immigration labor starting to take over, coffee production became a runaway success towards the end of the 19th century. Almost 4/5ths of the world’s coffee supply came from Brazil. Profits were high, and consumption was booming.

However, coffee production required intensive – and expensive – hand labor, and as the century turned, supply surpassed demand due to a bumper crop and prices dropped sharply. Attempting to rectify the situation, the states of São Paulo, Minas Gerais, and Rio de Janeiro agreed on a valorization program: they would reduce production and purchase their own coffee surplus to artificially inflate prices. By the end of 1907, São Paulo had bought 8.3 million bags of coffee and incurred a large debt, and much of 1908 was dedicated to finding a way out of the valorization scheme without resorting to bankruptcy.

Although this first valorization only succeeded in preventing prices from falling further, a second valorization program in 1917, this time spearheaded by the federal government was hugely successful. Between this program and wartime exports, capital was once again
rolling in, and production was beginning to shift towards something more friendly to mass demand.

Kings of Industry (1937-2019)

The 20th century was a tumultuous time for Brazil, Latin America, and the world at large. After clambering out of the 1930s crisis, with political power changing hands and World War II looming, Brazil sought ways to increase production and agricultural education. A partnership with the United States – part of Roosevelt’s ‘Good Neighbors’ policy – provided the means for both. Industrialization, once seen in only a few areas to assist with urban food supply, became the name of the game. In a matter of decades, rather than hundreds of years, Brazil vaulted from agrarian, subsistence farming to a position as one of the foremost food producers in the world.

Fordism, the system of mass-production pioneered by Henry Ford, found welcoming arms in Brazil. Although Fordlândia, the Amazonian town Ford founded in an attempt to bypass the British rubber monopoly, failed to take root, embracing Fordism itself helped Brazil propel towards industrialization. Agriculture and agro-industry were dependent on imported equipment – process equipment like pasteurizers, tanks, and creamers weren’t produced in Brazil until the 1950s – but in the post-war years, favorable government policies, an interest in finding cheaper, more efficient methods of production, expanded sources of capital, and changing consumption patterns launched new areas of food industry and opportunities for industrialization.

Equipped with new strategies, equipment, and education, Brazil did in a few decades what takes most developed countries a century or longer: it progressed from a country dependent on importing food to one feeding a large percentage of the rest of the world. And at the turn of the new century, it was well-positioned for yet another evolution: this time transforming from an exporter of tropical agricultural products to a major global supplier of commodities.

The success of this new model is clear when we look at the growth of Brazil’s food market revenue, which nearly tripled between 2010 and 2021, when it reached R$922B, among the highest grossing in the world.

---

Breadbasket of the World

Even without food processing included, agriculture has long been foundational to Brazil’s economy. Brazil dominated in the coffee, sugarcane, and tobacco markets, but as the 20th century continued and industrial processing took hold, they’ve been joined by soybeans, beef, nuts, crop based ethanol and more.

Cocoa

Until the late 1980s, cocoa was one of Brazil’s main exports. But an influx of witch’s broom, a fungus which attacks the cacao trees and rots them from the inside out, devastated the crops in Bahia for a full decade, resulting in crippling job loss and an exodus into the nearby cities. Interestingly, witch’s broom does occur naturally… some 1,200 miles away in the Amazon rainforest. After several farms reported finding branches infected with witch’s broom tied to their cacao trees, it became clear the fungus hadn’t traveled that far on its own but rather had been planted in an act of agro-terrorism. In 2006, Luiz Henrique Franco Timoteo, a supporter of the leftist Workers’ Party (PT), confessed in a magazine interview to obtaining diseased branches and tying them to a few cacao trees. His goal was to hurt the very wealthy who benefited from cocoa production while shifting power to the lower-class workers who toiled to harvest the crops, but he hadn’t expected the widespread destruction that followed. Whether this admission of guilt is true or not, it can’t be denied that cocoa production in Bahia took a devastating hit from which it still has not recovered.

---

Contending with COVID (2020-2022)

In 2020, thanks to industrial production methods, a naturally beneficial climate, and 55,762,000 hectares of arable land – the most of any country in the world– Brazil was the world’s 4th largest food producer, feeding 10% of the world’s population. And then COVID-19 hit. Like other countries, Brazil struggled with supply chain and labor issues through the height of the pandemic. Restricted access to fresh food procurement sites like stores and open markets, along with uncertainty about how long the pandemic would last and increased prices, drove consumers to buy convenient, shelf- and freezer-stable processed foods. In the first six months of the pandemic, food industry actors like PepsiCo and Coca-Cola donated medical equipment and processed food, disseminated information on COVID-19, and took measures to protect staff. Incredibly, even though Brazil was the second-worst hit country during the pandemic, the food processing sector registered revenues 16.9% higher in 2021 than in the year before, a whopping R$922.5 billion ($171 billion USD).

Looking Ahead

Sustainability

The pressure that the pandemic put on supply lines caused worry that sustainable initiatives would be left by the wayside, but sustainability is still a priority for food manufacturers in Brazil. Between deforestation, climate emissions, and pesticides, food manufacturers are facing concerns from consumers.

The clean food trend doesn’t stop at natural ingredients on the label; there’s pressure from modern consumers to embrace sustainable production methods and environmental conservation. A push to avoid deforestation as well as conversion and degradation of natural habitats for agriculture or livestock is picking up steam, especially in light of the projected need for a doubled food production by 2050.

Inflation

Inflation, affected by the economic impact of the COVID-19 pandemic, geopolitical issues, the climate crisis, and the global banking situation, affects all stages of food production, from prices of raw materials and services to the final sticker price. Like health and environmental concerns, rising prices affect consumer habits… but they also provide an opportunity for innovation.

Food Trends

Brazil, like the U.S., is seeing a surge in “healthy” foods: juices and smoothies without additives or processed sugar and plant-based protein are growing in popularity, and there’s a conscious effort to balance healthy nutrition with meat consumption. And – like the sourdough explosion in the U.S. – baking took off during the pandemic.

Dairy products – more than plant-based alternatives – are having a moment with Latin American consumers. Soft drinks are still forecasted to remain the largest beverage category in Latin America, with an expected revenue of $52.1B USD in 2030, but the popularity of sugary drinks is declining, due to consumer concerns over sugar-related health issues. And the lifting of lockdown restrictions has had a positive effect on the sales of spirits.

By the Numbers

The food and beverage industry in Latin America is poised to record stable growth over the upcoming five-year period (2023-2028), supported by expanding exports and the region’s growing importance in global food supply chains. However, inflation and decelerating economic growth will impede domestic demand and regional food industry expansion. Latin America’s food market revenue is expected to grow 12.53% annually between 2023 and 2027. Brazil is expected to remain the dominant force in Latin America’s food production industry as meat, vegetable oil, and animal fats production expands to meet rising domestic and overseas demand. Grain production is expected to grow 27% and meat production 24%, while the total planted crop area will increase from 80.8 million hectares to 92.3 million in Brazil over the next ten years (2021- 2031), fueled primarily by increases in domestic consumption. This forecast is favorable for our Dennis Group Brasil office, which is growing at record pace, as they continue to gain new clients and market share in one of Brazil’s most important sectors.