Voluntary Report - public distribution

**Date:** 1/15/2004

**GAIN Report Number:** BR4602

BR4602

**Brazil**

**Market Development Reports**

**Pet Food Report**

**2004**

**Approved by:**

![](media/image1.wmf)William W. Westman, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Andrea F. Stevenson

**Report Highlights:**

The Brazilian pet population is estimated at 28 million dogs and 12
million cats. The market for pet food has shown an annual growth of 10
to 12 percent, and is expected to remain the same for the next 7 years.
This expectation is based on the fact that 64 percent of the pet owning
population does not feed their animals with prepared food. The import
potential for pet food in Brazil is in the premium and canned foods
sector. Despite the decrease of imports, the United States is still the
major supplier of imported pet food in Brazil.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brasilia \[BR1\]

\[BR\]

###### BRAZILIAN ECONOMIC OVERVIEW

Brazil, like other developing economies, is vulnerable to exchange rate
fluctuations, and large capital inflows and outflows. Intense pressure
on the exchange rate and Brazil's high debt to GDP ratio exacerbates
this situation. If investors lose confidence, the flows register a
downward trend, weakening the local currency, which leads investors to
limit lending. Therefore, the cost of money increases. A reduction in
the dependence on foreign capital seems desirable; however, for the
foreseeable future, Brazil will continue to rely on foreign investment.
For now, the Brazilian economic and political outlook is guardedly
optimistic. Though Brazil's new president Luiz Ignacio Lula da Silva,
known as Lula, hails from Labor Party, he continued the sound
macroeconomic policies of his predecessor, Fernando Henrique Cardoso,
since taking power in January 2003. In addition, Lula has shown an
ability to press forward with reforms in the Brazilian Congress, which
at least in the short run is more likely to ensure growth and expand tax
revenues.

In 2002, according to the Brazilian Institute of Geography and
Statistics (IBGE), GDP totaled R\$1.32 trillion, 1.5 percent growth
compared to 2001. The modest economic growth of 2002 and into 2003 has
been, to some extent, due to uncertainties with the new government,
impacting the exchange rate and the official interest rate -- SELIC --
which equalizes interest rates applied to the local market. The
depreciation of the local currency over the past five years has clearly
affected Brazil's imports. In January 2002 the dollar was trading at
US\$1=R\$2.6, but by December 2002 the exchange rate had reached
US\$1=R\$3.7, with SELIC climbing from 19 percent to 25 percent in the
same year. However, as of early December 2003, the SELIC had decreased
16.5 percent and the exchange rate to US\$1=R\$2.92

# Economic Indicators

+-----------------+---------+-------+-------+-------+-------+-------+
|                 | *       | **1   | **2   | **2   | **2   | **200 |
|                 | *1998** | 999** | 000** | 001** | 002** | 3\*** |
+-----------------+---------+-------+-------+-------+-------+-------+
| GDP Growth (%)  | 0.1     | 0.9   | 4.0   | 1.5   | 1.5   | 0.5   |
+-----------------+---------+-------+-------+-------+-------+-------+
| Inflation (%)   | 1.7     | 8.9   | 6.0   | 7.7   | 12.5  | 9.6   |
|                 |         |       |       |       |       |       |
| (IPCA/OBGE)     |         |       |       |       |       |       |
+-----------------+---------+-------+-------+-------+-------+-------+
| Average         | 1.16    | 1.81  | 1.83  | 2.35  | 2.96  | 3.10  |
| Exchange        |         |       |       |       |       |       |
|                 |         |       |       |       |       |       |
| Rate (R\$/US\$) |         |       |       |       |       |       |
+-----------------+---------+-------+-------+-------+-------+-------+
| Total Exports   | 51.1    | 48.1  | 55.0  | 58.2  | 59.6  | 72.0  |
|                 |         |       |       |       |       |       |
| (US\$ billion)  |         |       |       |       |       |       |
+-----------------+---------+-------+-------+-------+-------+-------+
| Total Imports   | 57.5    | 49.2  | 55.7  | 55.5  | 55.3  | 48.0  |
|                 |         |       |       |       |       |       |
| (US\$ billion)  |         |       |       |       |       |       |
+-----------------+---------+-------+-------+-------+-------+-------+

**Sources**

 Brazilian Ministry of Development, Industry, and Commerce
(MDIC)/Secretariat of Foreign Trade (SECEX) -- Trade databases
(1998-2002)

 Brazilian Institute of Geography and Statistics (IBGE) (1998-2002)

 Brazilian Central Bank trade data

 Current Analysis

\* Projections for 2003 are taken from the Central Bank of Brazil (FIPE)

###### TRENDS IN BRAZILIAN PET FOOD PRODUCTION AND MARKET

The Brazilian Pet Food Manufacturers Association (ANFAL) only started
compiling statistics on the Brazilian pet food production separately
from other animal feed in 1995. According to ANFAL, the pet population
in Brazil is estimated at 28 million dogs and 12 million cats. This
population is increasing, as small pets become more popular. The two
main reasons for the growth are the increasing proportion of Brazilians
living in apartments and the use of small pets for companionship of
older people. However, only 36 percent of the Brazilian pet population
is fed with prepared pet food. The industry's goal is to achieve 50
percent of the potential consumption. This goal is based on the premise
that 50 percent of Brazilians who own pets have the income to purchase
pet food

The Brazilian market for pet food has shown an annual average growth of
10 to 12 percent in the past 5 years. The local industry believes that
if the country's financial situation doesn't register any dramatic
change in the upcoming years, the annual growth should remain the same
for the next 7 years. It is estimated that by the year 2010, 45 percent
of the Brazilian pet population will only be fed with prepared pet food.
At that point, Brazil will place third in the world estimates of pet
food consumption, after England with 70 percent of their pets only being
fed with pet food, and the United States, with 55 percent.

Brazilian domestic pet food production in 2002 was 1.23 million tons.
The 2003 forecast production is 1.3 million tons, or US\$651 million.
Brazil is the first producer of pet food in Latin America with a share
of 48.4 percent of the total production, and third in the world, after
the United States and China. Total Brazilian consumption is estimated at
3.2 million tons, and expected to increase in 2003. It is also
considered the world's third largest market for pet food. Consumption is
concentrated in the Southeast region, with 43 percent of the total
country consumption; the Northeast region comes in second, with 28
percent, followed by the South, Center-South, and North regions, with
respective shares of 15, 7, and 7 percent.

The local market is comprised of many companies, rather than a few large
players, since the big companies cannot avoid paying high production and
commercial taxes, like the smaller ones, which makes the competition
unbalanced. Accounting for 47 percent in value, the amount of taxes
incurred by pet food products continues to represent a barrier that
keeps manufacturers from reaching 1.6 million tons of pet food
production. Considering that Brazilian consumers are highly price
sensitive, Brazilian trade associations such as ANFAL are working with
the Brazilian government in an effort to cut taxes in half.

The main Brazilian manufacturers are Nutriara, Nestlè, and Effem. In
2001, Nestlè acquired Ralston Purina, which was the number one Brazilian
manufacturer of pet food. With an investment of approximately US\$10
billion and the consequent inclusion of the successful Purina products
to its portfolio, Nestlè became the market leader, followed by Effem and
Nutriara. Following is a list of the main Brazilian manufacturers and
their products.

+-----------------------------------+-----------------------------------+
| # BRAND                           | # PRODUCT                         |
+-----------------------------------+-----------------------------------+
| NUTRIARA                          | **DOGS -** Dogui, Dogui Jr., Dog  |
|                                   | Show (adult and puppies), Dog     |
|                                   | Show Gourmet, Dunga, Foster       |
|                                   | (original, junior, and mix),      |
|                                   | Pitukão, and Pitukinha (for       |
|                                   | puppies)                          |
|                                   |                                   |
|                                   | **CATS --** Gatto (beef, liver,   |
|                                   | and fish), Pitukats (beef,        |
|                                   | chicken, fish, and mix)           |
+-----------------------------------+-----------------------------------+
| NESTLÈ / RALSTON PURINA           | **DOGS --** Pro Plan, Beneful,    |
|                                   | Alpo, Bonzo, Canina, Deli Dog,    |
|                                   | Dog Biscuits                      |
|                                   |                                   |
|                                   | **CATS --** Pro Plan, Friskies,   |
|                                   | Cat Chow, Gatsy, Fancy Feast, Cat |
|                                   | Snacks                            |
+-----------------------------------+-----------------------------------+
| EFFEM                             | **DOGS --** Pedigree (beef,       |
|                                   | vegetables, marrowbone), Pedigree |
|                                   | Jr., Pedigree Small Breeds,       |
|                                   | Pedigree Senior, Pedigree         |
|                                   | Biscuits, Frolic (barbecue,       |
|                                   | chicken, vegetables),             |
|                                   |                                   |
|                                   | Frolic Jr., Frolic Snack          |
|                                   |                                   |
|                                   | **CATS --** Whiskas               |
+-----------------------------------+-----------------------------------+
| GUABI                             | **DOGS --** Receitas da           |
|                                   | Natureza(Nature's Recipes),       |
|                                   | Heroi, Heroi Mascote (puppies),   |
|                                   | Sabor Vida, Biriba, Faro, Fiel,   |
|                                   | and Gorjeio.\\                    |
|                                   |                                   |
|                                   | **CATS --** Top Cat, Cat Meal,    |
|                                   | Limpi Cat                         |
+-----------------------------------+-----------------------------------+

Despite the economic difficulties, the market for commercially
manufactured pet food over the long term is still attractive in Brazil
and has room for expansion, particularly since 64 percent of the
pet-owning population does not feed their animals with prepared pet
food. Niche opportunities for imports remain in the premium pet food
sector for dogs and cats, for regular and canned cat food, and for
therapeutic foods for dogs and cats since most of these categories of
pet food consumed in Brazil are imported.

Both ANFAL and the pet food manufacturers agree that the premium pet
food sector has shown a sharper rate of growth, compared to regular pet
food. The largest market share is held by economy brands, which account
for an estimated 46 percent. The next largest is the standard dry
products which typically are sold at hypermarkets, supermarkets, and
animal feed stores, estimated at 39 percent of the market. Demand for
canned products is low because of higher costs compared to dry pet
foods.

### MARKETING ACTIVITIES

Marketing efforts are aimed at veterinarians, who are recommending to
customers the use of prepared pet food rather than home made food, as in
the past. Marketing activities are mostly held at pet shops and at some
veterinarian clinics that specialize in small animals, in an effort to
educate pet owners about the nutritional value of prepared foods

The top Brazilian pet food manufacturers that target the higher income
public are promoting their products at alternative events, such as
fashion shows and interior design events. According to them, pet owners
tend to transfer their own life styles to their pets, and the best way
to make these consumers familiar with the brands is to associate it with
situations that represent their life styles, such as beauty,
sophistication, and modernism. Other companies are using sports events
to market their brands, by sponsoring local teams. During those events,
they use the breaks of the games for presentations with pets.

These marketing activities are expected to stimulate sales growth, which
is expected to increase by 12.9 percent annually over the next several
years.

THE BRAZILIAN MARKET FOR IMPORTED PET FOOD

Import potential for pet food in Brazil is small and mainly restricted
to the premium, super premium, therapeutic, and canned food sectors. It
represents only 2 percent of the total consumption. In the past years,
imports of dog and cat food accounted for 7 to 8 percent of the total
consumption. However, most exporters found it more profitable to
establish their factories in Brazil, or in South America in general,
where material and work force is cheaper.

Despite the decrease of imports of pet food, the United States is still
the major supplier of imported pet food to Brazil, placing first among
other exporters.

TOTAL IMPORTS OF PET FOOD X IMPORTS FROM THE U.S.,

IN VOLUME (Metric Tons) \*

+-----------------+-----------------+-----------------+-----------------+
|                 | # TOTAL         | # U.S. IMPORTS  | # U.S. SHARE    |
+-----------------+-----------------+-----------------+-----------------+
| **2000**        | 7,228           | 5,726           | 79%             |
+-----------------+-----------------+-----------------+-----------------+
| **2001**        | 5,491           | 4,999           | 91%             |
+-----------------+-----------------+-----------------+-----------------+
| **2002**        | 5,099           | 4,759           | 93%             |
+-----------------+-----------------+-----------------+-----------------+
| **2003**        | 4,548           | 1,511           | 33%             |
+-----------------+-----------------+-----------------+-----------------+

![](media/image2.wmf)

## 

## 

## TOTAL IMPORTS OF PET FOOD X IMPORTS FROM THE U.S.,

## IN PRICE (US\$ FOB) \*

+-----------------+-----------------+-----------------+-----------------+
|                 | # TOTAL         | # U.S. IMPORTS  | # U.S. SHARE    |
+-----------------+-----------------+-----------------+-----------------+
| **2000**        | 6,447           | 5,424           | 84%             |
+-----------------+-----------------+-----------------+-----------------+
| **2001**        | 4,953           | 4,443           | 90%             |
+-----------------+-----------------+-----------------+-----------------+
| **2002**        | 4,657           | 4,177           | 90%             |
+-----------------+-----------------+-----------------+-----------------+
| **2003**        | 4,127           | 1,352           | 33%             |
+-----------------+-----------------+-----------------+-----------------+

![](media/image3.wmf)

> **\* - SOURCE** -- Brazilian Ministry of Development, Industry, and
> Science

DISTRIBUTION CHANNELS

Supermarkets and hypermarkets have been showing a constant growth in
their share of pet food sales. They are the preferred channels for
purchases of mid-priced and economy pet food. These stores are
responsible for a 40 percent share of the national retail sales of dog
food and 39 percent of cat food, because of the wide range of variety
found is those stores, and the convenience that they offer. Other places
for distribution of pet food are pet shops, veterinary clinics, and
animal feed stores, where premium, imported and therapeutic foods can be
found. Those establishments are responsible for 19 percent of both dog
and cat food. Pet food is mostly consumed in the South and Southeast
regions of Brazil (states of São Paulo, Rio de Janeiro, Minas Gerais and
Espírito Santo), due to the higher income in these regions. These
regions are the best markets for imported foods for this same reason.

Prices among national brands are very competitive, while imported
products cost almost three times as much. This is the main reason
claimed by most supermarkets not to carry imported brands, as they
prefer to keep their prices lower and competitive.

PACKAGING AND LABELING

In general, packaging for the retail consumer is more elaborate in
Brazil than in other South American countries. Packaging from the United
States is well accepted by Brazilian consumers. U.S. exporters should be
aware that the preferred type of packing is individual and small-size
packs, due to consumer preference and higher prices of imports.

Brazilian regulations require that all food products provide precise,
clear, and easily readable information in Portuguese about the product,
including quantity in metric measurements, composition, expiration date
(shelf life or best-if-used-by), and country of origin. If no original
label is designed for the Brazilian market, it is customary for the
importer to affix a label in Portuguese with the translation of the
original label in English.

Products containing more than 1 percent of Genetically Modified
Organisms (GMOs) in its ingredients, must also show this information on
the label, and carry the Brazilian symbol for transgenic products.

The Brazilian importer must be formally registered with the Brazilian
Ministry of Agriculture, Livestock, and Food Supply (MAPA), and will be
responsible for registering the product to be imported, its original
label, its translation, and will have to file a descriptive memorandum
of the product, with all of its technical and nutritional information.
Those are all requisites for the importation of pet foods. Each label
and product to be imported has to be registered individually.

OAA Brasilia advises U.S. exporters interested in doing business with
Brazil to check with the Brazilian authorities or a local consultant on
the status of the legislation and technical regulations in place, or
advise their importers to do so, prior to shipping their products
Brazil.

COMPOSITION AND QUALITY -- GUARANTEE LEVELS

The Brazilian Ministry of Agriculture, Livestock, and Food Supply
(MAPA), through the Normative Instruction Number 009, dated July 9, 2003
determines the identity and quality standards (guarantee levels) for
complete and special dog and cat food. These standards must be observed
in order to have complete and special dog foods registered with MAPA.
The "Special" category refers to dog and cat snacks and biscuits.
According to the mentioned regulation, the guarantee levels must also
appear on the product label, as well as all the specific nutrients
associated to the denomination indicated or its components.

I- NUTRITIONAL VALUES FOR:

1\. Complete Dog Food -- Puppies (%)

  -------------------- -------------- ----------------- -----------------
                       Dry Foods      Semi-Humid Foods  Humid Foods

  Humidity (max)       12.0           30.0              84.0

  Gross protein (min)  22.0           18.0              4.0

  Ethereal extract \*  7.0            6.0               1.3
  (min)                                                 

  Fibrous material     6.0            5.0               2.0
  (max)                                                 

  Mineral material     12.0           10.0              2.5
  (max)                                                 

  Calcium (max)        2.0            1.6               0.4

  Phosphorus (min)     0.8            0.6               0.1
  -------------------- -------------- ----------------- -----------------

\* - The determination of the ethereal extract must be previously
submitted to a acidic hydrolysis.

2\. Complete Dog Food -- Adult Dogs (%)

  -------------------- -------------- ----------------- -----------------
                       Dry Foods      Semi-Humid Foods  Humid Foods

  Humidity (max)       12.0           30.0              84.0

  Gross protein (min)  16.0           13.0              3.0

  Ethereal extract \*  4.5            3.6               1.0
  (min)                                                 

  Fibrous material     6.5            5.2               2.0
  (max)                                                 

  Mineral material     12.0           10.0              2.5
  (max)                                                 

  Calcium (max)        2.4            2.0               0.4

  Phosphorus (min)     0.6            0.5               0.1
  -------------------- -------------- ----------------- -----------------

\* - The determination of the ethereal extract must be previously
submitted to a acidic hydrolysis.

3\. Complete Cat Food -- Kittens (%)

  -------------------- -------------- ----------------- -----------------
                       Dry Foods      Semi-Humid Foods  Humid Foods

  Humidity (max)       12.0           30.0              84.0

  Gross protein (min)  28.0           23.0              5.3

  Ethereal extract \*  8.0            6.5               1.5
  (min)                                                 

  Fibrous material     4.5            3.6               2.0
  (max)                                                 

  Mineral material     12.0           10.0              2.5
  (max)                                                 

  Calcium (max)        2.0            1.6               0.4

  Phosphorus (min)     0.8            0.6               0.1
  -------------------- -------------- ----------------- -----------------

> \* - The determination of the ethereal extract must be previously
> submitted to a acidic hydrolysis

4\. Complete Cat Food -- Adult Cats (%)

  -------------------- -------------- ----------------- -----------------
                       Dry Foods      Semi-Humid Foods  Humid Foods

  Humidity (max)       12.0           30.0              84.0

  Gross protein (min)  24.0           19.0              4.4

  Ethereal extract \*  8.0            6.5               1.5
  (min)                                                 

  Fibrous material     5.0            4.0               2.0
  (max)                                                 

  Mineral material     12.0           10.0              2.5
  (max)                                                 

  Calcium (max)        2.4            2.0               0.4

  Phosphorus (min)     0.6            0.5               0.1
  -------------------- -------------- ----------------- -----------------

\* - The determination of the ethereal extract must be previously
submitted to a acidic hydrolysis

5\. Special Dog Food (%)

  ------------------- --------- ---------------- ------------- ------------
                      Dry Foods Semi-Humid Foods Humid Foods   Liquid Foods

  Humidity (max)      12.0      30.0             84.0          95.0

  Gross protein (min) 7.0       5.6              1.3           0.4

  Ethereal extract \* 4.0       3.2              0.7           0.3
  (min)                                                        

  Fibrous material    26.0      21.0             5.0           1.5
  (max)                                                        

  Mineral material    12.0      10.0             2.5           0.7
  (max)                                                        

  Calcium (max)       2.5       2.0              0.5           0.2

  Phosphorus (min)    0.1       0.08             0.02          0.02
  ------------------- --------- ---------------- ------------- ------------

\* - The determination of the ethereal extract must be previously
submitted to a acidic hydrolysis

6\. Special Cat Food (%)

  ------------------- --------- ---------------- ------------- ------------
                      Dry Foods Semi-Humid Foods Humid Foods   Liquid Foods

  Humidity (max)      12.0      30.0             84.0          95.0

  Gross protein (min) 24.0      19.0             4.4           1.4

  Ethereal extract \* 7.0       5.6              1.3           0.4
  (min)                                                        

  Fibrous material    16.0      13.0             3.0           1.0
  (max)                                                        

  Mineral material    12.0      10.0             2.5           0.7
  (max)                                                        

  Calcium (max)       2.5       2.0              0.5           0.2

  Phosphorus (min)    0.3       0.2              0.02          0.02
  ------------------- --------- ---------------- ------------- ------------

> \* - The determination of the ethereal extract must be previously
> submitted to a acidic hydrolysis

II -- CALORIC VALUES FOR SPECIAL FOODS FOR:

1\. Adult Dogs (%)

+-----------------------------------+-----------------------------------+
| Denomination                      | Caloric Value                     |
+-----------------------------------+-----------------------------------+
| Light; Low Calories, Reduced      | Maximum of 3,100 Kcal/Kg for      |
| Calories, Low Energy, Low Fat     | foods formulated with up to 12%   |
|                                   | humidity.                         |
|                                   |                                   |
|                                   | Maximum of 900 Kcal/Kg for foods  |
|                                   | formulated with more than 65%     |
|                                   | humidity                          |
|                                   |                                   |
|                                   | Level of ethereal extract --      |
|                                   | maximum of 10%                    |
+-----------------------------------+-----------------------------------+

2\. Adult Cats (%)

+-----------------------------------+-----------------------------------+
| Denomination                      | Caloric Value                     |
+-----------------------------------+-----------------------------------+
| Light; Low Calories, Reduced      | Maximum of 3,250 Kcal/Kg for      |
| Calories, Low Energy, Low Fat     | foods formulated with up to 12%   |
|                                   | humidity.                         |
|                                   |                                   |
|                                   | Maximum of 950 Kcal/Kg for foods  |
|                                   | formulated with more than 65%     |
|                                   | humidity                          |
|                                   |                                   |
|                                   | Level of ethereal extract --      |
|                                   | maximum of 10%                    |
+-----------------------------------+-----------------------------------+

IMPORT REGULATIONS AND DUTIES

The Brazilian import duty for dog and cat food is 15.5 percent. Products
from MERCOSUL member countries (Argentina, Uruguay and Paraguay) are
duty free and Chile, an associate country, enjoys preferential access.

USEFUL ADDRESSES:

**ANFAL - National Feed Manufacturers Association**

Rua Claudio Soares, 160

Bairro Pinheiros

05422-030 São Paulo - SP

Tel./Fax: (55 11) 3031-3933

**ANCLIVEPA - São Paulo Association of Veterinarian Clinics for Small
Animals**

Av. Helade, 205 - sala 04

04634-000 São Paulo - SP

Tel.: (55 11) 5564-6351

**Ministerio da Agricultura, da Pecuária e do Abastecimento - MAPA**

SDR/DFFPA/CGPA

Esplanada dos Ministerios, Bloco D

2o andar, sala 251

70044-901 Brasilia - DF

Attention: Sr. Francisco Pereira de Lucena

Tel.: (55 61) 218-2720 / 218-2307 Fax: (55 61) 218-2727 / 321-4524

# Pet Food, Health & Care Magazine

Diretoria de Alimentos para Animais de Estimação

Rua Claudio Soares, 160 - Pinheiros

05422-970 Sao Paulo - SP

Tel/Fax: (55 11) 3815-9396 / 3037-7244

#### USDA IN BRAZIL

#### Office of Agricultural Affairs -- OAA/Brasilia

U.S. Embassy, Brasilia, Brazil

SES -- Av. das Nações, Quadra 801 -- Lote 03

70403-900 Brasília, Brazil

Tel.: (55 61) 312-7101

Fax: (55 61) 312-7659

e-mail: <AgBrasilia@usda.gov>

#### Agricultural Trade Office -- ATO São Paulo

Alameda Santos, 2224

Edifício Suarez Trade, Conj. 11

01418-200 São Paulo - SP

Tel.: (55 11) 3082-3528

Fax: (55 11) 3083-7535

E-mail: [ATOSaoPaulo@usda.gov]{.underline}