Idleness in the Brazilian consumer goods industry

The installed industrial capacity utilization is an important index to assess the performance of the consumer goods industry in Brazil. CNI (the National Confederation of the Industry) CNI - Confedera??o Nacional da Indústria can be pointed out as one of the institutions who research that index in the country.

According to the most recent data referring to December 2022, released by CNI, the capacity utilization in the manufacturing industry in Brazil reached 79.4%. This result indicates a decrease over the same period in 2021, when the capacity utilization rate reached 81.4%.

In my view, we can understand the decrease of the consumer goods industry movement over last year as a consequence of the installed capacity increase inside some sectors throughout 2021.

Based on the demand for consumer goods during the pandemic, the pharmaceutical, food and beverage industries increased their production lines. Then, as great as capacity can be, if it is not matched by a corresponding demand, the greater its idleness will be.

Mentioning that the idle capacity widely varies among the different consumer goods industries is also important. In December 2021, for example, the idle capacity in the textile industry rate was 40.2%, while the idle capacity within the food industry rate was only 14.7%.

Such variations on the capacity utilization among the different sectors reflect specific products’ demands and production capacities for every company. Sectors such as food, for instance, were less affected by the pandemic and continued to have a high demand for their products, while sectors such as the textile industry were more affected by the economic crisis and by the drop in the demand for their products. They haven’t even yet recovered their pre-covid-19 level.

In summary, CNI data on industrial capacity utilization with regards to the consumer goods industry in Brazil indicate a gradual recovery in the sector. The variation in the capacity utilization among the different segments also shows that each sector has its own particularities and specific challenges, which require customized public policies and business strategies.

How can industries improve their idleness rates?

1. Product diversification – meet broader consumer demands with line extensions.
2. Investment in technology – increased productivity can reduce setup time and overall efficiency of production lines.
3. Improved production planning – an efficient production planning can help avoid overproduction and underproduction. Efficient planning can include forecasting demand, controlling inventories, and adjusting production according to demand fluctuations.
4. Increased energy efficiency – Reducing energy consumption can help reduce production costs and make the company more competitive.
5. Strategic partnerships with customers – can help predict demands and ensure a steady flow of orders.
6. Co-manufacturing, co-packing, private labeling – producing for third parties is an excellent way to reduce idleness and dilute fixed production costs.

How does CNI calculate the capacity utilization index?

CNI calculates the utilization index of the installed capacity by means of a monthly survey conducted with companies from various sectors of the manufacturing industry in Brazil.

To calculate the index, CNI asks the companies what their total installed capacity is and what capacity is actually being used. Based on the resulting information, a calculation on the capacity utilization rate becomes possible, which is expressed as a percentage.

If a company has an installed capacity of 1,000 production units per month, but is only producing 800 units, for example, the capacity utilization rate is 80% (800/1,000 x 100).

Utilizing the companies’ responses, CNI calculates the weighted average of the capacity utilization rate of every sector, taking into account their influence in the Brazilian economy.

It’s important to highlight that the capacity utilization index does not directly indicate the industrial production or the sector's economic performance. It only indicates how much of the companies' installed capacity is being used at a given moment. However, the index can be an antecedent indicator of industrial production, because, in general, when the capacity utilization increases, production tends to increase as well.

Here, you can access the CNI's historical data series.