São Paulo – As Brazil plods through technical recession days, one of the oldest activities in the country still has some good news to break out. It’s agribusiness, whose Gross Domestic Product (GDP) climbed 1.8% in the second quarter of this year from a year ago, while the Brazilian economy shrank 2.6%. These are calculations from the Brazilian Institute of Geography and Statistics (IBGE), which only considers farming and livestock. If industrialization and distribution are factored in, as other institutes do, the picture takes a turn for the worse, and yet remains almost buoyant in contrast with what industry is experiencing.
What makes for the difference between the farm and the factory? Topical factors are fuelling performance, but specialists remember the homework agribusinessmen have done throughout the years. “This is a sector that made heavy investments in the past 30 years,” says the economist at consulting firm Tendências Consultoria Integrada, Amaryllis Romano. She notes that the shift toward the private sector and research efforts have led to high yields for products such as soy, coffee, sugarcane and maize.
The coordinator of the Economic Department of the Brazilian Agriculture and Livestock Confederation (CNA), Renato Conchon, also points to an innate vocation for agribusiness and land and labor availability as contributing factors. He also claims the international prices of agricultural commodities, which remain at historically high levels, are propelling the sector forward. “The ongoing slump in Brazil is largely owed to industry,” says Conchon regarding the economy as a whole.
Who are the harbingers of good news in the countryside? Producers of sugar, coffee, pulp and paper and meat. These are the sectors that are doing well, according to the CNA executive. Amaryllis Romano also mentions livestock farming, where the number of animals slaughtered is poised to go down this year, but meat prices are set to go up. The Macroeconomics researcher from the Center for Advanced Studies on Applied Economics (Cepea) at the Luiz de Queiroz College of Agriculture (Esalq) of the University of São Paulo (USP), Adriana Silva, also singles out livestock as a subsection of agriculture that’s doing fine.
The nominal prices of beef (not adjusted for inflation) soared 21% from January to May this year from a year ago, according to numbers from the Cepea. Prices also climbed 3.5% for sugarcane and 13% for coffee. Conversely, prices went down 1.5% for poultry, 2% for pork, 8% for soy and corn, 22% for wheat and 11% for cotton. Considering these, Silva posits that generally speaking, prices are at a lower level.
Cepea partners up with the CNA for a survey of agribusiness GDP that comprises not only crops and livestock, i.e. the primary sector, but also inputs production, industry, and distribution. This scenario is not as heartening as from the farm gate on in. The survey shows that year-to-date through May, the GDP edged down 0.23% from 2014.
Adriana Silva says the agribusiness outlook is an uncertain one, and it hinges on exchange rate fluctuations and on China’s growth as a consumer market. “A significant portion of production is sold abroad, the exchange rate encourages exportation,” she says regarding the fact that the US dollar is strong right now in Brazil, and this gives the product more overseas competitiveness. The same applies to inputs purchases, which are made in dollars. Fertilizers become more expensive to the farmers. The slowdown in China can also get in the way for farmers and breeders. “Most of our soy exports go to China,” the researcher remarks.
Amaryllis Romano doesn’t believe that the Chinese economy, which is poised to grow less than expected this year, will greatly affect the sector. She says that as a result, commodities prices had already been going down for some time. She believes the price of soy, for instance, will not drop sharply because of China.
The CNA’s Renato Conchon calculates the weight of the dollar on the purchases of agricultural producers and believes that at current levels, the currency gets in the way of profit levels. He recalls that in 2014, farmers bought their inputs around halfway through the year, with the dollar going for R$ 2.3 to R$ 2.6, and sold their harvests early on this year, with the American currency selling for R$ 3.2. “The profitability was good.”
For the next crop, they are buying inputs on a strong dollar and doesn’t know where that will be when the time comes to sell. “If it’s lower than R$ 3.20 or R$ 3.30, that’s worrisome, because profit levels will be lower and producers will be at risk of going into debt,” he says. According to CNA numbers, from July 2014 to July 2015, prices went up 33% for wheat fertilizers, 16% for soy insecticides, and 12% to 15% for diesel.
Other comparisons
Although the agriculture GDP increased in quarter two from a year ago, it went down 2.7% if compared to the previous three months. The reason for this is the fact that in the first quarter, GDP rose 4.7% from the preceding three-month period. The Brazilian economy as a whole shrank 1.9% in the second from the first quarter. Industry struggled the most, with a 4.3% decline, with services shrinking only 0.7%.
*Translated by Gabriel Pomerancblum