Feeding China

Brazil's agriculture continues to feed China.

At the turn of the year, the Financial Times (FT) wrote an article entitled, “Food price rally sparks warnings of pressure on developing countries.” Unfortunately, the only mention of Latin America was to say that dry weather in Brazil and Argentina had affected grain supply. It is not as simple as this and our sources in Brazil certainly do not seem distressed.

An executive of a large agricultural business told us, “High prices for many commodities have helped Brazilian farmers to deliver a good 2020, mainly due to the devaluation of the BRL, making our commodity exports competitive.”

A commodities analyst in Brazil counters, “Yes, exports were helped by the currency devaluation but it works both ways, Brazil imports fertiliser and other basic items are becoming more expensive. Overall, agriculture is a net beneficiary but there are challenges too.”

The FT article pointed to China’s increasing demand for food as one of the reasons behind price increases. The commodities analyst provides a local perspective, “Brazil and China broke USD 100 billion trade last year and Brazil has a USD 35 billion surplus. This creates winners and losers: we import rice and garlic and the prices have gone up. We even now import beans – remember the main items of the Brazilian diet are rice and beans!”

“Brazil and China broke USD 100 billion in trade last year and Brazil has a USD 35 billion surplus.”

Commodities analyst, Brazil

A profitable agricultural sector in the midst of the COVID-19 pandemic didn’t escape the notice of politicians in Brazil, especially state politicians. An industry observer comments, “The Governor of Sao Paulo attempted to increase taxes on some agricultural products, specifically VAT was to be levied on some products that had been exempt for over 20 years, this wasn’t well-received and the demonstrations started. They might have looked bad, but remember this is Brazil, people like to make a point.” The Governor quickly back-tracked.

At a federal level Teresa Cristina, the Minister of Agriculture, is well liked and respected – she came from the industry, there doesn’t seem to be much of an issue with her policies. The primary concern of our industry sources is Jair Bolsonaro’s attitude towards China, “The primary buyer of Brazil’s agricultural produce is China, Bolsonaro had followed Trump’s stance with China, and that was a problem, but with Trump gone we hope the position with China softens.”

“Despite high prices, droughts, logistics etc, the fact that we’re exporting so much to the Chinese more than compensates.”

Agricultural executive, Brazil

Adverse weather is a problem, as the FT article briefly mentioned discussed, but the sector has survived dry years before and the impacts are not catastrophic. At present, our sources seem mainly concerned with political and financial issues although logistics is an increasing problem as one large land owner describes, “Logistics are terrible in Brazil, especially for soybean and cotton. We hope the railway projects will allow us to increase production and benefit from the better distribution and logistics.”

The agricultural executive concludes, “Despite high prices, droughts, logistics etc, the fact that we’re exporting so much to the Chinese more than compensates.”

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