Cepea/USP studies indicate that dollar increases tend to favor agribusiness, which exports far more than it imports, keeping surpluses at least over the last 25 years. For producers, a dollar increase has two effects: it pushes costs due to price rises of imported inputs and increases gross income because it pushes up the revenue of exports converted to Reais (BRL). However, it is known that the revenue increase surpasses cost rises by far.
Since the year 2000, the real dollar value (discounting the Brazilian inflation) has been downing significantly, accumulating, up to 2019, a 50% decrease. This means that dollar rises in Brazil has not followed inflation. In other words, if the Brazilian currency had not valuated in real terms, the revenue obtained with exports converted to BRL would be the double of the current value.
Prices in dollar of Brazilian agribusiness products moved up 124% from 2000 to 2011. Since then, they have been decreasing; however, they are still 53% higher compared to 2000. On the other hand, those values converted to BRL are 27% below quotes in 2000. Still, the agribusiness has been increasing its competitiveness and exporting more and more. Currently, the agribusiness exports a volume 3.6 times higher compared to 2000. This is possible due to the increase in productivity. A study from the Ministry of Agriculture indicates that the agricultural productivity increased 78% from 2000 to 2017, making up for price drops due to dollar valuation.
Summing up, appreciated dollar rates have affected agribusiness, but not to the point of losing competitiveness. As for the Brazilian industry, the scenario is different: higher dollar rates are essential.
What is the trend of dollar quotes from now on?
Predicting or explaining the dollar rate behavior is one of the biggest challenges for economists. The sizable interest rate decrease in Brazil tends to reduce the flow of dollars into Brazil and favors its price increase. In other words, if the scenario is of low interest rates in Brazil, the equilibrium dollar exchange rate will move to higher values, which is something to celebrate. Political, institutional and economic uncertainties also may lead to higher taxes, something to regret. Therefore, for good or bad reasons, several economic sectors in Brazil may have double benefits: lower interest rates in credit and higher dollar rates that favor exports and discourage imports. This is good for the agribusiness and great for the industry – and for the economy in general.
There is a justified fear that dollar rises may take the inflation out of its stabilization route to historically low levels. This is not likely to happen because of the low economic growth and high unemployment rate. The first aspect restrain the transmission of dollar rises to consumers prices. The second makes increases in salaries (costs) very unlikely. Finally the Central Bank has ammunition and weapons to keep the exchange rate not far from equilibrium. All in all, a well behaved dollar rise may favor the Brazilian economic recovery. To agribusiness, specifically, there is nothing to fear regarding dollar higher rates. Brazil´s major concern should focus, therefore, on trade disputes and on the image of Brazil about environmental and health issues.