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Agribusiness, domestic and international crises: challenges and opportunities*

There is great interest worldwide in how the Brazilian agribusiness will react to the crisis that Brazil is currently undergoing. How dependent is the agribusiness on the government support and how will it face fiscal constraints that may linger for several years? Another issue that has raised concerns is the impact that a possible slowdown of China’s economic growth may have on the Brazilian agribusiness. Having China as the major destination of its exports, how would the Brazilian agribusiness react to a decrease of demand, mainly for soybean?

 

As for fiscal issues, it is worth noting that, first and foremost, the support received by the agribusiness is not significant enough for the sector to be significantly affected by fiscal constraints, provided that investments in science and technology and policies of risk management, climate changes, low carbon agriculture and health aspects, for instance, are kept. After the 1980’s, the protection level and public support to Brazilian farming decreased to the lowest global levels. One vital aspect for the agribusiness, however, is infrastructure, which is not included in agricultural applications in the public counts, demanding considerable investments for which the government does not have the resources. The solution here is the design of new models involving the private sector that overcome obstacles that these initiatives have been facing.

 

Regarding changes in the international market, the Brazilian agribusiness must be aware of threats and opportunities that might emerge from the new configuration of world trade standards, mainly those related to the repositioning still unpredictable of the United States under Trump’s administration. The possible slowdown of China may not be as severe as expected and the country may continue a major destination of Brazilian exports. Besides, agribusiness has been showing resilience to changes in market conditions. The sector keeps a long-term perspective, continuously struggling for productivity and efficiency, which has guaranteed a sustainable growth in decades without causing pressure on relative prices in the domestic market and thus on inflation. The trend is that, having a reasonable increase in the international market, the sector will continue viable, ensuring supply to the domestic market in the process. In other words, recession has reached the sector, as a rule, in a bearable way in the short-term. Weather, pests and diseases are the aspects that threaten the sector the most. The expected growth in the current crop is real. Obviously, current perspectives of any recovery of the Brazilian economy are welcome for agribusiness.

 

It is never late to highlight that the agribusiness plays important roles for the Brazilian society, which does not occur in more developed economies with which Brazil competes in the international market. As Brazil is a country with medium income and high concentration of income and poverty, an efficient agribusiness, which produces increasing volumes at stable or decreasing prices, as is the case in Brazil, is an essential tool to make polices for income distribution and salary transference effective. It is worth noting that the poverty rate in the rural area is practically twofold that in Brazil as a whole, an issue that must be a priority in the agenda of public policymakers. How to include productively roughly 70% of Brazilian farmers?

 

For the society as a whole, it is important to know that the government allocates the funds and the agribusiness helps to transform the investments into income (purchasing power). In Brazil, the agribusiness also accounts for 21% of the GDP and 21% of jobs nationwide, having a non-negligible potential to help recover the economy of the country. The sector is also supplier of indispensable international resources. More than opportunities for employers to earn money, the agribusiness has a social role of highest relevance in Brazil.

 

The substance of this article refers to the presentation of Cepea’s scientific coordinator, Geraldo Barros, which took place on February 23 in the USDA’s 93rd edition of Agricultural Outlook Forum. Geraldo Barros’s lecture is available here. For further information on the event: https://www.usda.gov/oce/forum/

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