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Food and logistical crisis in Brazil

In late May, the truckers’ strike surprised Brazil, paralyzing the flow of goods, interrupting severely the supply, starting from fuel, which triggered the strike, and, consequently, all other goods, including essential ones, like food, medicines and so on.

 

Production chains in the agriculture and livestock sector – which involves from the farmer up to the consumer, with a vital role played by transportation – were immediately and significantly affected, with production losses, destocking and a sharp increase of inflation, which was under relative control.

 

Statistics that are now available indicate an increase of inflation to consumers (IPCA-15), which can be related to the strike, from 0.14% (from April 15 to May 15) to 1.11% (between May 15 and June 15). As for household food, specifically, it changed from 0.09% to 2.31%. Between these periods, separated by one month, the food consumption may have decreased 0.46%, based on elasticity estimates from Food and Agricultural Policy Research Institute (http://www.fapri.iastate.edu/tools/elasticity).

 

Prices to producers in agriculture and livestock, on the other hand, were reduced by the transportation crisis. Farm gate potato quotes, for instance, dropped 17% from May to June in 2018. Soybean, corn and fed cattle prices received by producers downed from 1.5% to 5% (CEPEA-ESALQ/USP).

 

The situation of farmers is aggravated because, at the same time that output prices were dropping, inputs costs were moving up, due to freight. For fertilizers, the increase of freight values was 82% comparing May and June 2018, considering an average of several regions in Brazil, according to data from Cepea. In the same period, freight for grains upped 33% (Cepea data), which helps to explain decreases of prices paid to producers.

 

The burden of the interruption of transportation and of higher values for freight and fuel is shared between producers and consumers and affects low-income agents more significantly. Large farmers and exports are negatively affected; however, small farmers saw decreases of prices of their products – that is, of the portion that was not spoiled by delayed transportation – and consumers registered a shortage of food, quality decreases and price rises in the retail market.

 

The truckers strike in the case of the agricultural supply chains, objectively, is explained by the impossibility of having food production and consumption at prices compatible with higher fuel prices – diesel prices increased by 17% from May 2017 to May, 2018 (National Oil Agency, ANP). Farm prices would have to get too low and consumers’ prices, too high.

 

This is not a situation that can be solved by fixing national mandatory minimum freight values to incorporate higher fuel prices, without even considering transportation characteristics of each specific region in Brazil. The market – producers and consumers – will hardly absorb this intervention and the proposed freight values system most certainly will not sustain. A long-term problem cannot be solved with short-term measures.

 

The origin of the problem, besides current high oil prices, lies on the fact that transportation is an important item in the supply chain, explaining good part of the gross margin that exists between prices to consumer and to producer. Due to logistical problems, in 2013, Brazil spent almost three times more than the United States in food transportation (according to Consultoria Macrologística – “O Estado de S. Paulo” newspaper – “Logística triplica o custo do alimento”, released on November, 11, 2013). Brazil spent 8% of the food costs to consumer in logistics, while the USA, only 3%. Brazil invested 0.5% of the GDP in logistics, while the US, 4% of the GDP. As a result, Brazilian consumers pay more for food and the country loses competitiveness in external markets.

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