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Rice price increases bring relief to producers, but it does not cover losses over the last 5 crops

Research performed by Cepea in a partnership with CNA (Brazilian Confederation of Agriculture and Livestock) indicate that the rice growing in Rio Grande do Sul state registered negative profitability from 2014/15 to 2018/19, and the worst moments were 2017/18 and 2018/19 crops.

 

In 2017/18, despite the good productivity (above historical average), the gross revenue did not cover the Cash Cost (CC), due to low rice quotes in the domestic market. On the other hand, the 2018/19 crop was affected by climate problems at the beginning and at the end of the season, resulting in lower productivity and, in some severe cases, in area losses caused by floods.

 

In the 2019/20 season, after five crops with lower gross revenue compared to total production costs (TC), producers were finally able to pay them. The Cash Costs averaged 7,407.2 BRL per hectare and TC, 9,009.7 BRL/ha, resulting in gross margin of 4,049 BRL/ha and profits of 1,533 BRL/ha. In spite of that, losses registered in previous crops have not been recovered.

 

Over the last five crops (from 2014/15 to 2018/19), producers from Uruguaiana (Rio Grande do Sul) were able to cover Cash Costs, but the Gross Revenue (GR) was not enough to pay neither the depreciation of machinery and equipment in 2017/18 and 2018/19 nor the interest on invested capital in five crops. Moreover, the gross revenue did not cover the total costs of these five crops. This scenario and the high indebtedness ended up affecting producers’ cash flow and transferring debts to next crops.

 

The consequence of this scenario affects the process of obtaining financial resources for the upcoming seasons. As a result, rice growers do not have access (or have limited access) to Plano Safra (a financial resource from the government that offers lower interest rates). This aspect forces producers to look for funding with players at high interest rates and/or to sell a significant part of their production to the industry in advance.

 

Record prices favor only a few rice growers

 

Current prices are at high levels; however, it does not mean that increases have been fully transferred to producers, given that many of them close trades in advance – this trading type has been observed more significantly over the last crops. In the last five seasons, at least one third of rice production has been traded in advance. The other share is traded during the harvest, in order to pay short-term debts. Therefore, record prices benefit only a few producers.

 

It is worth mentioning that production costs have been increasing in these five crops, mainly because of higher costs of electricity used in the irrigation process and price rises of diesel and road freight. As for fertilizers and crop protection, price increases are attributed to high dollar quotes – most part of the raw material used to produce these inputs is imported.

 

As the capability of reinvesting in the farm is low, obsolete and less effective machinery have been used more frequently, and the replacement of rice area for more profitable activities, such as soybean, has been more commonly observed – in extreme cases, producers even leave the sector.

 

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