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Risk of planting second crop reduces area use in South Brazil

Cepea has been carrying out studies that help to understand the soil use by Brazilian farmers, mainly in a scenario of temporary crops. The text “The challenges of land use intensification”, for instance, show data about area and production of first and second crops. Some aspects stand out, such as the significant area of non-commercial second crops, which might seem not to make sense for those who are out of the sector.

 

Producers, in general, have at least one crop per year – in some circumstances, they are able to have up to three crops or five every two years. Irrigation is needed in most cases, or crop-livestock integration to allow these systems.

 

In the South Brazil, specifically in Rio Grande do Sul State, producers prefer to sow non-commercial crops in the second season. There are certainly risks involved, otherwise producers would plant commercial crops to increase profit margins and the net revenue.

 

Data from the Brazilian Institute of Geography and Statistics (IBGE) and National Company for Food Supply (Conab) show that, in Rio Grande do Sul alone, roughly 8.6 million hectares are planted per year with most important temporary crops. From this total, between 2017 and 2019, 87.5% were first crops and 12.5%, second crops. For the first season, soybean (65% of the total area), rice (23%) and first corn crop (9%) can be highlighted. Concerning the second season, only wheat (8.5%) and oat (3%) stand out.

 

Taking the average over the last three years into account, circa 14.3% of the first crop area was used with commercial crops in the second season. Disregarding the area with rice, which does not allow a second crop, the winter area was equivalent to 16.6% of summer crops.

 

In a country that needs to import more than half of the wheat to domestic consumption, in Rio Grande do Sul, the planted area with the cereal (second crop) accounted for 12.6% of the soybean (first crop) area between 2017 and 2019. Producers prefer to sow cover crops, which only generate costs, without any revenue. Therefore, are wheat crops risks really so high that the revenue does not compensate investments?

 

Risks in the agriculture and livestock activities had been discussed previously (check "The challenge of risk management in Brazil" and "Measuring uncertainties: the risk of rural production"). Information that involve risks of production and trading will be mentioned here, mainly for second crops in Rio Grande do Sul.

 

Gabriel Diniz Faleiros (2019), in his thesis for the Master of Science Degree in Administration at Esalq/USP, has indicated, among other analyses, great probability of negative margins in wheat crops, mainly in Rio Grande do Sul state. According to his calculations, there is a great probability of negative profits on operational costs, between 71% and 78%. As a result, in case fixed costs are added, the possibility of losses is even higher.

 

Producing wheat is risked because of climate and marketing conditions. Even at the end of the season, the weather may reduce both production and quality. Moreover, prices may oscillate sharply and depend on the import parity.

 

Planting oat as a second crop has also a high probability of registering negative margins in Rio Grande do Sul (close to 70%), when considering data from Tupanciretã – close to the scenario observed for wheat.

 

The decision of producers in Rio Grande do Sul to not plant commercial crops in the second season is certainly related to the risk of financial losses, although most of these agents do not measure the possible losses. When they do not obtain profits with the second crop, the first crop ends up having high total costs, because it will absorb a higher share of fixed and opportunity costs. This will affect even more the farm capacity to invest.

 

In Rio Grande do Sul, the weather is related to sharp productivity oscillations in both the first and second crops. As for the first one, the problem is lack of water, as observed in this season. Concerning the second crop, excessive rainfall or frosts affect the productivity of some crops, such as wheat. Low liquidity for this activity has also been verified, pressing down quotes. In order to mitigate the situation, cooperatives are exporting as an alternative of flowing.

 

As previously discussed in “Rice and wheat: considerations on agriculture and industrial values”, the government needs to define public policies for winter crops, especially wheat, targeting producers’ sustainability and lower dependence on imports. Maybe difficulties to implement a more direct encouragement policy are related to lobbies of industrial sectors and producers, who tend to have opposite behaviors.

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