Commodities Shuttle: Price in the countryside generates record inflation and will not give a truce to the consumer

Food inflation, when rising 11.7% in the first half, reached the highest rate for the period in the last 28 years, according to data released by Fipe (Fundação Instituto de Pesquisas Econômicas) this Monday (4).

It is a burden on the consumer’s pocket that will be difficult to reverse in the short term. The inflation rate can even stay stable, or go back a little, since it comes from the comparison of average prices. If prices remain stable, the rate stops growing. The high level of prices registered in recent years, however, will remain.

This pressure comes from the field, and the prospects for change are not good. Brazil continues to obtain record crops, although always below potential due to adverse weather conditions, but external demand is heated and brings price pressure from abroad to the country.

World production and demand are out of balance and will only be adjusted with at least two good crops in the next few years from the world’s main producers.

This scenario, however, is difficult, since there are always climatic irregularities in some region of the planet or some geopolitical disturbance, such as the war between Russia and Ukraine.

According to the most recent data on the area sown with soybeans in the United States, for example, the final stocks of the 2022/23 crop in that country should fall to 4 million tons, enough for just 12 days of consumption. As a result, there is not much room for prices to fall.

The global demand for food will also depend on the performance of the world economy. The forecast of recovery after the pandemic could be stopped by the increase in interest rates, which will affect the economy and consumer purchasing power.

This economic slowdown, however, influences food consumption to a lesser extent. In Brazil, despite the recovery in employment, income remains flat, according to the IBGE (Brazilian Institute of Geography and Statistics). The new level of food prices in the countryside will continue to weigh on consumer finances.

The prices recorded so far still do not take into account all the increase in costs that agriculture has had in the last two years. In some segments, such as milk, producers have stopped investments, which should reduce productivity. Others, with negative margins, left the activity.

According to Embrapa Gado de Leite, production costs have risen 62% since January 2020. The price of milk paid to the producer increased by 43% in the period. Bad for the final consumer, who is paying more, but also for the producer, who has a real loss, when comparing the costs with the sale value of the milk.

The increase in agribusiness costs is general, but it affects more strongly producers focused on the domestic market, such as beans, cassava, rice and milk, among others.

On the other hand, producers with good sales potential in the foreign market, such as soybeans, corn and meat, have the benefits of foreign demand and high exchange rates.

The annual average of milk prices accumulates a high of 52% from 2018 to the first half of this year; cassava, 76%; and rice, 65%. Products with good external demand, such as soybeans and corn, had readjustments of 129% and 142% in the period. The arroba of fattened cattle rose 130%, according to Cepea.

Coffee and wheat, two items present in the daily diet, are beginning to present prices that are difficult to access for most national consumers.

The coffee bag had an annual average increase of 213% from 2018 to the first half of 2022. Frosts in Brazil, the world’s main supplier of the beverage, and continued global demand drive prices up.

Wheat, which reaches R$ 2,200 per ton in the field, rose 111% in the period on the domestic market. Lower world production and difficulties in exports from Ukraine and Russia hold up foreign prices.

Fipe shows that the highs in the field quickly reach the consumer’s table. In the last 12 months up to June, while average inflation rose 11.7% in São Paulo, food became, on average, 20.1% more expensive.

The situation is increasingly complicated for low-income consumers. The rise in wheat caused a 22% readjustment in the price of bread rolls and 25% in wheat flour in 12 months.

Corn derivatives also reflect the acceleration of prices in the field. Cornmeal has an accumulated variation of 55%, and corn flour rose 30% in the same period.

The main pull in prices is with coffee, which accumulates 77.5% increase in 12 months. Long-life milk rose 37%; and “in natura” products, 36%.

Among proteins, chicken had an appreciation of 22.5%; the sirloin, 18.5%; and the egg, 19.5%. Already pork, showing that much of the increases in food comes from outside, fell 8%. China reduced imports of the Brazilian product.