Food boom should continue to ‘squeeze’ Brazilians

The Ministry of Agriculture believes that food prices will remain at high levels and ruled out a reduction in exports during the war between Russia and Ukraine, a measure adopted by some countries to increase stocks.

In Brazil, the main grains have equivalent reserves between one and two months of consumption, concentrated in the private sector.

According to Sílvio Farnese, director of Marketing and Supply at the ministry, the government has no way of adopting measures to contain the soaring prices. Nor how to act to raise stocks.

“Can we lower food prices? No. Increasing stocks at this time would only bring more upward pressure,” he says. “Prices are high and the trend is up. But the best remedy for high prices is high prices. That’s what encourages production.”

In the last two years, some of the main grains produced, consumed and exported by Brazil had increases of more than 100%, such as wheat, corn and soybeans. Rice and beans, staple foods, rose between 40% and 50%.

But grain production has not yet increased substantially. In relation to the 2019/2020 harvest, the increase for the current one will be less than 4% – considering the expected harvest of 268.2 million tons.

Even before the new spike in prices throughout 2021 and this year, almost 20 million Brazilians, one Chile, declared to spend 24 hours or more without having to eat on some days of the week.

In total, more than half (55%) of Brazilians suffered from some type of food insecurity (severe, moderate or mild), according to a survey by the Penssan Network.

The picture has been worsening with the sustained drop in income in recent years. In the quarter from November 2021 to January of this year, the IBGE (Brazilian Institute of Geography and Statistics) recorded a new low in average labor income. The usual real income was estimated at R$ 2,489, the lowest value for comparable quarters in the historical series, started in 2012.

In relative terms, the unemployment rate (11.2%) and income level are much worse in Brazil than in rich countries. As they still have “fat” to absorb and sustain some increase in food, poorer people in countries like Brazil should continue to be “squeezed” by the uptrend.

Since the war in Ukraine broke out four weeks ago, prices for some items such as wheat have soared by another 30%, with Ukrainians and Russians accounting for 25% of the global supply of the product. In addition to the rise in the wake of the conflict, prices of some fertilizers have exploded – which should make food more expensive around the world.

Farnese says that Brazil has guaranteed fertilizer stocks this year and that, even with fewer inputs, producers would have the field prepared to withstand a new crop.

“We have a good stock of fertilizers in the soil. Producers can halve fertilization for a period without compromising competitiveness”, he says.

Farnese considers that restricting food exports in Brazil in this critical period, as in Egypt and Indonesia, among others, would lead to market distortions.

“Close the door [das exportações] to solve a specific problem in a structure fully integrated to the international market would only bring losses.” According to him, Argentina is also considering restricting wheat exports.

In addition to the local production of around 7.7 million tons/year of wheat, Brazil imports an amount equivalent to this to supply domestic demand. About 90% of the product comes from Mercosur — and there is no dependence on Ukrainian or Russian wheat.

Farnese states that a large part of the daily food consumption in Brazil is supplied by family farming, which is less influenced by international variations in grain/commodity prices.

This is especially true for fruits and vegetables from properties that earn between R$300,000 and R$400,000 a year. According to him, more than a third of funding from the Ministry of Agriculture is destined for these producers.