A Silver Lining for Brazil’s Agriculture: the Stronger Dollar

Eugênio Stefanello Agribusiness in Brazil has already been affected by the economic crisis, but at a lower rate when compared to other sectors of the economy. This is the opinion of Eugênio Stefanello, Rural Economics professor at the Federal University of Paraná and a technician at the National Food Supply Company (Conab).

He states, for example, that the reduction of international commodity prices and the reduction of offer of credit for financing is a result of the global financial crisis. On the positive side, shall we say, Stefanello states the depreciation of the Brazilian real against the dollar. "The sector exports more than it exports," he said.

Stefanello added that the economic crisis that now scares the world is a consequence of the shortcomings of the American financial crisis. He also stated that the efforts of the European Union to combat the crisis are being more efficient than Bush's plan. Read below the main stretches of the interview.

The American plan, plus the coordinated actions developed by the countries in the euro zone, United Kingdom and the nations of Oceania and the Middle East have allowed for the disbursement of US$ 2.4 trillion to aid the global financial system. Are these measures enough to end the crisis or at least reduce its effects on the global economy, mainly of the so-called emerging nations?

Before any evaluation, it is necessary to recall that the current crisis in the financial system is mainly due to the following factors. Firstly due to the excessive liquidity created by the United States to sustain their war efforts (the invasion of Iraq). Secondly, due to the excessive leverage of banks, which generated excessive credit, further expanded due to the creation of derivatives. This creates a bubble of speculation of assets, with appreciation of prices and their distancing themselves from the real world. The contrary effect takes place when the financial system is taken with mistrust, causing a lack of credit that brings devaluation of assets. The coordination of efforts of the governments and of central banks aimed at re-establishing confidence is the only way out. In this case, the efforts of countries in the EU were more effective than the ones taken by the USA.

Have several countries already announced plans to fight the crisis? Shouldn't Brazil do the same?

The Central Bank is taking the measures, with the reduction of compulsory deposits, which increases the volume of credit available in financial institutions. If all the measures announced come true, the increase should be 160 billion Brazilian reais (US$ 73 billion). The problem is that the banks do not loan money while they are not sure of how economic activity will progress and it is surely going to suffer a reduction in 2009, due to reduction of foreign demand.

Has agribusiness, the cash cow of the Brazilian economy, been affected by the crisis? How?

Yes. Agribusiness has already been affected by the crisis due to the foreign depreciation of commodity prices, generating negative effects with the revenues of producers, to the appreciation of the dollar against the real, generating positive results, as the sector exports more than it imports, and to the reduction of credit for the financing of crops of medium and small producers and for exports. This will make the 2008/09 grain crop greater than the current one.

Is credit to farmers lacking?

This crisis is going to generate direct consequences in rural credit for the next crop, among them: less funds due to the reduction of cash deposits and to banking requirements, greater selectiveness and lower maturities, higher market interest, delays in clearance, less credit for the sale of inputs and the anticipated purchase of products and less credit for trade and exports, among others. The greater production costs are not going to drop and should come close to 20% in the second half of 2009, and the same may be said about interest rates, which should rise from 9% to 10% to 12% to 22%.

In the productive chain of agribusiness, what are the sectors most affected by the lower credit?

The sectors most affected due to the lack of credit are exports and financing for medium and large producers. The Central Bank is not, however, reducing the benchmark interest rate, which is also very important now, to maintain the dynamism of economic activities. It is also necessary to recall that the banks are not financing farmers who renegotiated their debts and this is among the main problems. And it is not possible to oblige them to finance, unless the government competes offering additional guarantees.

The offer of greater funds for export credit to large producers who comply with their debts is important, not to reduce the production and the export flow, especially when the global demand seems to show signs of cooling. The greater requirements over cash deposits from 25% to 30% should not only compensate the lower volume of funds made available in cash deposits in banks, but is also important as it generates additional offer of funds for rural credit.

With little credit, according to analysts, producers should find it hard to keep their production and productivity up. Do you agree?

If there is lower global GDP growth and demand, prices of inputs do not suffer high pressure. If interest rates rise, prices of imported inputs rise, affecting producers who make products for the whole world. If they export, the positive effect on revenues should compensate the greater cost. Producers should never forget to employ better technology, which increase productivity and also the total cost per hectare, but reduce the cost per unit of the product produced. And that is what interests, as it provides the producer with greater competitiveness.

When faced with this scenery, what picture do you imagine for Brazilian agribusiness in 2009?

In 2009 the grain crop, in the best of sceneries, should repeat the 2007/08 crop, with lower production of maize and wheat and greater soy and bean crops. In livestock farming, there should be a reduction in the production of milk and growth in chicken, beef and pork. Exports should grow more, due to the reduction of the GDP of Brazil and to global trade. And the prices of commodities should be smaller due to the reduction of the speculative content of funds over prices.

The crisis is showing the fragility of the system for financing Brazilian agriculture and, consequently, agribusiness. Is this not the time to promote changes in the current financing system?

Among the main problems of the financial system we may mention the lack of regulation and control, the high leverage due and expanded by the existence of derivatives and high risk. I understand that, from the crisis, measures for control and prudence should arrive, and they should make the banks less levered in terms of credit and more demanding in the concession of financing.

And with regard to agribusiness?

In the case of Brazilian agribusiness, the directed credit system, with controlled interest rates, has sources for funds that depend on economic activity and on some funds, attending to just 30% of the needs of farmers. The remaining 70% should be supplied by own funds, by trading companies and by market interest-rate financing. Worse of all, agricultural insurance has little coverage and the minimum price guarantee policy is not universal. However, the objective of stabilizing producer income is greatly compromised, and this may be proved by the several debt renegotiations that the government should promote.

With regard to this scenery, do you think that agribusiness will maintain the rhythm of exports?

Sustainability of agribusiness depends greatly on four legs: technology (research and technological development), sanitary defense, policies for stabilization of income (credit, insurance and minimum price policy, based on the solution of domestic sector problems) and infrastructure to support production and trade.

However, agricultural production has advanced significantly in terms of volume and in productivity. But that it will become more and more difficult to compete on the foreign market without the solution of domestic products.

Anba – www.anba.com.br



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