Commentary on the outlook for South American ag exports for the Latin America Advisor, a publication of the Inter-American Dialogue.
Question: Unusually cold weather has damaged crops in Brazil’s main coffee-growing regions, driving up prices to their highest point in more than six years, MarketWatch reported in July. Meantime, Argentina’s government urged citizens to curb water use to alleviate pressure on the Paraná River, where water levels at a 77-year low due to severe droughts are hurting shipments of cereals including soy and wheat. What is the outlook for agricultural exports this year in Brazil and Argentina? Where are commodities prices headed? What can South American countries with agriculture-reliant economies do to improve the resiliency of their food systems in the wake of extreme climate events and other disruptions?
Commentary: Tatiana Palermo, president of Palermo Strategic Consulting and former vice minister of agriculture and chief agricultural trade negotiator in Brazil
“Adverse weather conditions are increasingly affecting major crops in Brazil and Argentina. The intensity of the impact of these conditions on specific crops (for example, coffee) are still being assessed. Still, projections show that both countries are expected to harvest record total crops in 2021-2022. International food prices recently surged to their highest margins in a decade and, according to FAO and OECD, this trend will continue. Covid-19 is bringing extra challenges, causing economic constraints, logistical hurdles and labor shortages. Mercosur countries also have one the world’s highest import tariffs, which makes already costly imported agricultural inputs (fertilizers, seeds, equipment) even more expensive. Meanwhile, global food demand is rising. China is increasing purchases of agricultural commodities from Mercosur. Brazil’s total agricultural exports reached a record $61 billion in the first half of 2021, 56 percent of which went to Asia—China bought 39 percent. Pent-up demand in Asia, Europe and the Americas is also boosting Brazilian agricultural exports, which are likely to reach a record-high by the end of this year. Argentina is also set to reach record exports of grains and oilseeds, while government-imposed trade restrictions negatively affect meat exports. Although short- and medium-term export projections are good, both countries face long-term challenges because of their high concentrations of production in just a few crops. Ninety percent of all grains and oilseeds in Brazil are concentrated in just five crops; in Argentina, in three. Adverse climate creates a vicious circle, as farmers plant an increasingly smaller variety of weather-resistant crops. Monocultures, in turn, are bad for the environment. This also creates a global health challenge, as more than three billion people (around 40 percent of the world’s population) cannot afford a healthy and nutritious diet. Climate, agriculture and health are interconnected. Food systems’ transformation is necessary and will largely depend on innovation and biodiversity. Brazil and Argentina are not only among world’s largest food powerhouses, but also important sources for both technology and biodiversity. If they embrace change, the prospects for the agricultural sector are very good.”
EDITOR’S NOTE: The comment above is a continuation of the Q&A published in the Aug. 9 issue of the Advisor.