The results of agriculture, and agribusiness in general, are usually linked to several factors of uncertainty, involving significant market fluctuations, changes in internal and external agricultural and commercial policies and regulations, in addition to the intrinsic dependence of this sector on to the climate. The coronavirus pandemic – and the resulting health and economic measures –, in turn, adds a new and high degree of uncertainty to the prospective scenarios of agribusiness chains.
This thematic special prepared by researchers from Cepea (Center for Advanced Studies in Applied Economics), from Esalq/USP, seeks to highlight the effects of the coronavirus on the main chains in the sector, evaluating its current impact and the scenarios that can be drawn up for the medium term based on the fundamentals of supply and demand and considering issues about production and logistics and supply costs. Briefly, it is observed that the agribusiness sectors most dependent on domestic demand should be those most affected by the effects of the coronavirus, in addition to those with higher value-added and more perishable products.
In the context of domestic demand, in the latest Focus Bulletin, from the Central Bank, the forecast for Brazilian GDP growth in 2020 was again revised downwards, to a retraction of 1.18%. Cepea researchers indicate that, therefore, the recovery, albeit slow, that was expected for the economy, will not happen. The population's employment and purchasing power will continue to be compromised and, as a result, domestic demand will continue to be a challenge for some agribusiness chains. With the isolation of the population and the closure of service and food networks, there are changes in the form and channels of consumption, which also affect the sector.
In the case of demand for exports, the negative effects of the coronavirus should be offset to some extent by the expected high level of the dollar throughout the year. For now, according to the CNA Bulletin (Brazilian Agriculture and Livestock Confederation), trade in grains, food and oils destined for China increased by 9.7% in the months of January and February, a period in which the epidemic was strongly affecting that country. Furthermore, the effects on international demand for meat from African Swine Fever (ASF) are still important.
According to Cepea researchers, so far, as exports are doing well and the high dollar favors exporter revenue, the perspective is that the sectors or establishments most dependent on domestic demand will be the most affected. It is known that this effect of the rapid slowdown in the Brazilian economy that is unfolding will not be homogeneous across agribusiness sectors and agents. In particular, products with higher added value, those that are not essential (those with greater income elasticity) and those that are more perishable will feel more strongly the decline in the population's purchasing power and changes in the way they consume.
In the case of dairy cattle farming, with lean production, before the announcement of the coronavirus pandemic, prices were expected to rise in the coming months. Initially, this perspective gained strength due to the accelerated increase in demand in the second half of March. Isolation recommendations and the need for less circulation generated uncertainty among consumers about maintaining supply and wholesale and retail networks intensified the demand for dairy products, especially UHT milk. In the medium term, consumption of cheese (which accounts for more than 30% of milk allocation in industries) and a large part of dairy derivatives, products with higher added value, should fall drastically, and the expected drop in industry revenue will be transmitted to producers.
In the case of beef cattle, although the domestic market represents 75% of meat sales, exports are firm and the supply of animals for slaughter is restricted – which could prevent significant price drops in the chain. For the pig chain, the rising pace of meat exports and the prospects of little change in home consumption should also prevent sharper price drops. The high competitiveness of chicken protein compared to the main competing meats, beef and pork, may initially increase the prices of poultry products; but the effects of school suspensions (which reduce demand for school meals) and the drop in demand in the food service market could put pressure on domestic prices.
In general, considering income elasticities for livestock chains, the downturn in the Brazilian economy could end up favoring the consumption of milk and chicken meat, however, have a negative impact on beef and pork chains and cheese production . However, in the case of pork and beef, exports should prevent a more critical scenario from forming, as already occurred in 2019.
As for grains, so far, with the devaluation of the Real and the firm demand for corn, soybeans and derivatives, exports remain strong and domestic prices are rising. Brazil also benefited from shutdowns of port units in Argentina, causing demand to shift towards national products. Despite some uncertainties, harvesting, sowing and export activities have apparently returned to normal and are continuing at full steam. In the medium term, lower global growth should put pressure on international prices, which should be transmitted to Brazil. However, the impact may be less intense in the event of continued currency devaluation or greater external demand for Brazilian products, reducing the domestic surplus. Still in this scenario, exchange rate devaluation implies higher costs for imported products, such as wheat and agricultural inputs (which are already on a significant rise).
Measures to restrict the movement of people, with difficulties for fairs, institutional markets and restaurants, directly and negatively influenced the demand for fruits and vegetables. The most negative impacts were for more perishable products (such as hardwoods, tomatoes, bananas and mangos) and, in addition, for small producers and family farmers who depend on a longer marketing chain and are experiencing logistical difficulties. For large producers in the HF chain in general, which serve Ceasa boxes and supermarkets, it can be said that there is an almost normal flow – so, no consumer supply problems are seen, but rather difficulties for small ones /medium HFs products. In the medium term, there are, however, concerns that the current difficulties and uncertainties will result in a smaller planted area and, consequently, less supply in the coming months.
So far, the sector with the biggest losses is flowers – with a huge loss in production due to the halt in demand.
Also noteworthy is the case of ethanol. The period before the pandemic was marked by great optimism in the sector, as the start of the Renovabio Program was scheduled for January. However, the abrupt and intense drop in oil prices, due to the clash between Russia and Saudi Arabia – which reduces the competitiveness of ethanol –, and the isolation strategies resulting from the coronavirus have had a significant negative impact on fuel demand. A crisis is beginning to unfold in the sector.
In general, the most vulnerable sectors that deserve special attention are milk, fruit and vegetables, especially the most perishable ones (such as hardwoods, tomatoes, bananas and mangos), floriculture and biofuels, in addition to some agro-industries more focused on the domestic market. , such as textile-clothing, footwear and furniture. It is noteworthy that, regardless of the sector, small and medium-sized agents and establishments, which usually have less room for maneuver to survive moments of crisis, should feel the effect of the pandemic more strongly.
