May 25, 2006

Brazil's strong currency brings grief to soy farmers

The strong Brazilian real is bringing grief to its soy farmers, who are suffering due to the currency's appreciation affecting exports and cutting into profit margins, said an analyst at a Sao Paulo university think tank on Tuesday (May 23).

The dollar has plunged since the peak export years of 2002 and 2003, thus cutting deeply into profit margins, said Geraldo Barros, the coordinator of the Centre for Advanced Studies in Applied Economics at the University of Sao Paulo (Cepea-Esalq).

In recent months, Brazil's soy and grain farmers have launched strong protests against the rise of the Brazilian real, which appreciated 17 percent against the dollar in 2005 and climbing a further 10 percent in the first quarter of this year.

While grain exports increased 30 percent on-year in the first quarter of 2006 and world prices rose 7.5 percent in the same period, profitability (especially soy) fell 8.6 percent in the first quarter of 2006 ( on top of a previous 28 percent drop in 2005).

Rising energy costs, which led to higher prices for fertilisers and fuel have also added to the burdens of the country's grain farmers.

Nevertheless, the volume of agribusiness exports has grown nearly 7.7 percent on-year, suggesting that exports remain attractive to producers, Barros said.

Brazil's low economic growth rate, high interest rates and difficult access to credit made profits difficult in the country, thus forcing people into the export markets, where income and opportunities are more abundant, despite a strong Brazilian real, said Cepea-Esalq.

Soy, soy oil, and processed agricultural foods have lost a lot of profitability in the past year, said Fernando Ribeiro, an economist at the Rio de Janeiro-based Center of Foreign Trade Studies, or Funcex.

Meanwhile, profits from the vegetable oils industry (especially soy oil) fell 22 percent in 2005 compared to the year before, and an additional 8 percent in the first quarter of 2006.