December 22, 2011
Instability: Will the world's "new crisis" dent Brazil's agribusiness?
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By Daniel Azevedo (Editor, AnimalWorld, Brazil)
Less than three years after the international crisis that brought the deepest recession since the big "crash" in 1929, developed countries seem to be on the verge of a new economic collapse. With the US and EU sinking into debt, uncertainties are accentuated in the macroeconomic scenario.
The US, in the first half of the year fueled growth expectations, but is now facing a 35% risk to undergo a recession in 2012 amid a public debt of US$14.3 trillion, according to economic analysts.
The agency Standard & Poors lowered the note of the country about the safety of its creditors, which can induce a negative cycle of mistrust, credit crunch, less investment, decreased consumption, and finally recession in the largest economy in the world and second largest trading partner of Brazil.
"We now believe that there is a 35% chance for a new recession in the US for next year, nearly double that of the figure in the second quarter," wrote economist at Bank of America Merrill Lynch, Michelle Meyer. If confirmed, the recession would greatly affect the world economy as a whole, including Brazil.
If the US begins to buy less in the world, Brazil and other major exporters such as China and Argentina, tend to care less about what they could produce in general, including the agricultural agenda even though the market has become more competitive. In time to come, China will continue to grow but perhaps at a slower pace than it did during the last decade.
In the EU, the problem and the consequences are the same. Countries such as Greece, Ireland and Portugal had to be rescued by the bloc to avoid a default. The problem is more serious because much larger economies, Italy and Spain - the third and fourth economies of the Euro area, also entered the route of the "default" and are too large to be "rescued".
Italy and Spain have announced fiscal and structural measures to combat the deficit. The fear is that these countries cannot pay your bills and default occurs. The same measures of cost containment, however, may cause recovery of the European economy to lose momentum.
Analysts differ on the impact that the "new crisis" may have in international agribusiness. Some say that the reflection would be similar to the 2008-2009 crisis while others say that it is necessary to increase global demand for food to sustain prices and trade.
The falls in commodity prices recorded in the first half of August would be only a correction of prices and not the decrease in demand. For the analyst Ricardo Amorim, however, the picture is worse than it seems. "This time, the crisis appears when taxes and interest in the rich countries are already very close to zero. As a result, commodities will suffer losses similar to those of 2008-2009, followed by an even stronger high than that of 2009-2011", he says.
For the former agriculture minister and coordinator of the Agribusiness Center at Foundation Getulio Vargas, Roberto Rodrigues, however, the factors that keep agricultural prices high remain. "The supply does not grow in proportion to the demand. The crisis will only severely affect agricultural prices if it is long and deep, which apparently has not appeared so far," he argues.
The director of Novus in Latin America, Luiz Azevedo, commented about pork market in this context. "The pig industry is going through a difficult time due to the high cost impact on producer margins. In this challenging time, it is essential to seek efficiency and the Brazilian market has available technologies to improve efficiency", he says.
"All economies will be affected and Brazil is no exception," says Fernando Pereira, executive director of the Agroceres. "However, Brazilian agribusiness has reason to believe that the impact of the crisis will be small, because there is a large deficit and a growing demand worldwide for the main products we export. Also, there is a strong domestic market to be served."
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