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Uncertainty and fear over rising costs are gripping South
American agriculture in the wake of the ongoing Ukraine war. The
uncertainty is a mix of the double impact of the Covid-19 pandemic
and the war along with its subsequent wave of sanctions and the
insecurity of what may come next.
The uncertainty is led by higher oil prices impacting costs
across the board, the pressure of growing inflation due to the 2021
supply issues, and the container crisis coming out of the Covid-19
pandemic, Croplife Latin America's Jose Perdomo says. "Another
factor is lack of certainty from the US and EU coming up with
sanction packages [in the wake of Russia's invasion of Ukraine]
nearly every week," the association president warns. "It isn't
straightforward to determine with whom you can do business."
Tulio Oliveira of the Brazilian generic agrochemical industry
association, the Aenda, reports that the major impacts of the war
in Brazil have been the increased cost of grain; a rise in the cost
of fuels from oil, gas and biofuel; as well as on the price and
availability of fertiliser, interest rates and insurance contracts;
and worsened currency volatility and fears over non-payments of
invoices.
"We expect higher commodity prices," Mr Perdomo agrees. "Recent
global information shows increased plantings of maize, wheat,
soybeans, and palm oil and a potential decrease in rice yields due
to potentially lower fertiliser use for 2022." However, he stresses
that the higher fertiliser prices predate the Ukraine war with a
2021 "containers and Chinese energy crisis".
There is little evidence so far that the situation is boosting
the prices of crop protection products other than for adjustments
due to generalised inflation "In the short term, 2022 disruptions
on crop protection products may be minimal due to the extended
supply chains and products made in 2021 for the 2022 season," Mr
Perdomo notes. "What happens in 2023 is another matter."
Sanctions
Both industry leaders note that sanctions are being followed in
South America as they are unavoidable due to their imposition by
major powers or the UN. "Brazil must comply [as a UN member]," Mr
Oliveira cites. Mr Perdomo echoes his Brazilian counterpart that
the region is not imposing official embargoes, but is impacted by
international obligations. "[Latin America] is impacted indirectly
by those [sanctions imposed] by the US and EU," he notes. "If a
supplier or customer can't use SWIFT accounts to do business, the
region is de facto bound by sanctions imposed elsewhere."
Mr Oliveira cites Brazil's attempts to limit certain sanctions
that may impose further human costs. "In the case of fertilisers,
the Minister of Agriculture paid a visit to Russia and the
Brazilian ambassadors spoke with several countries and the UN, to
negotiate an exception." Brazil has since accepted fertiliser
cargoes from Russia, while debate has ignited over the country
becoming more self-sufficient in vital supplies, such as
fertiliser.
Neither has noticed the conflict leading to higher demand for
Latin American agriculture or an indirect boost to supplies from
the region. "So far, no, but if the war continues, we will
certainly have additional orders," Mr Oliveira offers. The Croplife
Latin America president repeats the warning of the uncertainty
hitting a potential boost to the region. "You may think that
countries not involved in the conflict would be quick on their feet
to supply markets that would otherwise buy from Ukraine and
internationally sanctioned countries such as Russia and Belarus.
But finding new markets is not an instant process, especially for
the grain trade; it will take time," Mr Perdomo notes.
"Also, bear in mind the conflict rose just before spring in
Ukraine. Although it is fair to say that Ukraine's output capacity
will be quite diminished [Mr Perdomo cites a Blomberg report
forecasting a 17% decrease in plantings in Ukraine], it will be
only after harvest that the situation may be assessed."
The Croplife president says that the total planting area in
Brazil is expected to have expanded up to 5% with increases
expected for most major crops, but within smaller crop segments,
farmers are at best conservative in planting, if not reducing, crop
areas of fresh fruits and vegetables, for domestic consumption.
"The steep rise in fertiliser prices and concern about potential
scarcity was the driver. Again, in this case, it is primarily a
legacy of 2021, and the conflict came only to add complexity for
farmers."
Crisis moves
Several crisis policies are being implemented in Latin America.
The policies have largely been a response to crises from last year
from the impact of the Covid-19 pandemic to the container and
Chinese energy crisis, Mr Perdomo cautions.
The Colombian government has suspended duties for six months on
145 products, including some pesticides and fertilisers, and is
mulling monitoring crop protection and fertiliser prices for a
potential intervention "if needed". The Peruvian government
recently declared a 120-day state of emergency for the agriculture sector
to implement extraordinary measures to support farmers, while
Guatemala is considering distributing a $130 subsidy to farmers to
purchase fertiliser and crop protection products.
The Latin American industry leaders gave their views in the
first two months following the Russian invasion of Ukraine.
Posted 13 June 2022 by Robert Birkett, News Reporter, Agribusiness
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
