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Sanctions, uncertainty and cost fears stalk Latin American agriculture
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."
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."
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.
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.
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