The powerful Brazilian agricultural sector, in suspense over the war in Ukraine

Brazil is following with concern the open armed conflict as a result of the Russian invasion in Ukraine due to the impact it may have on its powerful agricultural sector, taking into account Brazil’s dependence on that region in terms of fertilizer imports.

This is not a widespread concern, because Russia, the eleventh world economic power, above Brazil and behind South Korea, according to World Bank data, is hardly a relevant trade partner for this South American nation.

At the end of 2021, the commercial exchange between Brazil and Russia reached US$ 7,286 million, 1.5% of the total world exports and imports of Brazil, with a very favorable trade balance for Russia.

With Ukraine, ranked 56th in the world by Gross Domestic Product (GDP), the trade figures are much lower, because in the last annual exercise they were only US$438 million, with a balance between exports and imports.

But, although in general terms neither Russia nor Ukraine can be compared with Brazil’s main trading partners (China and the United States, fundamentally), any armed conflict in that region can do a lot of damage to the Brazilian agricultural sector.

And it is that Brazilian farmers may have problems importing the fertilizers they need and that are key for Brazil to meet the expectations of achieving a record in its agricultural harvest this year.

According to the most recent government projection, Brazil expects to collect 271.9 million tons of grain this year, 7.4% higher than that of 2021, a year that was affected by adverse weather conditions.

Soybeans, corn and rice are the three most produced grains in Brazil (87.8% of the total), a nation that is also the world’s leading coffee producer.

But, according to different sources, Russia and Ukraine represent between 40% and 50% of the world purchases of potash that Brazil makes to fertilize its fields, one of the main components of fertilization along with calcium and nitrogen.

But the armed conflict has caught at a bad time because the producers have not closed those purchases yet for the next harvest, scheduled for September, and the stock of fertilizers now only lasts until next June.

“We have other alternatives if we have a problem,” said the Minister of Agriculture, Tereza Cristina Correa, when referring to this issue last week. Iran, Canada and Morocco may be those alternatives, according to official criteria.

According to the technical director of the Brazilian Confederation of Agriculture and Livestock, Bruno Lucchi, purchases of fertilizers have been postponed due to the projected drop in these products starting in the second quarter. Farmers do not want to see prices like the ones in 2021, which rose 100% compared to the previous year “Now we have to review the strategies,” he assured the financial newspaper Valor.

That’s for the direct impact, but analysts also take into account the indirect impact from the increase in the prices of raw materials, including oil, and the increase in transportation costs.

At the moment it has not had a special impact on the Brazilian’s pocket, because, as a result of the Russian invasion of Ukraine, Petrobras assured that it will wait to see how the situation continues to study a possible increase in gasoline prices.

The last variation in fuel prices was approved by Petrobras at the end of January, and there is still no new date for an increase.

But with oil futures reaching as high as US$110, international transportation is bound to become more expensive, and that pending review by Petrobras may come at some point, which will have effects on inflation.

Rising commodity prices, and possible exchange rate depreciation, should put additional pressure on inflation, which in turn further undermines consumers’ purchasing power. .

This possibility may represent stumbling blocks for the Central Bank’s attempts to control inflation that in 2021 reached 10.06% in Brazil and that, for this year, it calculates that it can only reach a maximum of 5%.