How the war in Ukraine can mature Brazilian agribusiness

Without any sign of ending or at least easing, the war in Ukraine is triggering considerable impacts on sectors vital to the world economy. In the Brazilian market – even geographically distant – the movement in agribusiness has been generating growing concern among national producers, given the possible lack of goods and import obstacles. Even in an inevitably worrying scenario, we are facing an opportune moment for the sector to mature, based on corporate procedures such as corporate reorganizations and protective measures such as overcoming strategies and business continuity.

In an exclusive analysis of the effects of the war, we are witnessing a significant resumption of international trade flow, marked by the maintenance of the exchange rate as a reflection of the countries' greater commercial activity. Supply and demand for exports increased, with a focus on the commodities market and, in particular, agriculture associated with food supply – a very strategic segment in the context of the pandemic. In a projection made by the World Bank, the international economic recovery went from a negative index of -8,3 in 2020, to a positive result of +8,3 in 2021, with still positive prospects for this year, stipulated for an average of +6,3.

On the verge of being impacted, the main losses for Brazilian agribusiness would be the reduction in harvests and the impossibility of fulfilling its obligations internally and externally, generating a direct impact on revenue – with a reduction in cash flow due to low revenue and non-compliance with signed contracts. In a wide range of attacks, the best protection for Brazilian agribusiness is prevention. It is the ideal time to turn your attention to internal operations, looking for the best alternatives that can solidify the business in a healthy way and understanding the viable options for each case.

Many countries are already facing difficulties in meeting international demand for basic products for the national chain – a shortage that highlights the search for new businesses that serve the market. In this context, among the most recommended actions, corporate reorganization is one of the most beneficial – whether attracting investments or seeking understandings with other producers, in order to minimize such impacts, in typical corporate reorganization procedures, such as merger or incorporation.

In the specific case of renegotiating contracts, it is essential to thoroughly review the instruments and, in order to attract investments, ensure internal compliance and operational regularity (certificates), guaranteeing security in attracting new contributions or obtaining credit in the market. If the strategy does not prove to be possible, it is important to check the business's credit margin to renegotiate it with banks - an action that will also require, in addition to possible corporate measures, an accounting and financial study, in order to select the option that bring the expected or intended breath to the operation.

Exports are also favorable options as a survival strategy to reduce the impacts of war on agribusiness. In December 2021, in fact, they broke a record, with around US$9,88 billion moved, according to data from the Secretariat of Commerce and International Relations (SCRI) – an amount 36,5% higher than in 2020. The flow expected for this year is optimistic – but its adoption must be evaluated in each case. The producer must analyze whether his business is ready to start an international operation, whether it has positive financial prospects and, mainly, what it needs to adapt to make such operations viable – both in an internal analysis and in obtaining licenses that allow the export of products or inputs for the external market.

Possible actions are recommended for farmers of the most diverse sizes and production lines – each, with its own procedure and points of attention focused on its niche and scope of business.

Amid a worrying global outlook, investments in agribusiness will still be the main focus for this year. The renegotiations will be part of the strategies for maintaining healthy activities, with exports still expected to grow due to exchange rate maintenance. Joint actions combined with the review and possible restructuring of the business model could support a new look at the protective paths to be taken, in this scenario of so much uncertainty.

by Thais Cordero; lawyer and leader of the corporate area at Marcos Martins Advogados