Coronavirus should not strongly harm Agribusiness GDP

In this second edition of the thematic special on “Coronavirus and Agribusiness”, researchers from Cepea (Center for Advanced Studies in Applied Economics), from Esalq/USP, evaluated the main impacts of the coronavirus pandemic on agribusiness GDP and the job market of the sector.

In general, the impacts on the sector's GDP and labor market will be different, firstly, because the sectors with a large weight in the formation of GDP are not those that have the greatest relevance in generating jobs. Secondly, because smaller establishments – whether agricultural, agro-industrial or agro-services – are more representative in generating jobs than in GDP. 

AGRIBUSINESS GDP

So far, Cepea researchers expect a satisfactory performance in the GDP of agribusiness, especially agriculture – there is, therefore, a great disparity with the economy in general, whose performance projections are getting worse day by day. And Cepea's positive outlook for agribusiness GDP, in turn, is based on the high dollar (which prevents the complete transmission of the likely fall in international prices given the slowdown in global demand), the good prospects in terms of price and production for large crops (such as grains and coffee and for meat complexes) and the low income elasticity of essential food products. 

However, Cepea researchers warn that agro-industries that depend on the Brazilian domestic market, such as furniture and textile, clothing and footwear activities, must put downward pressure on GDP. The latter have already been experiencing successive annual declines in production since the beginning of the crisis in the country, officially in 2014 – and this scenario is expected to repeat itself and worsen in 2020. Furthermore, negative pressure on agribusiness GDP could also come from the dairy industries and biofuels; in the first case, due to the greater added value for a food product, and in the second, due to the extremely critical scenario both because of weak domestic demand during the isolation period and due to the drop in oil prices. 

SECTOR LABOR MARKET

Cepea researchers indicate that the impacts of the conoravirus pandemic on the job market situation are worrying. This is because a large part of the occupations refer to smaller establishments and sectors that are likely to be most affected by the crisis. 

According to Cepea researchers, many jobs are concentrated in smaller agricultural, agro-industrial and agro-service establishments. Thus, while some in more delicate financial situations are already suffering during the period of social isolation, others will leave this period to deal with weak internal demand and the need to pay for credits taken to maintain the business during the pandemic. 

In sectoral terms, the prospects for the impact of the crisis are bad for many agricultural and agro-industrial activities that are major job generators. In this case, Cepea researchers highlight the various activities of horticulture, floriculture, milk production and the dairy industry, furniture industries and those related to clothing (textile, clothing and leather and footwear). 

The severity of the situation will depend on the duration of this moment of more severe restrictions on mobility and the effectiveness of government actions, whether supporting employees (to guarantee income and therefore, demand) or companies. In this sense, Cepea researchers indicate that it is essential, at this moment, for the government to effectively ensure that the large mass of the low-income population reaches the minimum resources for survival, including to purchase the products that agribusiness will make available to retailers. 

Finally, it is necessary to reinforce that, in the current situation marked by enormous uncertainties, any perspective formed is also quite uncertain. A worse-than-expected worsening of the coronavirus crisis in Brazil and the world, as well as a lower-than-expected scope of support policies by the Brazilian government, could compromise the performance of agribusiness GDP, even with a favorable exchange rate, and further deteriorate the labor market situation.