The Covid-19 outbreak around the world, especially in China and Brazil, will bring risks and opportunities in the near future. For 2020, in addition to the explosion of the Covid-19 pandemic, the influence of African swine fever (ASF) in China and the US-China trade dispute will persist. Expectations are positive for the Brazilian animal protein sector, with forecasts of an increase in pork exports to China and strong demand from the international market. On the other hand, for the soybean sector, any recovery in revenue in 2020 is uncertain, depending not only on the evolution of ASF, which has been decimating thousands of animals in the Asian country, but also on US-China trade relations.
The outbreak of the Covid-19 epidemic added to the previous conditions, becoming a third and important challenge for Brazilian agribusiness. Before the outbreak, estimates were for a Global GDP of 2,3%. A drop of up to -2,5% is now estimated. A contraction deeper than the global crisis of 2008.
The information comes from Embrapa's Secretariat of Intelligence and Strategic Relations (SIRE), which has just published the study “Agribusiness in times of Covid-19: challenges for Brazil and China”, prepared by researcher Mário Seixas Alves, from the Strategic Analysis and Studies department.
The publication is supported by data published by international agencies that focus on agribusiness and food services: RaboResearch, Food & Agribusiness, department linked to the Rabobank, a leading institution in financing services for food, agribusiness and sustainability; FitchSolutions, belonging to the risk agency Fitch Rating Inc., as well as the The Economist Intelligence Unit Limited (EIU) and by Center for Advanced Studies in Applied Economics (CEPEA), from ESALQ/USP.
“Brazil faces the challenge of dealing with the threat that the Covid-19 pandemic poses to the health of its citizens and the country’s economy. As the world's leading exporter of various agricultural products, the country exercises recognized leadership in global agricultural commodity markets”, recognizes the report from RaboResearch, Food & Agribusiness.
In global terms, although there are increasing risks of interruptions in food supply chains, as well as food protectionism on the part of some countries, few changes in global production are expected. This is because agricultural production was relatively isolated from the spread of Covid-19 and measures to restrict the movement of people and goods between and intra-countries, and regions. “Evidence suggests that there has been relatively limited disruption in the agricultural sector, especially in grain and meat production,” says the FitchSolutions report.
On the other hand, the widespread closure of restaurants, hotels and other establishments due to the coronavirus pandemic has disrupted the food systems of the two countries in focus: Brazil and China. In Brazil, the closure of restaurants, cafeterias and other services that provide food directly to the population, in response to the spread of Covid-19 throughout the country, reduced food service activity, limiting food outside the home to only home delivery orders, for a period not yet determined.
“With a large part of the Brazilian population remaining at home, for the period of social isolation necessary to contain, or minimize, contamination by Covid-19, the demand for household consumption items suddenly increased and the availability of food in the retail channel became a concern for consumers, food processors and retailers”, details Mário Seixas.
Regarding Brazilian commodity production, according to Seixas, although global food trade gives the impression of normality, amid the strong demand for imports to China that occurred in March and April, international agencies demonstrate in their analytical reports concern about possible interruptions in the supply chain as a result of Covid-19 containment measures.
“The closure of borders or restrictions on movement in certain countries, such as Argentina, can affect the flow of production to ports for export”, explains Seixas.
He adds that bottlenecks that could impact the delivery of supplies from South American countries to the Asian continent could include problems with land transport, ports, restrictions on the movement of goods, asset closures and worker availability.
Seixas cites some points identified by the agency RaboResearch, Food & Agribusiness as possible impediments to the flow of production to China, both by South American countries and by the United States: most of Argentina's soy and flour exports occur in a small area near the city of Rosário, which is located in Quarantine; Brazil ships most of its soybeans, corn and cotton through the port of Santos, which has operated normally until now despite fears of contagion among port workers; and the United States, which ships a large part of its corn and soybean harvest from two port regions concentrated in the Pacific and New Orleans.
According to data from the international agency Rabobank, China is self-sufficient in all the main grains for human consumption, including wheat, corn and rice. “The import of grains for human consumption represents only a small portion of domestic consumption, in the range of 1% to 3%. Furthermore, China has large quantities of stocks of these grains, under state responsibility”, explains Seixas.
On the other hand, China has a high dependence on soybean imports. “Imported soy, most of which comes from Brazil, the USA and Argentina, accounts for 85% of domestic consumption”, highlights Seixas. “And according to data highlighted by international agencies, the market is extremely concerned that internal logistics and port operations could be harmed in these main exporting countries, especially in Brazil and Argentina, which could cause supply interruptions short-term in the international market”, adds the researcher.
But the impact of Covid-19 on grain and oilseed crops in Brazil is seen by experts from international agencies as limited. March was the most intense month for the first harvest of grains, and the beginning of preparation for the second harvest. Field operations are now focused on crop protection spraying, and these operations are being carried out by employees who live on the property itself. Therefore, for now, climate problems are seen as the main risk to production.
On the other hand, producers expect great gains, with record nominal values for soybeans, due to the strong devaluation of the Real in relation to the US dollar. For this reason, producers are accelerating negotiations and sales of soybeans on the foreign market, compared to previous years.
According to RaboResearch, Food & Agribusiness, there is still no expected end date for the outbreak in China. Therefore, profound changes can already be observed in consumer behavior and the new regulations created by the Chinese government.
The Chinese government has also suggested that food processing industries invest in innovation and automation processes, deepening partnerships with technology industries to accelerate, for example, the automation of deliveries with the use of robots or drones, thus reducing the risks of labor shortages or costs. “Therefore, the trend is towards an increase in e-commerce, with heavy investment in automation to guarantee the supply of food to the population”, says Seixas.
“Multinationals currently based in China are also beginning to plan or consider the possibility of relocating their manufacturing capabilities outside that country”, highlights the Embrapa researcher.
Discover the complete study on agricultural trends with Covid-19 by accessing here.
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