Projections for 2023 point to a challenging year for the São Paulo wheat chain

Promoting the exchange of information and analyzing market trends and challenges were the main topics covered in the 7th edition of the Wheat Production Chain Meeting, held by the Wheat Industry Union in the State of São Paulo (Sindustrigo), which brought together representatives from milling, bakery, food industry, producers, cooperatives and input companies this morning, November 11th, at Fiesp, in São Paulo (SP).

The event, whose main objective is to integrate the productive sector and promote knowledge, addressed in four panels the current economic scenario, trends in the wheat chain and the panorama of cereal consumer markets, in addition to technical panels on the market situation and innovations.

For the President of Sindustrigo, Amedeo de San Marzano, the event proved to be very positive. “We debate topics of relevance to our sector, in addition to promoting the exchange of information and experiences between all links in the chain, thus providing an overview of our market and helping everyone in decision-making for the coming months”.

San Marzano also highlighted how dynamic and united the sector is, citing the Wheat Sector Chamber, the activities of Sindustrigo, as well as the presence of representatives from other entities that represent the production chain, from producer to final consumer.

economic scenario

The program began with an overview of the “Economic Scenario”, given by the Chief Economist of Itaú Unibanco, Mário Mesquita. The economist began the panel by bringing macroeconomics to the center of the debate, with information from the international context and the impacts that the American, European and Chinese markets have suffered due to the side effects of the Covid-19 pandemic, in addition to the issue of the conflict between Ukraine and Russia.

The consequence of this scenario resulted in a global inflationary process. “American inflation has taken off. In September, it surprised and interest rates rose 5,5%, a rare percentage in the history of the American economy”, he commented.

In this environment of rising interest rates, the dollar is extending its strength cycle and, today, at one of its strongest levels, there is no sign of reversal, breaking the euro's parity. According to the economist, China shows modest signs of improvement in its activities, but there are still challenges in the real estate and services sectors.

Still on Brazil, the economist brought an increase of 2,5% in GDP in 2022, but with a growth forecast of around 0,5% for next year. Regarding inflation, like the rest of the world, the country was also hit. “However, inflation in Brazil has been falling, but it should only fall in the second half of next year”, he concluded.

Market Situation

The “Wheat Market Scenario” panel featured StoneX’s Risk Management Consultant, Fábio Lima, who shared the cereal’s market outlook. Following the first panel, the scenario for wheat presents some challenges. For the consultant, cereal prices are high and the sector has “condemned” the war between Russia and Ukraine.

However, for Lima, geopolitics still brings uncertainty to the sector, given the concentration of wheat production in the Black Sea, but it is not just the conflict that will result in challenges for the sector. The consultant recalled the “first shock” for the sector, in 2020, when China doubled its import market. And, in 2021, with the “break” of the Northern Hemisphere, the sector destabilized and, currently, the war has also contributed to this challenging situation.

“There were a series of events over the years. But, regarding the war, we must have this legacy of geopolitical reorganization. Next year, we will have doubts about which countries we will be able to do business with. There is no way we can continue doing the same business as we have been doing for 20 years”, he pointed out.

Given this, the expert predicts that the war will continue to affect the entire supply chain. “As with other expected challenges, we also have tight supply, very low stocks, in addition to the production cost, which will be very high, not only in Brazil, but throughout the world,” he stated.

However, for Lima, prices may fall if there is a guarantee of export from the Black Sea, if Russia reduces the export tax. Lima also highlighted that recession and inflation should affect the consumption of durable goods and not food.

In numbers, for Brazil, the consultant reported that StoneX's estimate, in relation to production – 2022/23 harvest – will be 10.6 million tons of cereal.

Trends and Innovations

The chemist responsible for Prozyn Biosolutions' Bakery Research & Development area, Karoline Dornella, brought research carried out by Euromonitor. “We need to understand what consumers want, prioritizing their belonging, information, healthiness, indulgence, experience and practicality,” she said. “The demand is increasing for 100% natural products, without preservatives and without sugar. The consumer wants to maintain the power of choice, with information. Companies need to understand why they choose one brand and not another,” she highlighted.

For Karoline, improvement and knowledge about ingredients and processes, combined with transparent communication, favor market development. “The consumer's choice involves knowing whether that product is sustainable, including from the packaging point of view, with more objective information, making clear the inclusion of additives, or even their absence, within the concept 'less is more', very valued today”, he stated.

She also discussed how to bring this appeal to wheat flour. “In our clean label line, for example, we rely on softness enzymes for freshness, free of ADA and emulsifiers, for crispy and soft breads, the adoption of flour for homemade bread, with the appeal of excluding additives”. The market for bakeries was also highlighted. “It is important to evaluate the use of flour for clean label mixing with a focus on own production, with the possibility of adding sourdough in the industry with a view to innovation”, she added.

Consumer markets

During the panel "Panorama of Consumer Markets", there was the participation of the President of the Brazilian Association of Biscuits, Pasta and Industrialized Bread & Cake Industries (Abimapi) and the Union of Biscuits and Pasta Industries in the State of São Paulo (Simabesp), Cláudio Zanão, the Director of the Bakery and Confectionery Industry Union of São Paulo (Sampapão), Eduardo Gamboa, and the CEO of Food Consulting, Sério Molinari.

Cláudio Zanão presented the pasta, bread and biscuits market, which reaches a value of R$ 50,4 billion annually, with great representation of activity throughout the value chain, reaching a figure of R$ 4,8 million tons in sales each year. “But we have a big challenge involving breaking paradigms to increase the weekly frequency of consumption of our products,” he explained.

Post-pandemic, the market, according to Zanão, saw an intensification in consumption at home and a non-resumption outside the home. “The resumption of consumption is challenged by the lower frequency and volume per occasion”, he detailed.

Next, Eduardo Gamboa highlighted the contribution of mills to bakeries in light of the macroeconomic scenario. Bakeries, according to him, serve different audiences with their most varied needs at all hours of the day. “Currently there are 87 thousand bakeries in Brazil and 22 thousand in SP. In Brazil, they earn R$106 billion, of which R$40 billion in SP alone”, he highlighted. “There are 920 thousand direct jobs in Brazil and 330 thousand in SP, with 1,6 million indirect jobs in the country and 560 thousand in SP”, he highlighted.

Concluding the São Paulo Wheat Production Chain Meeting, the foodservice sector program was presented by Sério Molinari. He highlighted that in the recovery trajectory, foodservice moved close to R$177 billion in goods in 2021. “Brazil is the 5th largest market in the world and any gain in income and increase in purchasing power greatly boosts our market”, he highlighted. “It is important to assess that we have come out of the worst decade of Gross Domestic Product per capita in 100 years. There have never been two consecutive decades of decline and this is certainly a decade of growth,” he said.

According to Molinari, the foodservice movement in Brazil is characterized by an economic activity that generates employment and income. “Although still lower than in previous years, the average worker’s income is also recovering,” she said. “Furthermore, the peak of inflation in food prices has passed and continues its downward trend.”

Molinari presented the data that points to a forecast of 5% growth in the foodservice market in 2023, above what was predicted. “The challenge for the segment is to do better than its 'peers' to gain market share, after all, few companies are prepared for this increase,” he said.