Shortage of diesel threatens Brazil, former ANP director says

Aurélio Amaral says country should create stocks, or harvest will be harmed

06/20/2022

Aurelio Amaral — Foto: Leo Pinheiro/Valor

Aurelio Amaral — Foto: Leo Pinheiro/Valor

Even with the announcements of fuel price increases imposed by Petrobras last Friday, there is a great risk of shortage of diesel in the second half. The warning comes from the former director of the National Petroleum Agency (ANP) and consulting partner at Schmidt Valois Advogados, Aurélio Amaral.

To Valor, the expert, who was director of ANP for four years, including during the truckers strike in 2018, said that the shortage can lead to occasional shortages of fuel in regions that depend more on imports, such as the Central-West. Even after Petrobras announcement on Friday, making diesel and gasoline more expensive, the gap in relation to international prices still remains, according to importers.

This inhibits imports, which account for about 30% of the diesel demand in the country, Mr. Amaral warns. The technician, who was also superintendent of supply of the agency, defended the formation of stocks by Petrobras to help reduce the risks of shortages. But, instead of stockpiling, Brazil gets lost in discussions about prices, Mr. Amaral says.

However, he considers a generalized lack of supply unlikely. But he stressed that the lack of diesel can damage the harvest, since the Central-West, the largest grain producer, is more dependent on imports.

Read the main excerpts of the interview:

Valor: What is the scenario of fuel supply in Brazil?

Aurélio Amaral: We need to keep some stock, because diesel is short in the world. It is necessary to pay so that Petrobras has the capacity to import and keep stocks. We also need to maintain some kind of parity [with international prices], at least for now in this current model, so that other players are encouraged to import and to supply part of the fuel that is not produced in the country. To mitigate prices to the consumer, it is necessary to have some compensatory policy, which the government so far has not wanted. If nobody gives in on one side or the other, the road ahead is that of a crisis.

Valor: Will Friday’s increase help?

Mr. Amaral: I think that the hike was necessary. The government and Petrobras are currently going through a dilemma: how to balance a mixed capital company, which has a social role, and holds a significant monopoly. According to the current law, and the way the pricing is established, Petrobras board has no choice but to raise the prices. It is a very difficult situation for those who are ahead of the board to find a way to hold prices without having a compensation that ensures they will not be held responsible by regulatory agencies [for possible losses].

Valor: How is the scenario for fuel importers?

Mr. Amaral: Nobody is importing. We are in a complicated situation. We need to bring diesel, because we are approaching the harvest, but the price [of oil] continues to rise, although it has had a small drop. There is a big pressure on the world demand for diesel. We are heading towards something dangerous. It is a complex issue that requires a systemic look and, mainly, harmony between Petrobras and the government, an environment of less tension and conflict. Today, it looks like a war, which is not good for anyone.

Valor: What are the risks?

Mr. Amaral: We are not stockpiling, because almost nobody is importing, so we are heading towards a big risk [of shortages]. It is a risk derived today from the war and the pressure of the embargoes on Russia [oil exporter].

Valor: Is there room for Brazil to start building stocks today?

Mr. Amaral: Only Petrobras is able to build a relevant safety stock today, because it owns the entire infrastructure. But how to do this without passing it on to prices? It is a difficult equation. In this current crisis, I think it is very difficult to have time to think about increasing stocks, while discussing price impacts. It would also be necessary to review the pricing policy and the remuneration policy for Petrobras’s investors. Under the current policy, it would have to pass on the costs of inventories. This is difficult in today’s politicized environment.

Valor: Will there be a shortage of fuel?

Mr. Amaral: I don’t believe in a widespread diesel shortage. But the risk of occasional shortages is great if we don’t move towards creating some stock. Mainly in regions that today depend on imports, like the Central-West, agribusiness regions, where the demand for diesel will be high in the second semester. We are heading towards a very emotional situation. It will be tense.

Valor: How to reduce the impact of high prices?

Mr. Amaral: I don’t see a way out that doesn’t involve compensation. But this has fiscal impacts on the federal budget, and can affect congressional earmarks in an election year, the government does not want it. It is not a simple discussion, it is complex. The resources have to come from somewhere. It requires cold blood and more calm, not this atmosphere of tension. If it stays just on Petrobras’ account, it would also be necessary to change the remuneration to shareholders, the dividends, it would be necessary to look at the management rules for publicly traded companies. If Petrobras simply does not pass on the prices, it will be subject to losses.

Valor: What do you think of the proposals made so far?

Mr. Amaral: The way the [sales tax] ICMS reduction was proposed, there is no compensation. With the increase in oil prices and the passing on of margins [the tax reduction] will have, in my opinion, an insignificant impact in terms of prices.

Valor: Will the sale of Petrobras’ refineries solve the discussion?

Mr. Amaral: I have always been in favor of divestments, I think they are welcome to create a competitive market. But they must be done with regulatory monitoring to mitigate competitive effects and avoid abuse of economic power in regions where refineries are dominant. It should be done in the medium to long term. This requires a smooth transition, in order to stimulate other investments. We stopped this process in the middle. We didn’t manage to divest all the refineries in order to start a competitive market. Petrobras continues to have a large monopoly.

Valor: What measures are needed for more competition?

Mr. Amaral: Refining was always thought of with Petrobras, in the Brazilian system as a whole. To take this system that was created to act in an integrated way and dismember it, it is necessary to create alternatives. If you simply sell the refinery, you will transfer the monopoly from the public to the private agent. It is necessary to have measures to create import competition. Brazil cannot, by law, have price control. But how to make this transition without some accompaniment? It is complex.

*By Gabriela Ruddy — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Household saving falls for first time after pandemic hit

Improvement of health situation drives consumption but continuity is uncertain

06/20/2022

Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor

Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor

After rising for seven quarters in a row since the pandemic hit Brazil, in early 2020, household saving has shrunk in the first quarter of this year, a survey by the Center of Capital Markets Studies of the Economic Research Institute Foundation (Cemec-Fipe) shows.

The declined of R$32.4 billion compares with a R$75.8 billion increase in the fourth quarter of 2021. The amount accounts for 6.1% of net household saving amassed between early 2019 and that moment, which totaled R$529.7 billion at the end of 2021. As a result, the amount held until the first quarter of 2022 fell to R$497.1 billion. The figures include savings accounts, investment funds, stocks, bank deposits, government and corporate bonds and bank funding.

The fact that more people are moving around and the lower uncertainties about the pandemic help to explain this situation, experts say. The phenomenon has driven a higher consumption in the first months of the year, as GDP data for the period already show. Other reasons may explain this: rising inflation and lower average income. Economists believe that lower household saving rates may remain in place, but will have a limited impact on consumption considering higher indebtedness and interest rates.

Two factors that helped increase household saving during the pandemic ceased to work or lost steam this year, said Carlos Antonio Rocca, the coordinator of Cemec-Fipe. There was a circumstantial factor caused by social distancing measures, which restricted consumption alternatives, especially services; and there was a precautionary factor caused by uncertainties related to the health crisis, which made people more willing to hold on to money.

“The reduction in household saving in the first quarter is not dramatic at all, but it indicates a falling trend. The number of cases and deaths fell,” he said. “The pandemic is perceived as more controlled, and uncertainties are lower as well,” the coordinator of the study said.

Since there are no indications that household saving has moved to real estate or investments abroad, Mr. Rocca highlighted that savings helped to drive consumer spending in the quarter, considering goods and services.

Marcelo Kfoury Muinhos, a professor at FGV’s São Paulo School of Economics, also sees a relationship between lower household saving and rising consumption in this group in the first quarter, as seen in GDP growth data.

“People started to spend savings amassed over the pandemic. Part of this has already translated into stronger GDP growth in the first quarter,” he said. The economist links the phenomenon to several factors, including the fact that society is going back to normal regarding the health emergence situation, the falling average income caused by a labor market recovery with lower-paid jobs, and some effects from inflation.

Household saving behave accordingly to income brackets, said Isabela Tavares, an economist at Tendências Consultoria. “In poor households, the drop follows the inflation and the pressure on the household budget. The savings mean relief for what people need to consume and to pay bills, for instance. On the other hand, segments of essential items more linked to high-income households have been a highlight in this moment of normalization of the pandemic,” she said.

Previous studies by Cemec-Fipe have suggested that people who managed to amass less money were withdrawing funds from savings accounts in 2021. In the most recent study, along with the general phenomenon of shrinking household saving, Cemec-Fipe found that household investment portfolios have changed as funds from savings accounts, investment funds and stocks were moved to more profitable fixed-income assets after the Central Bank started raising interest rates.

The savings amassed during the pandemic are expected to shrink even more, but economists are divided about the effect on consumption.

Mr. Rocca believes that the trajectory seen in the first quarter raises the probability of this movement over 2022. Should the pandemic remains under control over the year, the household saving rate would shrink by R$130 billion, which would allow household consumption to grow by 2%, more than the projections for GDP growth, which are around 1.5%, he said. “This could drive consumer demand, and it could be substantial, since it represents nearly 9% of total consumption in 2021,” he said.

A little more cautious, Mr. Muinhos believes that the household saving rates are likely to shrink even more, but he does not consider the impact on consumption a given. Confidence data are improving for now, but the activity indicators are not all advancing in the same direction.

Ms. Tavares believes that household demand will be lower throughout the year, but will end the year above the levels seen before the pandemic. But the pressures of higher interest rates on loans and debt will limit the amount of funds that reach consumption. She estimates that household savings will fall by 1.5%, considering savings accounts, capitalization title (a type of savings scheme with drawings), private pension, government bonds and fixed-rate corporate bonds, after increasing 19% in 2020 and  falling 4% in 2021. “The net result is still positive,” she said.

*By Lucianne Carneiro — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Caoa is second automaker to have ethanol hybrid car in Brazil

Yet, Brazilian group will not give up on electrics, will continue to make internal combustion vehicles

06/17/2022

Marcio Alfonso — Foto: Silvia Costanti/Valor

Marcio Alfonso — Foto: Silvia Costanti/Valor

The automotive industry is divided. Some believe that, in Brazil, electrification will only advance with hybrid cars – which run on power or internal combustion and can already be produced in the country. Another part prefers to follow the trend of developed countries and go straight to fully electric cars, which are imported. CAOA Chery has decided to bet on both fronts. It will import and produce vehicles with both technologies and thus be prepared, whichever path is adopted by the country and more accepted by consumers. The automaker is, however, inclined to believe that ethanol hybrid cars will gain space.

This week, the company born five years ago from the union of the Brazilian group CAOA with the Chinese brand surprised the market by detailing the electrification plans it had been emphasizing in its advertisements. It presented five new models – four hybrids and one fully electric. Two of the hybrid cars have already started to be produced in the Anápolis (Goiás) plant, and the others will come from China. The fully electric one, also Chinese, called iCar in Brazil, will be the cheapest in its category. It will cost R$139,990.

The apparently sudden initiative is, in fact, the result of a process that began to mature six years ago in the CAOA group and four years ago in the Chery division, according to the group’s vice president of operations, Márcio Alfonso. “We have reached the point where you can no longer advance in the emission of pollutants with combustion-only engines,” said Mr. Alfonso, a mechanical engineer with a long stint in Ford before joining CAOA, seven years ago.

The arrival of the hybrid line in Anápolis is part of the R$1.5 billion investment program unveiled in December 2020. It is also the result of a dream cherished by the founder of CAOA, the businessman Carlos Alberto Oliveira Andrade, who died in August last year. CAOA thus becomes the second automaker to produce hybrid vehicles in Brazil, with models Tiggo 5X Pro and Tiggo 7 Pro. And, like the pioneer in this initiative, Toyota, the hybrids manufactured in Anápolis can be fueled with ethanol.

“The hybrid model is expected to dominate because ethanol is a strategic product for Brazil,” Mr. Alfonso says. The country would be, according to the executive, “an adequate place” for fully electric cars, since it holds renewable power source, with hydroelectric plants, besides the good perspectives regarding solar and wind power generation. “But the consumer’s purchasing power is low,” he says. “It is not clear, from what we see in Europe, what to do with the electric car after the warranty period.”

For Mr. Alfonso, there is no point in bringing cars that few can buy. According to him, the number of consumers who bought vehicles over R$180,000 in 2021 does not reach 150,000. The market for new cars totaled almost 2 million. Therefore, the company will make a composition between hybrids and fully electric cars and will continue to produce combustion models. “We need to have all the cards up our sleeve for when the government defines which technologies will receive incentives,” he said.

Chery’s hybrid models will cost between R$159,990 and R$269,990. The most expensive of them, the Tiggo 8 Pro Plug-In Hybrid, an imported car, will be of the plug-in type, a hybrid that allows charging in the socket in addition to the combustion engine. The advantage of the model is fuel economy and better control of emissions.

The hybrid technology used by CAOA Chery will use the “light” hybrid technology, with a 48v battery, which costs less than a conventional one. In this case, the electric motor is less involved. According to Mr. Alfonso, one advantage of the hybrid model is to allow, during the development of new generations of the same car, the electric part to gain more space. By this reasoning, a hybrid model can become increasingly “more electric.”

According to the executive, the hybrids will represent 30% of the production in Anápolis. The idea, he highlights, is to electrify the line more and more. For the time being, the production of fully electric vehicles is not foreseen. No company produces this type of vehicle in the country.

The Anápolis plant was already prepared to receive lines with the new technology. The same does not happen with the Jacareí unit, in São Paulo, where production was suspended at the beginning of May.

The São Paulo-based plant, which the CAOA group acquired when it joined Chery, has an older manufacturing system. According to Mr. Alfonso, it is necessary to adapt the plant with equipment that accepts the most modern platforms, of electrified vehicles. The expectation is to complete the process in two years.

With the end of production in Jacareí, almost all the almost 600 workers were dismissed. Mr. Alfonso says that the company’s management was reluctant to take this attitude “in an election year and with an unstable economy.” He added, “But there is no point in continuing to invest in an old platform.”

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Costs, interest rates affect machinery sales

Market is heated and grew until May, but a slowdown is expected in the second half of the year

06/17/2022

After falling 31.2% in Brazil between 2010 and 2020, to about 46,000 units, sales of agricultural machinery grew again last year – 26%, to 58,000 units – and are likely to remain strong in 2022, a report by Consultoria Agro Itaú BBA released last week, based on data from the National Federation of Automotive Vehicles Distribution (Fenabrave), shows. But the high costs and interest rates are expected to limit the recovery.

In May, according to Fenabrave, sales increased 35.1% compared to the same month in 2021 and reached 6,100 units, driven by tractors and harvesters. In the first five months of 2022, the total reached 20,200 units, up 36.6% year over year. This increase, Fenabrave said, reflects the increase in producers’ income due to the high prices of commodities and occurs despite the strong increase in inputs such as fertilizers.

Yet, as a large part of the inputs for the 2021/22 harvest was purchased in advance, the farmers’ margins were preserved and even expanded in the season, whose summer harvest has already ended. Hence the still heated demand for new machines, most of them financed with Moderfrota funds, in the first half of the year. Moderfrota, the main investment line of the federal government’s Crop Plan, is expected to finance around R$6 billion in the 2021/22 cycle, which will end on the 30th.

But there is concern among sources in the segment about the behavior of demand in the second half of the year, since, for the 2022/23 harvest, which will begin to be sown in August, the costs will weigh more. The forecast is for a reduction in profit margins in the fields, although operationally the results forecast by banks and consulting firms are still attractive. No “collapse” is expected, but a cooling-off is on the radar.

Driven by the 58,000 agricultural machines sold last year, the sales of the segment reached R$38.3 billion, up 40.3% year over year, according to the Brazilian Association of the Machinery and Equipment Industry (Abimaq). And, according to Abimaq’s forecast taken into account in the study, revenues are expected to total R$40.2 billion this year, up 5%.

The contracting of Moderfrota funds also reinforces the scenario of lower growth. The amount for 2021/22, although in line with the government’s strategy of shifting more funds from large to small and medium farmers, is the smallest in this recent recovery of sales. In the 2019/20 and 2020/21 seasons, when the total amount also included a non-earmarked line from Banco do Brasil, there were R$7.3 billion and R$7.5 billion in credit, respectively. For 2022/23, neither the volume of funds for Moderfrota nor the interest rates – currently at 8.5% per year and expected to rise because the Selic, Brazil’s benchmark interest rate, is higher now – have been defined yet.

As flush farmers are not a Brazilian phenomenon, the country’s agricultural machinery exports, which peaked in the second half of the decade of 2000 and then went into free fall until 2020, also recovered last year. There were $236.6 million in total in 2021, according to data from the National Association of Motor Vehicle Manufacturers (Anfavea), up 23.4% year over year.

According to Anfavea’s data highlighted by Consultoria Agro Itaú BBA, most exports continued to be directed to Argentina ($25.4 million), but the neighboring country was once a much more relevant client. Machinery imports reached $66.9 million in 2021, compared to $83.6 million in 2020, and purchases came mainly from the European Union (28.8% of the total) and the United States (25.7%).

*By Fernando Lopes, Rafael Walendorff — São Paulo, Brasília

Source: Valor International

https://valorinternational.globo.com/
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LGBTQIA+ population spends 14% more in Brazil

According to survey by NielsenIQ, group spent R$10.9bn in 12 months through March; more brands support Pride Parade

06/17/2022

The LGBTQIA+ population spent R$10.9 billion in retail and e-commerce purchases in the 12 months through March, which represents 5.5% of the consumption of Brazilian households in the period. The average spending of this public, per household, is 14% higher than the general average. The data are included in an unprecedented survey conducted by the research company NielsenIQ in April and May this year.

The study heard representatives from 8,000 households in Brazil, in a representative sample of the Brazilian population profile, in addition to 2,300 online consumers. According to the survey, at least 5.5% of households in the country have at least one LGBTQIA+ member.

“This public is expressive and consumes at various levels, with specific characteristics and high purchasing power,” says Marcelo Osanai, head of e-commerce and pride at Nielsen IQ. He ponders that the percentage of 5.5% of homes with at least one LGBTQIA+ person may be higher than indicated by the interviews, since the question “if there is someone LGBTQIA+ in the house” is asked to a family member, who may not know or be embarrassed to answer. “It’s still a taboo question,” he says.

Even so, the study offers a glimpse of the profile of the “rainbow homes,” as they are called in the study. Most have more than one person and have pets; 29.2% have high income (compared to 27% of the general households); 13.6% have people with college or post-graduation degrees (compared to a general rate of 9.8%); they spend more on convenience products (ready-made food and beverages) and personal care.

Of all those consulted, 30% say they are willing to spend more with brands that support gender diversity. For 84.4% of the LGBTQIA+ households and 56.2% of the other households, the actions of companies in favor of this cause reflect positively on their image.

“Regardless of whether the household is LGBT or not, the influence of affirmative actions by brands is being noticed and generates real impact on the purchase decision,” says Mr. Osanai.

Companies are more attentive to this. The 26th São Paulo LGBT+ Pride Parade, which takes place this Sunday, has the sponsorship and support of 13 brands, such as Terra, Smirnoff, Burger King, Amstel, Mercado Libre, Jean Paul Gaultier and Vivo. “In the first years, we had practically no sponsorship. We heard from many companies it was a delicate topic,” says Diego Oliveira, member of the São Paulo LGBT+ Pride Parade Association.

The scenario began to change more strongly since 2016. In recent years, he highlights, the global LGBT pride movement has grown, as well as internal diversity actions in companies, which realized they needed to update.

This year, 3 million people are expected to take part in the event on Paulista Avenue and its surroundings. The first edition, in 1997, gathered about 2,000.

Telefónica’s Vivo is making its debut this year as a sponsor. “We have an extensive performance in diversity on several fronts. We believe that we have to have a very solid internal performance to reverberate outwards,” says Marina Daineze, director of brand and communication at Vivo. For five years the company has had affinity groups, as the groups of employees belonging to minorities are called, which are created to dialogue with all departments of the company.

“We know the power of communication in the formation of a more inclusive society,” says Rony Santos, manager of Diversity, Equity and Inclusion at Grupo Boticário. The company was one of the pioneers in showing gay couples in its advertisements. In 2015, its Valentine’s Day campaign, which featured men and women exchanging gifts with each other, generated much controversy and a lawsuit in the Brazilian Advertising Self-Regulation Council (Conar).

The group not only continued but intensified its work with topics related to diversity inside and outside the company. Its LGBT affinity group, with more than 400 employees, participates in product development meetings, as well as in the formulation of internal policies. In 2021, these meetings generated the Orgulho (Pride) line, which express support for the cause.

Two years ago, Alpargatas’s brand Havaianas created the Pride line with rainbow-themed flip-flops and clothing, with 7% of its profits going to actions for the LGBTQIA+ community. According to the company, the sales of the line, which has 30 items, generated R$2.4 million in donations by the end of last year.

Another brand that does not escape the controversies related to gender issues is Burger King, sponsor of the LGBT Parade in São Paulo since 2018. Last year, a campaign showing LGBT families through the eyes of children was the target of hate attacks on the social media. “It is an event that marks all our positioning and support to the cause of equity, inclusion and diversity,” says Juliana Cury, chief marketing officer at BK Brasil. “Those who connected and understood the message became more loyal to the brand.”

*By Luciana Marinelli — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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EU’s new environmental demands pave way for agreement with Mercosur

Bloc reportedly intends to wait for presidential election in Brazil

06/16/2022

Virginijus Sinkevicius — Foto: Silvia Zamboni/Valor

Virginijus Sinkevicius — Foto: Silvia Zamboni/Valor

The European Commissioner for the Environment, Virginijus Sinkevicius, told Valor that by the end of the year, the European Union may present to Mercosur its demands for additional commitments in the environmental front. This would give a new impetus to the bi-regional free trade agreement.

For Pascal Kerneis, managing director of the European Services Forum (ESF), the commissioner reflects the intention to wait until after the presidential election in Brazil, in October. The executive now says that, for the first time in a long time, he is optimistic about the direction of the European Union-Mercosur agreement.

The European bloc, since the beginning of 2021, has been talking about presenting Mercosur with a proposal for a side letter to the negotiated agreement, to mitigate a good number of concerns raised by several member states, mainly involving the protection of the Amazon.

Without mentioning internal differences between environment and trade, the commissioner argues that the delay is because the European Union needs to make the side letter compatible with the Green Deal, the European strategy for growth until 2050. The Green Deal is to be reflected in all major policies of the community bloc, including to meet issues raised by the European Parliament.

For Mr. Sinkevicius, the new geopolitical conditions do not influence the directions of the bi-regional agreement. “I don’t think it has a big impact, because we address issues that haven’t changed,” he said, apparently referring to persistent environmental issues in Brazil raised by some European sectors.

Asked if opposition to the European Union-Mercosur agreement had subsided lately, the commissioner replied: “Members of Parliament have the democratic right to raise their questions and I think they are legitimate questions to know whether our trade agreements are in line with our main policies. I think they should be in line.”

For Mr. Kerneis, the Brazilian election is on the radar, but what seemingly concerns him is the crisis in Argentina, with high inflation, social demonstrations and other turbulences.

“The stars may not be aligned between Brazil and Argentina,” he says. And the European Union needs to look more for the South American market, to compensate for lost business in other parts of the world.

He says, however, that he is now encouraged because the countries that will assume the rotating presidency of the European Union in the coming semesters are very favorable to the agreement with Mercosur. In two weeks, France will hand over the presidency of the European bloc to the Czech Republic, a major automotive producer. In the first half of 2023, it will be Sweden’s turn. And in the second half of next year, the presidency will be held by Spain.

The signing of the European Union-Mercosur agreement could thus have a chance to take place in the second half of 2023, with the Spaniards in the presidency of the European bloc, in the expectation of some sources.

The implementation of the free trade agreement between Mercosur and the European Free Trade Association (EFTA, formed by Switzerland, Norway, Iceland, and Liechtenstein) also depends on additional commitments by Brazil (and its partners in environmental protection) with the Europeans, a Swiss representative told a Brazilian negotiator this week in Geneva.

On the other hand, discussions with Asia are moving forward. Mercosur is expected to sign a trade agreement with Singapore in July. After that, it may start negotiations with Indonesia and Vietnam.

The European Union on Friday will relaunch in Brussels the negotiation of a trade agreement with India, one of the countries with the highest growth rate in the world. The expectation is to conclude the understanding by early 2024. The two sides have already been negotiating for 10 years, but the discussions were suspended due to India’s resistance to reducing tariffs on wine and car imports.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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High prices drive beef, chicken exports from January to May

Main destination of Brazilian protein was China, up 91.3% year over year

06/15/2022

Driven by China and with significant increases in average prices, the country’s exports of beef and chicken grew in May and saw volume and revenue increase in the first months of the year.

The highlight continues to be beef, which faces lower consumption in the domestic market. The exports of this protein (fresh and processed) reached 176,000 tonnes and yielded $1.08 billion in May, according to data from the Secretariat of Foreign Trade (Secex) compiled by the Brazilian Beef Exporters Association (Abiec). Compared to the same month last year, volume grew 17.5% and revenue was 49.5% higher.

In the first five months of 2022, according to the association, the exported volume reached 887,300 tonnes, 25% more than in the same period of 2021, and revenue grew 55.9%, to $5.06 billion. The average sales price increased 24.7%, to $5,700 per tonne.

“This shows that Brazilian beef is being increasingly valued in the international market and that Brazil is consolidating itself as an important trading partner for the buying countries,” said Abiec’s head Antônio Jorge Camardelli in a note.

From January to May, the main destination of protein shipments was China ($2.9 billion, up 91.3% year-on-year), despite temporary embargoes imposed by Beijing to some Brazilian slaughterhouses because of the country’s Covid-zero approach.

Next comes the U.S. ($471 million, up 88% YOY), Egypt ($255.8 million, up 345% YOY) and the European Union ($212.8 million, up 29.4% YOY).

The exporters of chicken shipped 429,600 tonnes of protein last month, a volume 3.7% higher than in May 2021, the Brazilian Animal Protein Association (ABPA) reported Wednesday. The revenue from foreign sales grew 37.8%, to $904 million.

“The global inflationary framework, with rising production costs and strong demand for chicken in the foreign market, strengthened the average international prices, [which reached] levels above $2,000 per tonne,” said ABPA’s head Ricardo Santin in a statement. According to the executive, the exports performance in May helps to offset the impacts of the increase in the cost of inputs used in production (basically corn and soybean meal).

China was the main destination of Brazilian exports, even with the 8.8% drop in volume last month, to 50,200 tonnes. It was followed by the United Arab Emirates, Japan and the European Union, with shipments of 44,800 tonnes (+73.2%), 33,100 tonnes (+3.2%) and 26,300 tonnes (+80.7%), respectively.

From January to May, exports totaled 1.9 million tonnes, or 7.8% more than the same period in 2021. The revenue increased 33.6%, to $3.8 billion.

*By Fernando Lopes, Érica Polo — São Paulo

Vaslor International

https://valorinternational.globo.com/
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Chamber of Deputies passes bill that reduces tax on fuel, electricity

Federal government pushed bill through Congress to try and fight high inflation

06/15/2022

Arthur Lira — Foto: Paulo Sergio/Câmara dos Deputados

Arthur Lira — Foto: Paulo Sergio/Câmara dos Deputados

Chamber of Deputies passed Tuesday by 308 votes in favor and none against a complementary bill that cuts state tax ICMS on fuel, electricity, communications and public transport. Yet, technical problems in the lower house’s voting system meant that the conclusion will have to occur on Wednesday because two amendments from opposition parties were still pending. After this, the bill must be sent for President Jair Bolsonaro to sign it into law.

The problem with the conclusion is the lack of quorum. Most deputies had travel plans and the session on Wednesday, the day before a holiday in Brazil, would be empty. Chamber Speaker Arthur Lira (Progressive Party, PP, of Alagoas) apologized for the failure but determined that the absentees will lose part of their salaries to try and raise the number of voters.

Before the voting system failed, the lower house approved the Senate’s innovation of reducing to zero federal taxes PIS/Cofins and Cide on gasoline, ethanol and natural gas vehicle until December 31, without the need for the government to compensate for the revenue waiver. The exemption is already in force for diesel and cooking gas but has had little effect on final prices.

The bill that reduces the ICMS tax on fuel and energy is another attempt by the government to contain inflation.

Earlier on Tuesday, the federal government had requested Petrobras to wait a little longer before increasing diesel and gasoline prices, sources say. The administration wanted the oil company to hold the hikes until the bill to limit the sales tax ICMS to 17% on fuels, power, telecommunication services and public transportation was voted in Congress.

Estimates from sources close to Petrobras indicate that diesel is being sold at the state-owned company’s refineries 18% below the import parity price, while gasoline prices are 20% lower. The Brazilian Association of Fuel Importers (Abicom) estimates that gasoline and diesel sold by Petrobras were 16% below the foreign market on Tuesday. The consultancy StoneX calculated the need for a 23.1% hike in diesel and 10.4% in gasoline based on Tuesday prices.

Holding prices has become strategic for the government, given the high inflation and the elections calendar.

Valor found out that there was a meeting on Tuesday, between Petrobras CEO José Mauro Coelho and Minister of Mines and Energy Adolfo Sachsida in Brasília. The meeting was also attended by Petrobras chair Marcio Weber. Fuel price hikes were discussed in the meeting, but the issue was not solved, sources say.

Petrobras would be ready since Tuesday to increase the prices that would partially offset the diesel and gasoline disparity in the refineries. After the request of the government, however, it decided to wait, Valor has learned.

Some people believe that Petrobras is unlikely to hold a hike in the very short term, although political pressure may postpone it for a few days.

According to a survey by the National Petroleum Agency (ANP), the price of regular gasoline at gas stations in the Southeast region averaged R$7.160 per liter during the week of June 5-11. For diesel, the average price in the region was R$6.794 per liter in the same period.

At the same time, the delay to choose the new nominees for the Petrobras board continues.

The documents of the nominees have not yet all been sent for analysis by the Eligibility Committee (Celeg), linked to the Personnel Committee (Cope), which is in charge of evaluating the candidates’ compliance with the company’s internal rules and the state-owned company’s law.

The change in senior management at Petrobras is part of the government’s strategy to try and control fuel prices.

*By Raphael Di Cunto, Luísa Martins, Francisco Góes, Gabriela Ruddy — Brasília, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Banco do Brasil, Caixa compete for Crop Plan funds

Caixa has grown in agribusiness and wants bigger share; BB fears delays in releasing credits

06/15/2022

Soy planted in Mato Grosso: state-owned banks compete for clients in Brazilian farms — Foto: Ruy Baron/Valor

Soy planted in Mato Grosso: state-owned banks compete for clients in Brazilian farms — Foto: Ruy Baron/Valor

Banco do Brasil (BB) and Caixa Econômica Federal are fighting behind the scenes a fierce dispute for the funds of Crop Plan 2022/23. BB, which historically has always been the largest funder of the agricultural sector, fears that it may be left without a sufficient amount to meet the demand of its customers. Caixa argues that it is the largest bank in the country (in credit portfolio and number of customers) and that it makes no sense to stay out of a segment that represents almost a quarter of the Brazilian economy.

The imbroglio has even entered the radar of the Ministry of Economy, one of the organizations responsible for deciding how the funds will be divided. “There is a dispute for space, with Caixa trying to grow,” says a source.

Some in the sector fear that the competition will slow down the procedure to tap the funds. Following the jargon that there is a right time to plant, farmers need funding at the right time – as early as possible – to buy the technological package (seed, fertilizer, pesticides, machinery and so on) that will be used.

The dispute between the two government-controlled banks is not only technical, but also political. BB, led by Fausto Ribeiro, has the sympathy of the Ministry of Agriculture and also of several members of the rural caucus in Congress. Caixa, on the other hand, is led by Pedro Guimarães, who is close to Economy Minister Paulo Guedes and to President Jair Bolsonaro.

Valor has found that Caixa’s demand was over R$50 billion in subsidized funds, six times more than the R$7.3 billion operated in the 2021/22 season. BB wants R$60 billion, above the R$43 billion of this season. Altogether, the government is expected to release about R$120 billion in subsidized financing in the cycle that begins in July, above the R$88.5 billion in the previous year.

These subsidized funds are money lent by banks to rural producers through financing in Crop Plan lines, that receive government support in subsidizing interest rates. With this, instead of the farmer contracting operations with market interest rates, the government guarantees lower rates and subsidizes the difference in rates to lenders.

Last year, the Crop Plan had a total of R$251.2 billion, of which R$162 billion were non- subsidized funds, and R$89 billion were subsidized. BB took 48% of the subsidized volume. However, with the voracious appetite of Caixa and more and more banks participating in the program, the bank’s fear is to have an insufficient share to meet the demand of its clients. In this case, the borrowers can always go to another bank, but they would lose time to open an account, send all the documents and wait for the loan to be approved – which can take much longer.

The sector is in a hurry. The new Crop Plan begins on July 1st, which means that the government has a few days to arbitrate the dispute between banks and define who will get what. Passed in early 2020, the so-called Agro Law changed the program and the number of banks increased significantly. It went to 12 in 2021 from five that year, and is likely to reach 21 now, but Caixa is the most relevant.

A former secretary of the Ministry of Agriculture says that the teams that draw up the Crop Plan follow technical rules and that Caixa does not fit into many of them, which would reduce Mr. Guimarães’s chances of having his request granted. Still, considering the qualitative bias used by the government, it is possible that, politically, Caixa ends up winning a bigger slice.

“Caixa is pushing to divide the cake of the Crop Plan, which brings an unnecessary risk to the agricultural sector. We run the risk of ceasing to be the granary of the world,” a person familiar with BB’s plans said.

A source close to Caixa says that the bank has full operational capacity to meet the demand and that what irritated Mr. Guimarães was an attempt to exclude the bank from the program, and that the lender’s management team considers its debut in the 2021/22 harvest a success.

Operational capacity is one key point in the discussion. At the peak of the harvest, BB can do more than 4,000 transactions a day. In a recent presentation to the Parliamentary Agricultural Front (FPA), the bank’s CEO said that it executed 486,500 transactions in the current Crop Plan, while the cooperative system made 347,600, and Caixa only 11,700. BB says behind the scenes that Caixa failed to use all funds, an accusation rejected by the rival.

Sources say BB approached Caixa some time ago, seeking a greater synergy between the federal government banks. The idea was for BB to virtually leave the housing market for individuals and start distributing Caixa’s products in its branches. Caixa would give up agribusiness, leaving BB, which has more experience in the sector, to lead the segment. The proposal, however, would have been rejected by Mr. Guimarães, who argues that more competition is good for the system.

Behind the scenes and even in public events, Mr. Guimarães has already admitted that Caixa had some mishaps at the beginning of its operation, but that it has fixed them and has improved month by month. Proof of its success is that it went from eighth to second place in rural credit in two years. It plans to reach 100 agencies specialized in agribusiness.

In one of the most important agricultural shows, Agrishow, Mr. Guimarães was supposedly questioned by agricultural machinery manufacturers about the delay in releasing funds. On the stage of the event, he pushed back on criticism. “We were here and there are several criticisms in relation to Caixa. Great. That is why I am here, to learn. Today we are only ‘very bad’. The day that Caixa is ‘so-so’, we will be the biggest agribusiness bank in Brazil.”

At the beginning of the month, Caixa disclosed that it registered a monthly historical record of rural credit contracting in May, with R$6.1 billion granted for rural transactions. “The results highlight Caixa’s stance to support the Brazilian agribusiness, benefiting especially family farmers, such as fishermen and fish farmers, small and medium-sized rural producers, as well as cooperatives and agribusinesses,” the bank said.

Caixa’s foray in agribusiness makes sense because small producers often have a correlation with the social programs managed by the bank and also because it has a high potential to generate cross-sell, or the sale of more products to the same customer. Some crops have two or even three harvests per year. Besides this, farmers need credit cards, insurance, financing for machinery and so on. “In housing credit, Caixa will only see the client again 10 years later. In the case of agribusiness, they may see them three, four times in a year,” a source said.

Last month, when disclosing the bank’s earnings report, Mr. Guimarães commented that Caixa already uses 3% of what it raises in savings for rural credit and that it could reach the limit of 10%, if necessary. “We have total capacity to do housing and agricultural credit. We have R$10 billion for agro and we can go to R$36 billion.”

The bank has almost R$360 billion in savings deposits. Currently, Caixa does not comply with the percentages of directing savings to rural credit, which can be done with a communication to the Central Bank. If it opts for the hybrid system, it can maintain 90% of the volume in the real estate sector and allocate 10% to the rural sector. The bank would have an enormous amount of funding, but also the obligation to use these funds, under penalty of paying the financial cost to the Central Bank at the end of the harvest.

Mr. Guimarães had already said the bank has a market share of 4.5% in agribusiness and hopes to end the year with 10%, and that the plan was to achieve leadership by 2024.

Another crucial point that has opposed BB and Caixa is the Central-West Constitutional Financing Fund (FCO), which is operated by BB. Caixa thinks it is unfair that BB has exclusivity in the FCO and argues that this gives it an advantage in agribusiness, since the region concentrates the largest products in the country.

The FCO credit operations are subject to the so-called “del credere,” a commission of up to 6% received by BB due to the credit risk assumed. “With this fee, they can charge lower interest rates and endure a much higher default. We can’t compete with them. And 90% goes to big producers,” a source close to Caixa said.

BB and Caixa declined to comment.

*By Álvaro Campos, Rafael Walendorff, Estevão Taiar — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Copom’s scenario for oil called into question

Future curve suggests barrel north of $110 by the end of the year, 10% above Central Bank’s main scenario

06/14/2022

The main scenario for oil prices used by the Central Bank’s Monetary Policy Committee (Copom) to fine-tune its interest rate policy is being called into question amid new pressures on the commodity.

The Central Bank adopted a scenario A for oil at its March meeting to avoid dealing with the volatility of prices, which at the time were over $120 a barrel.

Instead, the committee assumed that “oil prices follow approximately the futures market curve until the end of 2022, ending the year at $100/barrel, and then start increasing 2% per year in January 2023,” according to the English version of the minutes of the 245th meeting of the Copom.

Lately, however, the future curve suggests a barrel north of $110 by the end of the year, which means a 10% higher price. The Brent oil price was around $120 a barrel earlier on Monday.

Etore Sanchez, the chief economist of Ativa Investimentos, says that a portion of the fuel price used in the Central Bank’s models is formed from the opinions of industry experts. “Because it is discretionary, it can end up mitigating the worsening,” he said.

Mr. Sanchez estimates that the price of gasoline in the domestic market is about 35% below international prices. Many other market economists are finding similar spreads in their calculations, around 30%, and some believe that Petrobras will soon be forced to raise its prices.

This spread tends to mitigate at least part of the price drop expected if the government achieves all its objectives with a package aimed at cutting federal and state taxes, partly temporarily.

The fuel price hikes surprised Central Bank’s directors, who in recent statements have highlighted the fact that the Brent oil price is no longer such a reliable indicator of the evolution of prices of oil products.

Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados

Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados

As many had predicted, the adoption of scenario A by the Central Bank has made it difficult to keep inflation expectations in check. Many analysts have maintained the previous practice of projecting inflation based on the current price of the product.

This is one factor among many others that explain the detachment of the Central Bank’s inflation projections for 2023, which at the Copom’s meeting in May was 3.4%, from market projections.

Market expectations for inflation in 2023 are already at 4.6%, according to an analysis published Monday by Valor, compared with the Central Bank’s target of 3.25% for the year.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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