Petrobras effect raises market distrust

Government signals of extra dividends and spending pressures challenge domestic sentiment

11/03/2024

Fernando Siqueira — Foto: Celso Doni/Valor

Fernando Siqueira — Foto: Celso Doni/Valor

The calm that has prevailed in domestic markets in recent months has given way to a deterioration in risk perceptions.

The absence of extraordinary dividends from Petrobras, President Lula’s request for more credit from state-owned banks, and his desire to discuss an increase in the spending limit weighed on Brazilian assets last week. The sum of these factors increased investors’ mistrust of the government’s future handling of economic policy.

There was already some uncertainty in the air before Petrobras’s balance sheet was released on Thursday. However, this was contained as Brazilian assets underperformed their peers. On Friday, however, the deteriorating risk sentiment spoke louder. The blow to Petrobras shares, which fell around 10%, dragged Brazil’s benchmark stock index down—the Ibovespa fell 0.99% that day and 1.36% in the week, to 127,071 points. The foreign exchange rate gained 0.97% in the session to R$4.9816 per dollar due to capital outflows.

“The market is already used to this kind of talk from the government, but this time it came in the form of an attitude,” said Cesar Mikail, variable income manager at Western Asset, referring to the announcement that Petrobras will not pay extraordinary dividends for now. “And after the event, you always put something in the price for the company. Now the market can increase the asset’s discount rate, which is reflected in share prices.”

Concerns go beyond the Petrobras effect, however, as agents look at the macro context. President Lula’s comments signaling an increase in spending and the deterioration in the president’s rating measured by an IPEC survey have fueled the climate of uncertainty in the market. The perception of increased fiscal risk caused long-term interest rates to rise on Thursday and Friday, contrary to what happened abroad. The rate on DI contracts maturing in January 2027 rose to 9.97% from 9.905%, and that for January 2029 rose to 10.435% from 10.34% at the close of trading.

“There were doubts about whether the government would respect market laws or be more profligate; whether it would interfere in state-owned companies or not. So far, it had been less bad than expected,” said Daniel Delabio, partner and manager at Exploritas, citing respect for the Central Bank’s autonomy and the maintenance of the inflation target at 3% per year. “Now that the government seems to be getting closer to the [fiscal] target, Lula is taking the position that he wants to change it so he can spend more. If you look at this and the Petrobras decision, it creates an environment of risk aversion.”

Economist Yara Cordeiro of Novus Capital agrees. She highlights the fiscal impact of Petrobras’s decision, as a significant portion of the state-owned company’s dividends would go to the government. “The budget doesn’t provide for extraordinary dividends, but even so, everyone was counting on it being something that could help. In addition, there are doubts about the funds that were expected via CARF,” said the economist in a podcast, referring to the reinstallation of the casting vote, which tends to favor the government in the Tax Appeals Administration Council (CARF).

“We had expectations, at least on the government side, that there would be no resistance from Petrobras to reach an agreement with CARF. The amount expected to be paid to the government was quite significant, possibly reaching R$30 billion … With this setback suffered by the minority shareholders in the decision on dividends, the agreement now seems more distant and may face more resistance within the board of directors,” he said. “Not to mention that it was perceived as an attempt by the government to interfere in the company.”

Fernando Siqueira, head of research at Guide Investimentos, recalled that the issue has been discussed since the 2022 election cycle. “But [Finance Minister Fernando] Haddad managed to avoid it. Now we are seeing signs of a more negative path, and this should be on the radar of investors, especially local ones, who are looking at the political issue with a magnifying glass and are starting to fear what might happen.”

For Luiz Fernando Araujo, managing director of Finacap, recent events show that the risk of investing in state-owned companies has increased. “It has even increased for some privatized companies. We saw, for example, how the government tried to influence the choice of Vale’s CEO.”

Por Augusto Decker, Arthur Cagliari, Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Rising demand for agribusiness debt restructuring

Surging interest rates combined with a decline in agricultural commodity prices have prompted an increasing number of sector companies to seek renegotiations with creditors

03/08/2024

Douglas Bassi — Foto: Fernando Martinho/Valor

Douglas Bassi — Foto: Fernando Martinho/Valor

Agribusiness, heavily leveraged, has emerged as a key player in the country’s debt restructuring processes, with numerous producers facing the dual challenges of high costs and price pressures on certain commodities. With the yellow light on, ways to alleviate the problem are being studied, including capital market mechanisms. The imminent need for cash by the companies most burdened by the cost of debt is already drawing the attention of funds specializing in alternative investments, the “special sits,” which are already analyzing opportunities in the area.

The challenging outlook contrasts with the country’s sector’s progress last year. The Gross Domestic Product (GDP) of agriculture grew by 15.1% and was the main driver of the 2.9% expansion of Brazil’s GDP.

A study by Virtus, a company specializing in corporate restructuring, reveals the situation. Using only companies listed on the stock exchange, the snapshot shows a drop in cash generation and an increase in the level of indebtedness, sounding alarm bells.

The earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, an important profitability indicator that shows the ratio between a company’s cash generation and its net revenue, decreased from an average of 14.4% at the end of 2021 to 7.4% last year. Leverage, which represents the extent to which a company’s debt exceeds its annual cash generation, however, moved in the opposite direction, with an increase of 87%, to 3.1 times in the same period, according to the survey conducted at Valor’s request.

Of the companies analyzed in the study, 60% now have leverage above three times, which is generally one of the metrics observed for breaching covenants (financial obligations determined in a contract).

Douglas Bassi, a partner at Virtus, highlights that the price of commodities is a key factor in the financial health of agribusiness. Faced with the current scenario, Virtus has seen an increase in inquiries from producers who are experiencing financial difficulties. “The trend continues,” he noted.

The situation for non-listed companies is even more challenging. “Listed companies have easier access to capital, currently at an average cost of CDI plus 2%. But across the sector as a whole, the spread is much wider,” he explained. According to sources consulted by Valor, many rural producers have become indebted in recent years, investing the funds in expanding their land holdings during a period of high commodity prices. A significant number utilized Fiagro, investment funds that focus on the agricultural sector. However, a portion of these producers are now struggling to meet their payment obligations under their contracts.

The rising number of requests for court-supervised reorganization in agriculture underscores the issue. Data from Serasa Experian released on Thursday (7) shows that last year, requests for court-supervised reorganization from rural producers surged by 535%. Experts consulted by Valor indicate that the situation is deteriorating.

Consequently, some Fiagros have had to notify their shareholders of the non-payment. Galapagos Capital, for instance, had to report on the court-supervised reorganization of Grupo Elisa, owned by the Mitre family, involving an Agribusiness Receivables Certificate (CRA). The asset manager informed shareholders that it was “collaborating with the other creditors of the CRA to protect the fund’s interests.”

Elisa Agro stated that “court-supervised reorganization was deemed the best course of action in light of the macroeconomic challenges that have affected the company’s operations in recent years.”

“The company is confident that, in collaboration with its advisors and creditors, it will formulate a viable restructuring plan that aligns financial obligations with cash flow, ensuring the sustainable continuation of operations and the preservation of thousands of jobs,” it announced.

Another example is the Vectis Datagro Crédito do Agronegócio fund, which has declared it will call for the early maturity of Brasil Bio Fuels’ CRAs, as the latter sought judicial protection against debt collection. Brasil Bio Fuels explained that its application was for an emergency injunction “aimed at securing a 60-day window to negotiate a mutually agreeable resolution with its principal creditors.”

Mr. Bassi from Virtus recalled that many Fiagros were initiated during a period of lower interest rates and higher commodity prices in Brazil, a scenario that has since shifted on both accounts. According to January data from ANBIMA, there are now 98 active Fiagros, with net assets totaling R$36.4 billion—up from nine funds in August 2021.

In some instances of court-supervised reorganization in Mato Grosso, for example, trial court judges have rejected land as collateral for loans, supporting the argument that the asset is indispensable. This issue is being closely monitored by asset managers, who have started to anticipate problems.

Roberto Zarour, a partner at Lefosse’s Restructuring & Insolvency practice, notes that the agribusiness sector’s demand for judicial recoveries and restructurings has increased this year, marked by significant cases, indicating a strong trend. “The Selic rate is decreasing, yet it remains quite high. That has affected the more vulnerable companies, particularly those with bank debt in the capital markets,” he noted. He also highlights that many of these renegotiations have occurred outside the judicial realm.

In the financial market, various structures are under consideration to both capitalize and prolong the maturities of these producers. One method being discussed involves utilizing Fiagro itself to consolidate current debts and repackage them with different terms, extending the duration. Another approach, considered by special sits, involves leasing land; the fund purchases the land and establishes a long-term lease with the producer.

Rodrigo Aguiar, from Íntegra, a firm specializing in corporate restructuring, describes the most critical situations among soybean and corn producers who incurred debt for investments and were subsequently walloped by increasing interest rates and declining commodity prices. Ethanol producers with minimal sugar exposure are also facing difficult times.

Mr. Aguiar mentions that many creditors, initially lenient during the pandemic, are showing patience. Another challenge, according to him, involves negotiations with capital market creditors, who, as dispersed debt holders, are less familiar with the agricultural sector’s volatility. “Many producers were caught at an inopportune moment, at the height of their investments, before seeing the outcomes of these investments,” he explained.

Identifying opportunities in the market, ARC Capital is exploring lending to agribusiness under the Debtor-in-Possession (DIP) modality, within a court-supervised reorganization framework, shares partner Sérgio Firmeza Machado. “We’re examining some cases involving producers of soybeans, cotton, corn, and ethanol,” he said.

*Por Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras disappoints with decision to withhold extra dividends

Company announces ordinary dividends of R$14.2bn, posts net earnings of R$124.6bn for 2023

03/08/2024

Jean Paul Prates — Foto: Leo Pinheiro/Valor

Jean Paul Prates — Foto: Leo Pinheiro/Valor

State-owned company Petrobras confirmed on Thursday night (7) what investors have been fearing and said it will not pay extraordinary dividends for the fourth quarter of 2023. The company announced the distribution of ordinary dividends of R$14.2 billion, following the calculation of 45% of free cash flow. The dividends correspond to R$1.09894844 per preferred and common share and will be paid in two installments, in May and June. If the proposal is approved at the shareholders’ meeting scheduled for April 25, the total dividends to be paid by the company for the year 2023 will be R$72.4 billion, considering the advances made over the past year.

The market’s reaction to the oil giant’s decision not to pay extraordinary dividends should be a point of attention on Friday (8). On Thursday (7), the news that there would be no additional dividends made the company’s shares fall by around 10% in post-market trading at the New York Stock Exchange.

Last week, the company’s shares fell following statements by CEO Jean Paul Prates indicating that investments in energy transition would require the company to be conservative in paying dividends.

Valor found that Petrobras’s management board proposed the payment of extraordinary dividends, half of which would be allocated to capital reserve and the other half to shareholders. However, the proposal was not approved by the board of directors in a meeting that lasted into the night. The reason, according to people familiar with the matter, was concerns that the company would run short on cash to execute the 2024-2028+ strategic plan, which focuses on projects related to energy transition.

“The approval of the dividend is compatible with the company’s financial sustainability and is in line with its commitment to generating value for society and shareholders, as well as the best practices of the global oil and natural gas industry,” Petrobras informed in a note.

The meeting’s agenda also included the approval of the company’s results, with net earnings of R$124.60 billion in 2023, 33.8% less than in 2022. Net revenue fell 20.2% last year compared to 2022, to R$511.99 billion, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 23% in annual comparison, to R$262.23 billion.

In the fourth quarter, net earnings were R$31.04 billion, below the average of six firms surveyed by Valor, which pointed to a R$34.1 billion bottom line for the period. Net revenue in the three months ended in December fell 15.3%, compared to the same period last year, to R$134.26 billion, above the average estimated by analysts, of R$128 billion. Adjusted EBITDA was R$66.85 billion, 8.5% down year-on-year and below analysts’ estimates of R$70.2 billion.

The meeting revealed the split in the board and the isolation of the CEO, who also has a seat on the board. Of the 11 board members, the five directors linked to Mines and Energy Minister Alexandre Silveira plus Rosângela Buzanelli, representing employees, voted against the payment of extraordinary dividends. Mr. Prates abstained and the four minority members voted in favor of the additional payment.

The capital reserve was approved in October to ensure funds for the payment of dividends, interest on equity (and their respective advances), buybacks, absorption of losses, and incorporation into the shareholder’s capital. The company’s executive board and the government have been defending lower dividends to back renewable energy projects.

“We recognize that energy transition will occur gradually and, therefore, we will continue to invest in oil and gas exploration and production, the segment generating the highest returns … We will also generate value with a fair and responsible transition, diversifying our operations into profitable low-carbon businesses and always prioritizing partnerships,” Mr. Prates said in a message attached to the financial report.

*Por Fábio Couto, Kariny Leal, Rafael Rosas — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Lula’s popularity fell after comments about war in Gaza, minister says

Social Communication Minister Paulo Pimenta spoke about Genial/Quaest poll; 35% rated government positively and 34% negatively

03/07/2024

President Lula — Foto: Cristiano Mariz/Agência O Globo

President Lula — Foto: Cristiano Mariz/Agência O Globo

Social Communication Minister Paulo Pimenta acknowledged on Wednesday that President Lula’s drop in popularity in the Genial/Quaest poll released on Wednesday (6) is related to his comments on the war in Gaza.

Weeks ago, President Lula compared the situation of the Palestinian people to the Holocaust, as the mass murder of Jews by the Nazis in World War II became known.

Despite this, Mr. Pimenta downplayed the results of the poll, stating that they were “not surprising” to the Lula administration and that the polls had not yet “reflected” any alleged change in Brazilian society’s perception of the massacre against the Palestinians. “We are not going to stop denouncing this issue [the war in Gaza]. We’re not going to change our opinion of Israel because of a cyclical issue. The poll was conducted on February 24, and since then the scenario has changed. I understand that the poll reflects an analysis of our position [on the Israel issue], but over time there has been a greater understanding of President Lula’s comments,” he argued.

The opinion poll released today shows that President Lula begins the second year of his term with a positive evaluation of his government at 35% and a negative one at 34%. Of those interviewed by the institute, 28% consider the administration as average, and 3% did not respond. However, in December 2023, 36% had a positive evaluation of the Lula administration, and 29% had a negative one. Another 32% stated that the administration was average.

Among respondents, evangelicals have the most negative perception of the Lula administration: 48% rate the government as negative and 22% as positive. Among Catholics, 42% view the government positively and 28% negatively.

*Por Renan Truffi — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Brazil remains one of the world’s biggest vehicle producers

For a while, it looked like carmakers were about to give up production in the country

03/07/2024

Stellantis's unit in Goiana: carmaker announced an investment of R$30 billion in Brazil over the next five years — Foto: Divulgação

Stellantis’s unit in Goiana: carmaker announced an investment of R$30 billion in Brazil over the next five years — Foto: Divulgação

For a while, it seemed as if carmakers were on the verge of abandoning production in Brazil. At least, that’s what some facts indicated at the beginning of the decade.

The most striking was that of Ford, which decided to close all its factories in the country between 2020 and 2021. Then Mercedes-Benz also closed the car factory it had built in the state of São Paulo, arguing that the facility could not accommodate the most modern lines of cars of a new era, that of electrification.

Also in 2020, Audi decided to stop production at its partner Volkswagen’s plant in Paraná to assess the conditions in the country and the market. At the same time, there was speculation that General Motors would also leave the country. First, following a statement by the company’s CEO, Mary Barra, who implied that the operation would not be maintained if it continued to make losses.

Other automakers limited themselves to one-time investments. Renault, for example, announced a smaller program that would run for a year until it had a clearer idea of what would happen to the market after the pandemic.

COVID-19 was partly to blame for the slump in the industry. So was the semiconductor crisis, which shut down entire factories for many days over several months in 2021, 2022, and part of 2023.

Still, it was striking to see the automotive industry announcing major investments in electric car factories in developed countries while little progress was being made here.

Some said, among those who risk analyzing the sector, that the huge park of vehicle and auto parts manufacturers in Brazil was doomed to become scrap metal.

But suddenly this scenario changed completely. It began with the Chinese brands. BYD and Great Wall Motor decided to enter the country. GWM bought Mercedes’s plant and BYD took over Ford’s former plant in Bahia. At the same time, Audi decided to take back its space and resume production in Paraná.

From the end of 2023, new cycles began to emerge for incumbent companies. Renault’s Brazilian operations were incorporated into the company’s global plan.

The coming and going of the top executives of the sector began in Brasília. The global heads of these companies decided to come to the country to personally deliver the news to the Brazilian government.

Since November, several high-ranking executives have visited the presidential palace, including Makoto Uchida, CEO of Nissan, Shilpan Amin, head of GM’s international division, and most recently, Carlos Tavares, CEO of Stellantis, who was in Brasília on Wednesday.

The announcement of an investment of R$30 billion in Brazil over the next five years is not only a decisive step by Stellantis to maintain its leadership in Latin America, an important region for its activity. It also confirms that Brazil will not disappear from the map of the automotive industry—at least not before the next decade.

“I’ll see you in 2030,” Mr. Tavares said in an interview on Wednesday (6). In that time, Brazil will have everything it needs to remain among the world’s top 10 vehicle producers. It was eighth in 2022. The 2023 ranking has not yet been announced.

The country’s economic environment weighed heavily on the assessments of these companies, which tend to make long-term investments. Executives also appreciated the government’s tax incentives in programs that reward innovation and emissions reductions, such as the recently launched Mover.

In the case of large companies such as Stellantis, Toyota, Volkswagen, Renault, and perhaps GM, the funds will be used to produce hybrid cars—with an electric motor and an internal combustion engine that can run on ethanol.

This solution will help put Brazil on the electrification map without causing major trauma to the current production park and without making cars unaffordable for the majority of Brazilians.

*Por Marli Olmos — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Stellantis to invest R$30bn in Brazil by 2030

Carmaker bets on hybrid models to make electrification accessible to the middle class

03/07/2024

Carlos Tavares — Foto: Wenderson Araujo/Valor

Carlos Tavares — Foto: Wenderson Araujo/Valor

Stellantis CEO Carlos Tavares concluded that offering only fully electric cars worldwide would make the industry lose most of its customers, who are in the middle class. Therefore, while sticking to decarbonization goals, he has been seeking alternatives to offer a more accessible electrification to that type of consumer. In Brazil, the possibility of using ethanol in hybrid cars led the automaker to decide to invest R$30 billion in the country over the next five years.

That is the largest investment program among all plans announced by automakers in recent weeks. With the Stellantis plan, the total amount announced by light vehicle manufacturers (cars and light commercial vehicles) in Brazil for the current decade reaches R$87.8 billion. Of the total, R$67.2 billion were announced less than three months ago.

The investments announced by Stellantis—a company created three years ago from the combination of Fiat, Chrysler, Peugeot, Citroën, and others—add to the plans by Volkswagen, Toyota, and CAOA Chery, which have expressed that their new investments will back the development of hybrid ethanol cars. General Motors, Renault, Nissan, and Hyundai are expected to follow suit, which Mr. Tavares described as “a smart solution.”

The executive points out that producing a fully electric car today costs between 30% and 40% more. “If we pass this cost on [to consumers], the middle class will say, ‘I can’t buy it,’” he said. “If we ignore the cost, restructuring a company that employs 260,000 people worldwide would be a social disaster,” he added.

Hence, there is a need to seek regional solutions, according to Mr. Tavares. “We have smart solutions like Brazil’s bi-fuel car,” he said. The bi-fuel technology, which allows for the use of ethanol or gasoline, combined with the electrification offered by a hybrid car, contributes to promoting decarbonization at more affordable prices.

“We are witnessing the fragmentation of the world, which is not a good solution for humanity; but that is another story,” he said. The Portuguese executive has led Stellantis from the start. Before that, as the CEO of Peugeot and Citroën, he was already one of the most respected leaders in the industry.

He points out that while Europeans are interested in EVs, Americans are still hesitant. In Brazil, there is the possibility of ethanol. How about the Africans? “How can we find a safe, clean, accessible technology for Africans without turning to biofuels that could compromise food supply?” he questions.

According to the executive, the prices of electric cars could be on par with combustion models from 2026 or 2027. However, he fears that a regionalization of the world could compromise the necessary scale for that to happen.

Mr. Tavares cites what happened recently in Europe, when some governments, including Germany, eliminated subsidies of up to €7,000 for consumers who exchanged their cars for a fully electric model. “The middle class gave up.”

“The consumers’ message was: we can have electric cars, but we need subsidies. Without subsidies there is no volume, without volume, there is no scale, and without scale, we cannot reduce prices. And without volume, there will be no environmental impact. It’s a jammed machine.” The executive notes that countries are indebted and facing high interest rates, and no one wants to hear about tax increases.

But what is the point of offering a hybrid model that runs on ethanol if consumers prefer gasoline? Mr. Tavares says Stellantis already offers cars that run exclusively on ethanol. “But we are just one of the players to make it work.” He suggests greater government participation to promote the biofuel.

Argentina will also receive investments from Stellantis. The amount to be invested in Argentina was not expected to be revealed in the press conference held by the executives on Wednesday (6) in Brasília, shortly after the meeting with the government. However, given the journalists’ insistence in discovering the level of interest the company has in keeping the activities’ pace in the neighboring country, Emanuele Cappellano, CEO of Stellantis Latin America, said Argentina will soon receive investments amounting to R$2 billion.

According to Mr. Cappellano, by 2030, the renewal of products and launch of new cars under Stellantis brands in Brazil will total 40 models. Of this total, 20% will be fully electric cars.

Mr. Tavares came to Brazil to announce the new investment to the government in person. Both during the meeting with President Lula and Vice President Geraldo Alckmin, and later, in the interview with journalists, the executive praised the Mover program, which offers federal tax incentives to the automotive industry in exchange for the commitment to carrying out research, innovation, and reducing emissions.

“It is a very smart program and one of the strengths of the country, which has carried out structural reforms and programs for the industry,” he said.

“Latin America is, for us, a stable region today,” Mr. Tavares said when commenting on the reasons that led the company to announce the robust investment. The previous cycle combining the programs of the brands under Stellantis in Brazil totaled R$16 billion for the 2018-2025 period.

The reporter’s travel costs were covered by Stellantis.

*Por Marli Olmos — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Brazil sees unprecedented delay in fertilizer sales

By the end of the first two months, purchases had reached only 20% of what was expected, half of what was sold in previous years

03/06/2024

Marcelo Altieri — Foto: Divulgação

Marcelo Altieri — Foto: Divulgação

Fertilizer sales in Brazil have never been so slow, according to companies in the sector, reflecting farmers fearful of crop failures and climatic problems.

By the end of the first two months of the year, the Brazilian market had bought only 20% of the volume of fertilizer expected for 2024, half the percentage sold in previous years at this time, when it was close to 40%, according to Yara, the Norwegian multinational that leads the nitrogen market in the country.

“It’s creating a lot of stress in the logistics chain. We’re expecting some hurdles,” Yara Brasil CEO Marcelo Altieri said after an event in Brasília. “We have never seen a purchasing reality so far behind the annual progress, so it could bring logistical problems.”

The company did not provide specific figures on expected fertilizer sales for 2024 but said the slower pace was a reality of the market in general.

This delay could lead to distribution and logistics problems in the country in the coming months, as when sales start to flow, orders could pile up at dealers and the fertilizer may not be delivered in time for planting of the 2024/25 crop.

A survey by StoneX shows that the volume of fertilizer sales for delivery in the first half of the year reached 51% by February. A year earlier, this percentage was 62% and by February 2022 it was 60%.

For deliveries scheduled for the second half of the year—when the agricultural calendar for the 2024/25 harvest begins—there is also a lower commercialization rate of around 20%. Compared to the last two years, the rate in this period was 30%.

According to the Israeli company ICL, which produces minerals and special fertilizers, the scenario is expected to reverse in the coming months, given the favorable conditions of the exchange ratio (an indicator that measures purchasing capacity) between fertilizers and grains.

“The resumption of the market is essential to avoid logistical problems and the consequent difficulty for producers to access technology,” said Ithamar Prada, the company’s chief marketing and innovation officer. According to him, producers are now focused on completing the harvest and assessing the conditions for commercializing soy.

Mr. Altieri said that farmers are waiting until the last moment to make a purchase decision. In 2023, the delay in purchases was due to the expectation of lower prices. Nevertheless, the chain managed to organize itself and meet demand.

“This year is different. The trends are not the same, many products are already at the [price] bottom and some are already recovering. The longer farmers wait, the more logistical problems we could face during the harvest,” Mr. Altieri added.

The doubts generated by the delays in purchases have not yet shaken the scenario of stability projected for 2024. According to Mr. Altieri, the profitability levels of the agricultural sector and the fertilizer industry have returned to pre-pandemic levels after years of historic highs and lows in the market in 2022 and 2023, respectively.

“There was a lot of suffering, a lot of pain, and a lot of price declines during this transition. There were almost 12 months of falling fertilizer prices. It was very challenging. But this year is a year of stability,” he said.

However, the executive admitted that the scenario of financial hardship in the agribusiness sector, with the rise of requests for court-supervised reorganizations by companies and farmers, is concerning.

“Farmers pay the bills of all our companies. If farmers are struggling, it’s something that concerns us and we want to work to help reverse this scenario as quickly as possible by generating more productivity for them, and higher quality and profitability,” said Mr. Altieri.

*Por Rafael Walendorff, Isadora Camargo — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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The conditions behind Toyota’s big-ticket bet in Brazil

Market and political issues explain R$11bn investments until 2030

03/06/2024

Evandro Maggio — Foto: Divulgação

Evandro Maggio — Foto: Divulgação

The circumstances that led Japanese automaker Toyota to announce an investment package of R$11 billion for Brazil until 2030, the largest in the company’s 66-year history in the country, include market and political issues. In an interview with Valor on Tuesday (5), following the announcement ceremony that took place at the Sorocaba factory, Evandro Maggio, Toyota CEO in Brazil, cited three factors that helped convince the company’s global leaders.

The first was related to the market. Toyota launched the first dual-fuel hybrid car manufactured in Brazil in 2019, a decision that was widely regarded as sound. The model was well accepted in Brazil and abroad, turning the automaker into the largest exporter in its industry. The car is exported to 22 countries.

Part of the new investments will be used to increase production capacity in Sorocaba, São Paulo, and to the development of two new dual-fuel hybrid vehicles. As it has been announced, the first model will be a compact car to be assembled from 2025 onwards. Toyota has not yet disclosed the second model it plans to release.

“We would love to talk about it, but it is still very confidential,” Mr. Maggio said. Asked if the announcement would possibly take place this year, the executive insisted that he could not provide further details.

The second key factor was the release of credits amounting to R$1 billion from Tax on Circulation of Goods and Services (ICMS) on exports by the carmaker that had been retained by the São Paulo state government. “The actions by the state government, with the release of the credits we had, were key to make such investment viable,” the executive said. Present at the ceremony, Governor Tarcísio de Freitas commented on the matter. “We released R$1 billion in ICMS credits to facilitate this investment.”

The third point mentioned by the CEO was federal government program Mover, aimed at decarbonizing the car industry. “We believe there is a [federal] government policy, with Mover, providing predictability and competitive conditions that help with demand,” he stated. Geraldo Alckmin, vice-president and minister of Development, Industry, Trade and Services, also participated in the event.

“The conditions are many. First, there is demand for our dual-fuel hybrid. And the adjoining conditions contribute to the investment. We cannot attribute it [the investment] to one single factor,” Mr. Maggio explained. Currently, 40% of production is exported and it could increase with the new plans.

Mr. Maggio was evasive when asked whether the extension of tax incentives for vehicles produced in the Northeast and Central-West regions, approved during the tax reform vote in December, had put the R$11 billion investment at risk. Toyota signed an open letter against the extension, along with Volkswagen and GM.

“Toyota values competitiveness on equal terms. We have always supported and encouraged competitiveness, but it has to be on an equal footing. We believe that from now on the conditions will be adjusted gradually,” he added.

The investments include an operational restructuring with the expansion and concentration of production in Sorocaba and the shutdown of the Indaiatuba unit, both in the São Paulo state. The relocation of operations will start in 2025 and is expected to be completed the following year. The automaker said the Indaiatuba unit’s 1,500 employees will have the opportunity to work in Sorocaba. “The investment will be in both bodywork and engines, to develop batteries for these vehicles and to relocate operations.”

(Lucas Ferraz contributed reporting.)

*Por Carlos Prieto — São Paulo

https://valorinternational.globo.com/
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