Scenario for agriculture until 2031/32 is promising

This is what new projections from federal government indicate, despite global prospects

06/27/2022

Although the long-term prospects for the Brazilian agribusiness continue to be the most promising, the current global economic situation, marked by interest rate increases and inflationary escalation in several countries — and amid the Russian invasion of Ukraine — tends to make the path for the growth of production and exports of agricultural products and animal proteins in the country a little more turbulent, at least for the next few years.

“In the second half of this year, we will still see commodity prices rise amid high costs. But we are slipping into an economic slowdown that could lead to a recession in the United States, Europe, and other countries. By 2023, I see destruction of demand and falling prices”, said economist José Roberto Mendonça de Barros, partner at MB Associados, in an event promoted by the Brazilian Center for International Relations (CEBRI) and by Insper Agro Global.

Once this difficult period is over, the tendency for the Brazilian agribusiness is to resume a stronger and more stable pace of expansion, because many specialists, including foreigners, believe the country is the one that is most capable of expanding the offer of food in a scenario of global population growth and of the evolution of part of this population to a menu with products of higher added value.

The Ministry of Agriculture has reviewed its projections for the sector over the next decade, as it regularly does, and projected that Brazil’s grain harvest, for example, will increase 25.4% by the 2031/32 harvest, to 338.9 million tonnes — for this 2021/22 cycle, the figures indicate 270.2 million tonnes.

Obviously, forecasts of this type do not consider possible shortfalls caused by climatic problems, but contemplate prospects for planted area and productivity, calculated on the basis of recent history and ongoing investments and technological transformations. For the area planted with grains, the ministry projects an increase of 19.5% until 2031/32, to 87.7 million tonnes — thanks mainly to the conversion of degraded pastures into crops. The difference between the percentages of increase in volume and area is explained by productivity.

A growth of almost 70 million tonnes is expected in the country’s annual grain harvest in the next decade for meat production in general, and the ministry estimates an increase of 6.8 million tonnes. In the 2031/32 season, there will be 35.4 million tonnes, compared to the 28.6 million tonnes estimated for 2021/22. And if in grains the advance will be driven by cotton lint (36%) and soy (32.3%), in meat, the highlights may be chicken (27.8%) and pork (24.2%).

The scenario outlined also highlights that Brazil will maintain its domain in the production and export of products such as coffee, sugar and orange juice, and foresees a new production level for some of the fresh fruits it most exports. In the case of melons, for example, the expectation is for a 29.8% growth in production until 2031/32; in the case of grapes, 27.6%.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Fiscal, political risks cloud horizon for Brazilian assets

Investors are wary after federal government’s recent measures to contain fuel prices

06/27/2022

Mariana Dreux — Foto: Ana Paula Paiva/Valor

Mariana Dreux — Foto: Ana Paula Paiva/Valor

The resurgence of fiscal and political risks in recent weeks has further clouded the horizon for Brazilian assets. Market mistrust has increased with the federal government’s recent measures to contain fuel prices, so that uncertainty about the public accounts has once again penalized domestic markets, in an environment aggravated by the tightening of financial and monetary conditions that has been generated, in a synchronized manner, by central banks.

Among the main risk metrics, the long-term real interest rate stands out for remaining close to 6%, while the Brazil risk measured by the five-year CDS returned to levels not seen since 2020 and is worse, in absolute terms, than in emergent peers like Mexico, Colombia and South Africa in 2022. Long-term nominal interest rates have also risen consistently; Brazil’s benchmark stock index Ibovespa has fallen below 100,000 points; and the foreign exchange rate is again above R$5.2 to the dollar.

“No doubt the fiscal risks have increased. Most of the current deterioration in the public accounts leaves scars, and that will make the work of the next administration difficult, especially on the tax front. The domestic economy has been very robust, but all the drivers indicate a much more pronounced deceleration ahead, with a contractionary level of interest rates and downward revisions in world growth. We are going to navigate through more turbulent seas,” said Mariana Dreux, a partner and macro funds manager at Truxt Investimentos.

She said the country collecting extraordinary revenues due to the cycle of high commodity prices, but when demand cools down, the economy will be exposed. She sees a much more complicated debt trajectory ahead. Despite recent gains, a reversion towards 100% debt-to-GDP ratio could be very fast, she says. She notes that Brazil’s potential growth has proven low and that the natural interest rate is no longer as low as imagined and may have risen.

Julio Fernandes, a partner and manager of multimarket fund strategy at XP Asset Management, shows similar concern. He points out that Brazil has a high debt problem and continues to discuss how to ease the spending cap rule, which limits public spending to the previous year’s inflation. And, since the fiscal situation is complicated, the government must be careful not to give up revenue permanently.

He wonders if the next federal administration will automatically resume taxes at the beginning of next year in case there is some kind of exemption, which would mean a gasoline and diesel price shock on the first day in office. Lowering taxes is easy, he says, but the problem is that if taxes are not resumed, the incoming government will see revenues plummet.

“If the hole becomes permanent, it tends to make the long end of the yield curve rise even more and cause the real to depreciate more than its peers. The uncertainty about the size of the fiscal hole is what leaves doubts in the market and increases the risk premium on assets. Part of the fall in the stock market is also due to the rise in interest rates, which affects stocks in the domestic sector.”

Drausio Giacomelli, the chief strategist for emerging markets at Deutsche Bank, said that at a time when several countries are experiencing the same problem of rising fuel prices, global agents are looking at the quality and magnitude of measures taken by each government to ease prices without deteriorating public accounts.

“We have a global risk reduction movement, and emerging markets are risk markets, which is part of the problem. In addition, when looking at how each country deals with fuel hikes, investors understand that focused and temporary spending is more desirable than dispersed and permanent spending. Brazil is lucky to have strong revenues in commodities. It can’t use something that is positive to cause structural damage,” he said.

Along these lines, according to Marcos Mollica, a manager at Opportunity Total, there is an important external component in the most recent stage of deterioration of Brazilian assets. After the 75-basis-points hike in U.S. interest rates by the Federal Reserve, the market began to price greater risks of a global recession. This, along with the lackluster signs from the Chinese economy, had an important impact on commodity prices.

“This is a very negative backdrop for Brazil. The stock market is impacted by it and there is great pressure on the exchange rate due to the worsening terms of trade. Vale has plummeted to R$70 from nearly R$90, and this had little to do with the Brazilian domestic risks,” the manager said. On top of that, however, there was also all the recent discussion of the government trying to bring fuel prices down. “We still haven’t managed to figure it out, as measures [studied by the government] started at R$20 billion and now are reaching R$50 billion.”

André Kitahara, AZ Quest’s macro portfolio manager, understands that, like several other governments around the world, the federal government is trying to attack an exogenous problem with the least damaging solution it can find. His major concern is that none of the solutions presented solve the problem in the long term, since no investment has been made for decades to expand the global supply of the commodity.

“As we are in the final year of a presidential term, we can’t expect anything great to happen. The more pressure the energy industry is under, the more heated the debate will be. But I am not pessimistic about Brazil. We are great exporters of commodities, the growth revisions have been positive, and the end of the monetary tightening cycle is also expected to help,” he said.

*By Victor Rezende, Matheus Prado, Gabriel Roca — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Manaus to have cap new factory for cans

CanPack plans to invest R$250m to produce 37 billion caps a year by the end of 2023

06/24/2022

With CanPack’s cap factory, the capital of Amazonas now houses four such units in its industrial district — Foto: Reprodução/CanPack

With CanPack’s cap factory, the capital of Amazonas now houses four such units in its industrial district — Foto: Reprodução/CanPack

CanPack, a Polish company that makes aluminum cans for beverages, will invest R$250 million in the construction of a cap factory for cans in Manaus. The company already produces cans in two units — one in Ceará and another in Goiás.

With CanPack’s cap factory, the capital of Amazonas now houses four such units in its industrial district. Companies typically set up these operations in Manaus to take advantage of the Free Trade Zone’s tax breaks.

Currently, three multinationals already operate in the city of Manaus — Ball Corporation, a leader in the cans market in the country, the also U.S.-based Crown Embalagens and the Irish group Ardag, through its subsidiary AMP.

According to a note by Abralatas, the manufacturers’ trade group in Brazil, the first can factory was installed in Manaus in 2006. With the arrival of the others, the industrial hub in the capital is already part of the largest production cluster of this product in the world.

AMP’s unit, for example, is reaching a capacity of 5 billion units, and this figure is expected to double in two years to meet its expansion program in Brazil.

“The can market is in a unique moment. And Manaus is the city that has become the world’s producing hub for can caps, and it will become even stronger with this new unit in 2023,” said Abralatas head Cátilo Cândido in the note.

With 25 manufacturing units installed, the Brazilian production reached 33.4 billion packages of several sizes last year. The most recent investments are three units in the state of Minas Gerais — Frutal (Ball), Uberaba (Crown) and Juiz de Fora (AMP).

CanPack, according to Abralatas, informed that it will start assembling the cap factory in 2023. According to Mr. Cândido, Manaus is also logistically important for the manufacture of caps. “The city already accounts for more than 80% of the total production of this packaging component,” he said.

Manaus is now expected to jump to 37 billion by the end of 2023 from the current 25 billion caps produced per year.

The sales of aluminum cans for beverages in Brazil grew 81% in the last decade (2011 to 2021) with an average growth of 8% per year in the past five years, says Abralatas. One advantage of this segment is the high rate of recycling — almost 99% last year, the highest in the world.

*By Ivo Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Federal funds for environment protection at lowest level in 12 years

In 2021, R$3.8bn were spent in this field; in 2010, amount was R$15.3bn, highest in the series

24/06/2022

A central theme in the negotiations for Brazil’s admission to the Organization for Economic Cooperation and Development (OECD), environmental protection received last year, under President Jair Bolsonaro, the lowest amount of funds in 12 years, according to data from the National Treasury Secretariat: R$3.87 billion. In 2010, under Luiz Inácio Lula da Silva, the federal government disbursed R$15.34 billion on this front, the highest in the series.

Spending on environmental protection in 2021 was equivalent to 0.04% of the GDP, while spending on military defense, for example, reached 0.56% of GDP. With civil defense, the expense was 0.01% of the GDP.

The data are in the Central Government Expenditure by Function (COFOG), which organizes federal government spending according to the methodology developed by the OECD with the United Nations. This data allows for comparisons with other countries.

According to COFOG’s data, total central government expenses reached R$2.7 trillion last year. It was down in comparison with the previous year, when the pandemic impacted public accounts. As a proportion of the GDP, total spending fell to 31.43% from 36.61%.

In the comparison between 2021 and 2020, the only government function that registered an increase was public services, which reached 12.03% of GDP, compared to 11.64% of GDP in the previous year. According to the National Treasury, the main reason is interest on public debt, which reached 6.93% of the GDP.

Another justification is transfers between different levels of government, which reached 4.18% of GDP. The figure reflects a larger volume of money distributed by the federal government to states and municipalities, according to the rules set out in the Constitution. Revenues from income tax and the Industrialized Products Tax (IPI) are shared.

Of the 10 functions that make up total spending, the largest is social protection, which consumed the equivalent of 39.9% of GDP last year, compared to 47.6% of GDP in 2020. The National Treasury reports that this is due to the maintenance of part of the measures to tackle the Covid-19 last year.

Health spending reached 2.43% of GDP last year, compared to 2.67% in the year before. In this group, the biggest item was hospital services, with 1.18% of GDP in 2021.

On the Education front, spending reached 2.15% of GDP in 2021, compared to 2.16% of GDP in 2020. The largest share, 0.81%, was spent on higher education, while education at the junior high school and high school levels received 0.35% of GDP. Spending on basic and elementary education was 0.75% of GDP.

The COFOG analysis combines the economic and functional classifications of expenditure, so that it is possible to evaluate which inputs were used to perform the functions. In this cut, the most relevant expense is employee payments, which accounted for 11.4% of total central government spending last year.

*By Lu Aiko Otta — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Arauco to build $3bn pulp mill in Mato Grosso do Sul

Future mill will have a capacity of 2.5 million tonnes of eucalyptus pulp per year and is expected to start operating in 2028

06/23/2022

With an average distance of 150 kilometers between the plant and the forests, the unit will be the most competitive of the Chilean group — Foto: Divulgação/Zig Koch

With an average distance of 150 kilometers between the plant and the forests, the unit will be the most competitive of the Chilean group — Foto: Divulgação/Zig Koch

Arauco signed an agreement with the government of Mato Grosso do Sul on Wednesday to build a mega pulp mill in the state. With investments of $3 billion, the new unit will be located in Inocência, 337 kilometers far from Campo Grande.

The future mill, which still depends on certain conditions to get off the drawing board, will have a capacity of 2.5 million tonnes of eucalyptus pulp per year and is expected to start operating in the first quarter of 2028. A second phase of the project is planned for the future.

After the signing of the agreement, in a ceremony attended by Arauco CEO Matias Domeyko Cassel and Governor Reinaldo Azambuja Silva, the company will seek an environmental permit, which is a condition for the investment to be executed.

“There are legal proceedings to fulfill. This is the beginning of a journey,” said Carlos Altimiras, Arauco CEO in Brazil. The project is expected to be submitted for approval by the board of directors in the second half of 2024, with construction starting in January 2025.

In addition to environmental permits and confirmation of the investment by the board, the execution of the project relies on the availability of wood for pulp production.

According to Mr. Altimiras, the project requires nearly 380,000 hectares of gross area to be developed. Arauco already has 60,000 hectares, 40,000 of which are planted with eucalyptus, and has several negotiation fronts open to ensure enough wood to start operations in 2028. The company expects to reach 2024 with 70% to 80% of the total area needed.

With an average distance of 150 kilometers between the plant and the forests, the unit will be the most competitive of the Chilean group. Installed on the left bank of the Sucuriú River, it will have quick access to pulp distribution channels, including the MS 377 highway, the Paraná River (100 kilometers away) and the railroad network (47 kilometers away).

The logistical structure was key in choosing the location, said Mario José de Souza Neto, Arauco’s head of development and new business in Brazil. “We are evaluating the alternatives to see which are the most viable,” he said.

The future mill will be self-sufficient in energy, using a renewable source, with the capacity to generate 400 megawatts from the reuse of biomass. The surplus energy, or 200 MW, will be sold in the free market.

The implementation of the Sucuriú project will mark the arrival of the Chilean group to the pulp industry in Brazil – Arauco was already present in the country with forestry operations and four wood panel plants.

In addition, it will increase by about 50% its production capacity of the raw material, from 5.2 million tonnes per year, including the expansion underway in Chile, the Mapa project, to 7.7 million tonnes per year.

With Mapa, which is expected to go online in the second half of the year, Arauco will become the second-largest market pulp producer in the world, only behind Suzano. The group has fiber mills in Chile, Argentina and Uruguay, where it is a partner of Stora Enso in the Montes del Plata joint venture.

During construction, the Sucuriú project will employ more than 12,000 workers, benefiting around 20,000 families in the region, according to the Chilean group. In operation, the unit will employ 2,350 people, 550 of which in the plant, between direct and indirect jobs, and 1,800 in forestry.

The governor of Mato Grosso do Sul highlighted that the project will be located in a region that is part of the state’s Forest East Coast, but has not yet had a pulp mill.

“This plant shows the confidence of investors in Mato Grosso do Sul, in our tax incentive policy, in the legal security of those who invest, and in the logistical structure we are creating for those who need to distribute their output,” he said.

By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/business
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UN experts ask Brazilian Senate to reject bill on pesticides

Group says adoption would be “monumental setback for human rights”

06/23/2022

A group of independent experts from the United Nations released a statement in Geneva on Wednesday urging the Brazilian Senate to reject a bill on pesticides, warning that its adoption will mean a “monumental setback for human rights in the country.”

The experts are Marcos A. Orellana, special rapporteur on the implications for human rights of the environmentally sound management and disposal of hazardous substances and wastes; Melissa Upreti (chair/rapporteur), Dorothy Estrada Tanck (vice-chair), Elizabeth Broderick, Ivana Radačić, and Meskerem Geset Techane, with the Working Group on discrimination against women and girls; Michael Fakhri, special rapporteur on the right to food; Francisco Cali Tzay, special rapporteur on the rights of indigenous peoples; and Claudia Mahler, independent expert on the enjoyment of all human rights by older persons.

Ahead of the key Senate hearings on the bill PL 6,299/2002, which the report says is better known as the “poison package,” these experts warned that if the legislation is adopted, it will weaken regulations governing pesticide use in Brazil and expose people of all ages, including farmers, workers, indigenous peoples and peasant communities to hazardous substances with potentially devastating consequences for their health and well-being.

For them, it will mean a step backward in environmental regulations in the country. And they say they are alarmed by the bill’s provisions “that would allow the use of carcinogenic pesticides and those that carry a greater risk of reproductive and hormonal problems, and malformations in babies.”

In the statement, these experts call it a “myth” that pesticides are necessary to feed the world. “Pesticides present serious risks for human health and environment at a local and global scale,” they say.

The experts consider that the approval of the bill would aggravate the serious human rights issues in Brazil related to pesticides and call on the Brazilian government to approve and effectively enforce measures including a ban on aerial spraying and on the use of pesticides near housing, schools, water resources and other protected areas.

“Without further measures to ensure businesses respect human rights and the environment, abuses will continue to proliferate if this draft bill is adopted,” they said. The statement said these experts are in dialogue with the Bolsonaro administration on the issue.

The special rapporteurs, independent experts and working groups are part of what is known as the Special Procedures of the Human Rights Council. Special Procedures, the largest body of independent experts in the UN Human Rights system, is the general name of the independent fact-finding and monitoring mechanisms that address either specific country situations or thematic issues in all parts of the world.

The United Nations explains that the Special Procedures’ experts work on a voluntary basis; they are not UN staff and do not receive a salary for their work. They are independent of any government or organization and serve in their individual capacity.

By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Dutch court to decide whether to accept case of contamination in Brazil

Lawsuit is against Norwegian Norsk Hydro for pollution in Pará

06/23/2022

Tailings treatment system at the Hydro Alunorte mining facility that caused a spill in Barcarena, Pará — Foto: Igor Brandão/Agência Pará via Agência Brasil

Tailings treatment system at the Hydro Alunorte mining facility that caused a spill in Barcarena, Pará — Foto: Igor Brandão/Agência Pará via Agência Brasil

The courts in the Netherlands will decide this Friday whether to accept the lawsuit filed by quilombolas and indigenous people from the municipality of Barcarena, in Pará state, against Norwegian aluminum manufacturer Norsk Hydro.

In the lawsuit, a group of nine people and the Association of Caboclos, Indigenous, and Quilombolas of the Amazon (Cainquiama) — which represents 11,000 people — allege that the toxic waste pollution from the aluminum manufacturer’s operations in Barcarena has caused health problems for the inhabitants, besides economic losses.

The litigants are seeking compensation for the damage caused. The victims are represented by PGMBM, a firm specializing in collective environmental litigation, the Brazilian law firm Ismael Morais Advocacia, and the Dutch law firm Lemstra van der Korst.

In the petition, Norsk Hydro is accused of being responsible for at least 10 environmental disasters caused by its mining and aluminum production activities. The company operates a refinery, a smelting plant and a bauxite mine in Pará.

The most recent disaster, in February 2018, caused toxic sludge to spill into the reservoirs of the Alunorte and Albrás operations, turning the rivers red. Brazilian authorities investigated the case and discovered three covert pipelines that dispensed toxic waste in the environment, according to the petition.

“Until now, those affected have had no voice in the current actions in Brazil. We want to change that to ensure they are protected and receive the justice they deserve. It is clear that Norsk Hydro carried out risky contaminating activities in a vulnerable region of Brazil, in a way that violated the law and caused catastrophic effects for the nature and the people who live there,” said Pedro Martins, partner and founder of PGMBM, in a statement.

Norsk Hydro said in a statement that the allegations are already being discussed in Brazilian courts. The opening of the lawsuit in the Netherlands generates a risk of duplication of actions and incompatible decisions. “We believe that these issues should be addressed locally and request that the Dutch court suspend the matter until a final decision is reached in the Brazilian cases. The Brazilian judicial system is robust and accessible, backed by constitutional guarantees of full right to defense and due process of law. Furthermore, Brazilian court orders can be executed in the Netherlands,” it added.

Norsk Hydro also stated that the public agencies have carried out more than 90 inspections and audits that attested that there was no transshipment of the waste deposits at Alunorte. Other allegations, according to the company, are unfounded and there is no evidence of contamination in communities caused by Alunorte, related to the February 2018 rain.

The company also said that its operations in Brazil “are in full compliance with the environmental permits required by law.” And it adds: “In addition, our operations have international management certifications, proving excellence in socio-environmental management. Therefore, Alunorte, Albras, and Hydro will continue to provide facts and clarifications necessary for the trial of the allegations, which they consider that should happen in Brazil.”

By Cibelle Bouças — Belo Horizonte

Source: Valor International

https://valorinternational.globo.com/
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Government, Congress mull R$600 aid for truck drivers

Talks have also begun to increase emergency aid, plans are underway to increase gas voucher

06/23/2022

Rodrigo Pacheco — Foto: Roque de Sá/Agência Senado

Rodrigo Pacheco — Foto: Roque de Sá/Agência Senado

Pressured by the crisis of high fuel prices and the preventive detention, on Wednesday, of former Education Minister Milton Ribeiro on suspicion of corruption, the federal government and the governing coalition in Congress have accelerated the formulation of vote-getting measures. Behind the scenes, the trucker voucher had its value raised to R$600 from R$400. Furthermore, talks have begun to increase the emergency aid and plans are also underway to increase the gas voucher.

The plan is to include all these measures in the constitutional amendment proposal (PEC) 16, which is being analyzed by the Senate. In its current version, the PEC authorizes the federal government to pay up to R$29.6 billion to states that reduce to zero the sales tax ICMS rate on diesel and cooking gas and sets a 12% rate for ethanol.

These negotiations are seen with concern by the economic team, given their impact on public accounts. The R$600 trucker voucher will cost R$3 billion; doubling the value or range of the gas voucher would cost nearly R$2 billion. The idea of raising the emergency aid surprise the government’s technical staff, although the political team never gave up the plan of raising the value to R$600.

All these additional expenses go in the opposite direction of the goal of closing the public sector accounts in the black and setting a downward trajectory for the public debt.

In relief to the economic team, Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais) said Wednesday that it is necessary to have responsibility with the spending cap. “Issues related to the fuel PEC must be preceded by impact studies and election-related barriers,” he added.

Behind the scenes there is a discussion about the feasibility of launching these aid measures, because of the electoral legislation. One hypothesis raised would be the decree of a new state of calamity. There is, however, no consensus on this. Economy Minister Paulo Guedes has been fighting this idea in recent months.

Ítalo Franca, with Santander’s team of economists, pointed out that “there is some doubt about the legal possibility” of implementing aid to truck drivers this year “even through a PEC, because electoral legislation restricts the creation of new benefits,” he said.

Gabriel Leal de Barros, a partner and chief economist at Ryo Asset, has a similar view. The trucker voucher would cost R$1.8 billion from July to December of this year if it were fixed at R$400 and R$2.7 billion if it were R$600, according to his calculations.

Mr. Barros says he has “reservations” about the proposal. “It doesn’t make economic sense to subsidize fossil fuel and still allocate taxpayer money that don’t benefit the poorest,” he said, also citing “the risk of loss of control” over spending during the analysis of the proposal, especially in an election year.

He also says that it is “very negative” the fact that “we are amending the Constitution every six months,” since the aid would be implemented by means of a PEC. “This is not good for the fiscal framework and for the predictability needed by economic agents,” he said.

The R$400 voucher was called “alms” and a “joke” by truck drivers’ leader Wallace “Chorão” Landim. The same comment had been made by him and other unionists last October, when the idea was unveiled by President Jair Bolsonaro.

By Renan Truffi, Lu Aiko Otta, Estevão Taiar, Raphael Di Cunto — Brasília

Source: Valor International

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Embraer expands service center in São Paulo driven by business jets

Consistent delivery of business jets during Covid-19 pandemic, increasing use of fleet contributed to decision

06/22/2022

In the next three years, 150 new workers are expected to join the center’s current 150 employees — Foto: Celso Doni/Valor

In the next three years, 150 new workers are expected to join the center’s current 150 employees — Foto: Celso Doni/Valor

Embraer, the world’s third-largest commercial plane maker, doubled the useful floor area of its service center in Sorocaba, São Paulo, in order to follow the advance of business aviation in Brazil. The expansion required investments of R$10 million.

“It is a natural growth, especially because of the business jet sales growth,” said Johann Bordais, CEO of Embraer Serviços e Suporte. The consistent delivery of business jets during the Covid-19 pandemic and the increasing use of the fleet contributed to the decision of moving forward with the project, the executive said.

The center, which started operating eight years ago and is 100 kilometers far from São Paulo, now has 40,000 square meters of useful floor area and four hangars, three of which focused on maintenance, repair and overhaul of components for Embraer planes. The fourth hangar is focused on supporting fixed-base operation.

Considering the services provided in Gavião Peixoto (São Paulo) as well, the company executes around 600 maintenance procedures a year. These procedures are expected to grow 5% to 10% a year. After the expansion, the service center in Sorocaba is now able to handle future demand and receive larger aircraft, including KC-390 Millennium.

Embraer’s center in Sorocaba offers from maintenance and overhaul services to airport services through workshops authorized for different aircraft components. The facility is also able to modify jets, including the conversion of Legacy 450s into Praetor 500s.

In the next three years, 150 new workers are expected to join the center’s current 150 employees.

In the three first months of the year, the segment of support and services contributed with revenues of R$1.4 billion, almost 46% of Embraer’s net revenues – the slice was so representative partly because commercial aviation has not resumed the pre-pandemic levels yet.

Still, this division, which currently accounts for 25% of revenues on average, is expected to gain more prominence, Mr. Bordais said. “This reflects our focus on supporting our clients.” The company expects this business to grow 10% to 15% a year around the world.

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Central Bank mulls keeping high interest rates for longer

Policymakers seem to hope that situation will improve to the point of making additional hike unnecessary

06/21/2022

Central Bank’s building in Brasília — Foto: Jorge William/Agência O Globo

Central Bank’s building in Brasília — Foto: Jorge William/Agência O Globo

Central Bank’s Monetary Policy Committee (Copom) is now considering the possibility of maintaining interest rates at a high level for longer to meet the inflation target. This would complement or replace the previous strategy of raising the Selic, Brazil’s benchmark interest rate, to even higher levels in the final leg of the monetary tightening cycle.

In the minutes of last week’s meeting unveiled Tuesday, the policymakers say they analyzed this possibility. They have also discussed which message to send about monetary policy for the next meeting, to be held in August.

As the inflation environment has deteriorated, the Copom decided that it was about time to raise the interest rate even more last week, to 13.25% a year from 12.75% a year. The policymakers have also signaled that they will keep interest rates at a high level for longer than the markets have been expecting in order to complement the necessary tightening dose. “The strategy of convergence around the target requires a more contractionary interest rate than that used in the reference scenario for the entire relevant horizon,” the minutes say.

In last week’s meeting, the reference scenario provided for an interest rate of 13.25% at the end of 2022, 10% at the end of 2023 and 8.5% at the end of 2024. This way, considering what the minutes say, the Copom seemingly believes that the interest rates must be above each of these percentages at the end of each year.

The minutes could not make it clear how a higher interest rate at the end of 2023 or 2024 will help to meet the inflation target on the relevant horizon, which is 18 months ahead. The interest rates in 2023 will impact inflation more in 2024 than in the current monetary policy horizon.

The alternatives between raising the interest rate to a higher level now or keeping the rate higher for longer were also analyzed when the Copom discussed future monetary policy signals for the next meeting, in August.

Here again, the Copom concluded that keeping interest rates high for longer will not be enough to meet the inflation target. As a result, the chosen strategy was to signal a 50-basis-points hike or a 25-basis-points hike, depending on the inflation rates until there.

In a very important point to consider regarding future signals of monetary policy, the Copom said the perspective of maintaining the Selic rate for a sufficiently long period would not assure, “at this moment,” the convergence of inflation around the target in the relevant horizon.

It has been a while since the Copom used this phrase when talking about future steps – the intention, historically, has been to highlight that any signal is reliant on the evolution of the economic scenario. If the committee considered it better to include the expression “at this moment” now, it probably sees chances of positive evolution of this scenario by August, in a way that allows meeting the target by only keeping the interest rates at the current level, of 13.25% a year.

On the other hand, the Central Bank made a point of reinforcing, as it had already done in May, that the outlook is very uncertain, so it requires caution. When they presented their inflation projections, the policymakers said that uncertainty “has increased since the previous meeting.” Caution, in this case, is related to the risk of setting a higher-than-necessary dose of interest rate.

The debate about the Copom’s decision started with the directors saying they have already done a lot. “It was emphasized that the current monetary tightening cycle was quite intense and timely and that, due to monetary policy lags, much of the expected contractionary effect and its impact on current inflation are still to be seen.”

All things considered, the Copom is moving to stop raising interest rates and to keep them high for a sufficiently long period. It signaled a new hike for August, but it seems to hope that the situation will improve to the point of making an additional hike unnecessary.

Will the Central Bank be able to stop raising the interest rates? The Copom has been signaling the end of the cycle since March, but it was not possible. This time, the policymakers decided to keep raising the rates because the “Copom observed deterioration in both the short-term inflationary dynamics and the longer-term projections.” The reaction function still seems to be in place: if more negative surprises come, the Central Bank will keep raising the interest rates.

*By Alex Ribeiro — São Paulo

Source: Valor International

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