Analysis: How should Brazil’s Central Bank react to oil, food shock?

Prevailing view is still that monetary authority will maintain course of monetary policy

08/03/2022

The new rounds of oil, grain and metal price hikes are expected to add even more pressure on inflation. But the prevailing view in the financial market is still that Brazil’s Central Bank is likely to maintain the course of monetary policy, without intensifying the pace of interest rate hikes in relation to what is forecast.

The Focus bulletin released on Monday morning indicates that the Central Bank’s Monetary Policy Committee (Copom) will rise the Selic, Brazil’s benchmark interest rate, by 100 basis points next week, to 11.75% per year.

The Copom options traded on the B3 indicate a 63% chance of a 100 bp increase, while the probabilities of higher hikes are just over 30%. The future interest rates were at a high level on Monday.

Analysts, including some with stints in the Central Bank, told Valor that the Copom’s most likely response to the shock is a little more monetary tightening over time. But, in general, they argue that the monetary authority is likely to move cautiously in the face of uncertainty because it is not yet certain at what level the commodity prices will stabilize.

One economist says that there is no way to escape the handbook of the inflation-targeting regime: the Central Bank must accommodate the primary effect of the shock within the tolerance range, but firmly fight the so-called secondary effects.

A key point is that price hikes in food, metals and oil hit inflation fast, so it tends to be concentrated this year in particular. As for food and metals, there is little left over for inflation two years ahead. In the case of oil, the effect is longer, but much of it is concentrated in the first year.

Thus, most of the primary effect of this shock is likely to impact inflation in 2022, a year that is already moving out of the Central Bank’s focus of action. The Central Bank is working with a longer horizon, with an eye mainly on the 2023 target. Since for the coming year there are basically the secondary effects left, there will be little alternative but to fight them with greater firmness.

The good news is that, for now, the impact of the war on inflation expectations for 2023 has been contained. The variation of Brazil’s benchmark inflation index IPCA expected by the market for next year was stable at 3.51% last week. It is precisely in inflation expectations that the bulk of the secondary effects is concentrated.

In part, this has to do with the Central Bank’s credibility. The market believes that whatever interest rate is needed to combat the new price shock, the Copom will act. Hence, the slightly longer rates traded in the market have moved more, pricing in the chance of a bigger squeeze at the end of the interest rate hike cycle.

The stability of expectations, on the other hand, allows for the Central Bank to follow the script in the short term: raise the Selic by 100 bp next week and leave some room for maneuver to define its next steps when the inflationary impact of the war becomes clearer.

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Uber still battling with iFood after leaving meal delivery

Multinational told Brazil’s antitrust watchdog that exclusivity model was main reason for exit

08/03/2022

Uber ended on Monday meal delivery service through Uber Eats app — Foto: Pixabay

Uber ended on Monday meal delivery service through Uber Eats app

Uber left the meal delivery market in Brazil, but continues to fight against exclusive contracts with restaurants established by iFood in the country.

The multinational, which ended on Monday the food delivery service through the Uber Eats app, filed a complaint against iFood with the General Superintendence (SG) of the Administrative Council for Economic Defense (CADE) on Friday

The company made clear that the exclusivity model maintained by iFood, the market leader with 80% market share, was the main reason for Uber to leave the Brazilian restaurant delivery market.

“Unfortunately, the artificial barriers imposed by iFood with its exclusionary conduct, which are the focus of the present Administrative Inquiry by this SG, contributed to Uber’s decision to terminate the operations of the Uber Eats meal delivery intermediation application,” said the Uber lawyers in the document filed on Friday.

Uber announced its decision to leave the Brazilian meal delivery market on January 7. The company was the second largest. Rappi was the third, according to data from the Brazilian Association of Bars and Restaurants (Abrasel).

In mid-February, Rappi filed a new petition with CADE asking the antitrust watchdog to review a provisional measure from March last year that determines the blocking of new exclusive iFood contracts with restaurants, preserving the agreements prior to the determination.

The exit of Uber Eats from the Brazilian market, as well as the end of the operations of the Delivery Center, an application by BR Malls and Multiplan, in November, were cited as arguments against exclusive contracts with restaurants by iFood, especially for anchor establishments, such as large fast food chains.

“In fact, the evident focus of the exclusionary strategy adopted by iFood with the most popular restaurants, responsible for a significant volume of orders on its platform, reduces the ability of competitors, such as Uber Eats, to compete with iFood,” says the company in its manifestation. “Even if Uber Eats develops business relationships with smaller restaurants and more stores, that would not be enough to exert effective competitive pressure on iFood.”

Uber stressed that it will continue to cooperate with CADE’s investigation into iFood practices, which began in September 2020 by Rappi and which it entered as a third party in January 2021.

In December 2020, Abrasel filed a parallel representation against the market leader in which it defends the end of exclusivity contracts for all companies in the sector.

“Any serious company interested in continuing to operate in the country must adopt the posture that Uber has adopted,” said Paulo Solmucci, president of Abrasel. “Regardless of direct competition, the company must make a contribution so that the market remains competitive,” he said.

Uber concludes its manifestation by stating that it understands “that the practice of exclusivity by iFood constitutes an artificial barrier to entry and expansion in the market of meal delivery services.”

For Victor Rufino, a lawyer at Mudrovish Advogados, which represents Rappi, Uber’s statement “leaves latent the need for continuous monitoring of the market by the CADE, in order to guarantee its timely and effective action in defense of free competition.”

IFood declined to comment.

Source: Valor International

https://valorinternational.globo.com
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Higher wheat prices to reach Brazilian consumers in coming weeks

In one week, prices rose by $100 a tonne, on average, in the physical market

08/03/2022

Wheat production in Russia — Foto: Andrey Rudakov/Bloomberg

Wheat production in Russia — Foto: Andrey Rudakov/Bloomberg

With the beginning of the war between Russia and Ukraine, in one week the prices of wheat rose by $100 a tonne, on average, in the Brazilian physical market. This rise is expected to be felt by consumers as early as next month in the prices of products on supermarket shelves, but it is still difficult to know the size of adjustments and how long they may last.

“It all depends on the extent of the war. If it ends soon, there will be a downward adjustment, although prices will certainly not return to the pre-conflict level. If the war goes on, there is no way to know the ceiling, because the production of Russia and Ukraine make a lot of difference in the wheat market,” Luiz Pacheco, an analyst at T&F Consultoria, told Valor. The two countries account for about a third of the global wheat trade.

The fact is that, today, Russian and Ukrainian exports through the Black Sea and the Azov Sea are completely paralyzed. According to Bloomberg, 140 bulk carriers are stranded off the coast of Ukraine. There are also 54 freighters and a container ship that entered Odessa shortly before the port closed, and another five merchant ships have been blown up in the region since the attack began.

Ships cannot leave Ukrainian waters because there are no crews, according to the vessel’s owners and managers. Furthermore, reports Bloomberg, citing the Spanish Navy, navigation in north-western parts of the Black Sea is restricted due to the threat of undersea mines.

In Brazil, the state of Rio Grande do Sul, which had ended its participation in Brazilian wheat exports this season, sold 50,000 tonnes this week. As a result, internal availability decreased. “The mills in Rio Grande do Sul are tense, because prices were already high and now nobody knows where they are going,” Mr. Pacheco said. According to him, the state exported 2.6 million tonnes of wheat out of an estimated production of 3.3 million.

In the state of Paraná, the situation is more relaxed, with foreign sales of 60,000 tonnes and a production of 3.2 million tonnes.

With regard to Argentina, which supplies more than 80% of the wheat imported by Brazil, availability was good, with a harvest of 22.5 million tonnes, compared to 20 million in 2019/20. However, with the onset of the conflict, producers have been holding back sales in anticipation of even higher prices.

“The tendency would be for the U.S. to supply the world market, but the U.S. winter wheat crop will be much smaller than needed,” Mr. Pacheco said. Production as of April, plus the spring harvest, is expected to reach 44.8 million tonnes in 2021/22, up from 49.7 million in the last cycle and 53 million in 2019/20, according to the U.S. Department of Agriculture (USDA). As in southern Brazil, American crops were hampered by excessive rainfall in 2021, followed by an intense drought.

There is still stock in the country, but as the overall picture is not of abundance, there are no signs of retraction in wheat prices. The International Grains Council (IGC) estimates global wheat production at 781 million tonnes. This number exceeds by 7 million the calculation for the last season, but is lower than the initial projection of the IGC itself, in July, of 795 million.

As consumption perception is at 781 million tonnes, above the previous harvest (771 million), inventories are projected at 274 million tonnes, compared to 278 million in 2019/20.

Without Russia and Ukraine, the picture tightens and the relationship between stock and use is negative. The Russian wheat production estimate for 2021/22 is 75.5 million tonnes, with exports of 35 million. The Ukrainian wheat production is estimated at 33 million tonnes, with shipments of 24 million.

Source: Valor International

https://valorinternational.globo.com
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Embraer enters cargo market with jet conversion

Jets are designed to meet transportation demand of e-commerce and modern trade

08/03/2022

Embraer’s converted E-Jet — Foto: Reprodução

Embraer’s converted E-Jet

Embraer unveiled on Monday its entry into the air freight market with the launch of passenger-to-freight conversions of models E190F and E195F.

The jets are designed to meet the transportation demand of e-commerce and modern trade, which “require fast deliveries and decentralized operations,” the company said.

The conversion is available for E190 and E195 aircraft, scheduled to start operating in early 2024. Embraer projects a market for aircraft of this size of nearly 700 units over 20 years.

The new freighters fill a gap in the market, positioning themselves between turboprops and larger narrowbody jets, said Arjan Meijer, CEO of Embraer Commercial Aviation. “Our P2F E-Jet conversion hits the market as the demand for airfreight continues to take off, and as e-commerce and trade, in general, undergoes a global structural transformation,” he said.

The conversion will be done at Embraer’s units in Brazil and the jets can handle payloads of 10.7 tonnes (E190F) and 12.3 tonnes (E195F).

By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com
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Solar financing in Brazil totaled R$16bn in 2021

Amount is more than double volume negotiated in 2020, survey shows

03/07/2022

The financing for solar power generation in Brazil totaled R$16.2 billion in 2021, according to a survey conducted by Clean Energy Latin America (Cela) with the main financial firms that foster the source.

This is the third consecutive year that the country sets a record for financing in the sector. Of the total resources, R$9.5 billion were destined to distributed generation. The other R$6.6 billion were directed to centralized generation (large power plants).

Cela founder and CEO Camila Ramos has been monitoring the sector since 2019 and says that the amount financed in 2021 increased by more than 100% compared to the previous year, which shows a growing interest of organizations in leveraging renewable power projects.

“The year 2021 more than doubled the amount of financing compared to 2020, which shows that the development of the sector came followed by new operators, fintechs and commercial banks entering the market to finance these projects.”

The executive highlights important institutions in the supply of credit, highlighting development banks, such as BNDES, BNB and Banrisul; multilateral banks, such as the Inter-American Development Bank and the European Investment Bank; cooperative credit systems, such as Sicredi; commercial banks, such as Santander, Bradesco, Banco do Brasil, among others, as well as bonds and fintechs.

In centralized generation, Ms. Ramos highlights a 70% increase in the volume financed due to the maturity of solar projects for the free energy market with many contracts signed “and now we see the construction of these projects.”

In distributed generation, the jump in financing was 2.4 times over 2020. “This is due to the increase in tariffs for the final consumer, new investors entering the sector, and more credit lines from financial firms,” she said.

What may hinder the number of deals in 2022 are the interest rates. Brazil has gone from a historic low to a double-digit rate, which is likely to make loans less attractive. However, the executive argues that, in spite of that, financing will continue attractive.

“When looking for financing, the consumer compares the cost of capital, rate of return, and interest rates. For centralized generation, we are going to see a dominance of development banks, such as BNB and BNDES, and bonds, besides the opportunity of financing in foreign currency. For distributed generation, the interest rate variation is going to be less important if consumers are able to exchange their electricity bill for the portion of the financing,” Ms. Ramos said.

What she has also noticed is that the financing companies are improving other financing conditions, such as extending the terms to fit the consumer’s budget. In addition, 2022 will be the first year of Law 14.300/22, which establishes the legal framework for self-generation of energy, microgeneration, and distributed minigeneration, “which can bring greater comfort for financial firms and can impact the risk spread.”

Source: Valor International

https://valorinternational.globo.com
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Impasses with Paraguay challenge new head of Itaipu

Anatalicio Risden has to come to an agreement with the neighboring country to define the power plant’s budget for 2022

03/07/2022

Anatalicio Risden Junior — Foto: Sara Cheida/Itaipu Binacional

Anatalicio Risden Junior — Foto: Sara Cheida/Itaipu Binacional

Without consensus on the power tariff for the Brazilian and Paraguayan markets, Itaipu Binacional power plant still has no defined budget for the year 2022. Facing the impasse between the Brazilian and Paraguayan boards, Admiral Anatalicio Risden Junior takes over the command of the company with the mission of sitting at the table with the Paraguayans — who own 50% of the company — to negotiate the new hydroelectric power plant tariffs.

The challenge will not be easy. The part of the electricity that Paraguay does not use, according to the Itaipu Treaty, must be sold to Brazil, and in this assignment the neighboring country has always been hardline when it comes to changing tariffs. This should have been approved since October of last year, but there is still no agreement on reaching a base.

This is not new. Past administrations have also had difficulties. Until this happens, the plant uses a provisional tariff from the previous year, which is $22.60 per kilowatt, a value frozen since 2009. As any buyer, Brazil, obviously, is interested that the value falls. The executive’s strategy will be to maintain the policy of good neighborliness in the negotiation with the Paraguayans to define the budget of the state-owned company, as well as to carry out a series of structural works in progress. In his first interview since taking office, Mr. Risden says that the negotiations are underway, but without any further definition.

“What we have to do, and this is a point that Minister (of Mines and Energy) Bento Albuquerque and President Jair Bolsonaro put to me, is to maintain the dialogue without losing the bases that Brazil needs. This is the exercise that I have been doing together with the Paraguayan director-general of trying to find a solution in which I can bring the least possible impact to the Brazilian consumer and at the same time have a viewpoint of the Paraguayan problem”, he said.

Mr. Risden is familiar with the business — as he has been working at the company since 2019, when he held the position of chief financial officer. Now as Brazilian CEO, he hopes his time there will be marked by a practice of market management, prioritization of business cost reduction, and planning for the medium and long term.

“To calculate the tariff, which is how much the Brazilian and Paraguayan consumer pays us, there are four elements. One is the budget base. We were able to define all the other elements, but we couldn’t reach an agreement with the budget base. We are running the company without a pre-placed budget.”

Another goal will be to continue a management marked by austerity and major works. The review of contracts and agreements resulted in resources for structuring works, such as a new bridge between Brazil and Paraguay, and the revitalization of the Furnas transmission system to make it more robust, among others. In all, there are about R$2.6 billion invested.

In 2021, the company completed the payment of $600 million for part of the debt, and operating expenses fell. With this, there is the possibility of reducing the tariff value of the plant in the same proportion. All that remains to be done is to agree with the Paraguayans. “What I defend is the lowest cost for the Brazilian consumer. The point is that we are partners in a company and we have to negotiate, and this is what is happening,” he says.

Another of Mr. Risden’s missions will be to assist Brazilian diplomacy in the negotiations on Annex C of the Treaty, which establishes the financial and electricity service provision bases of the binational company. With just over a year to go until the Itaipu Treaty turns 50 years old, the negotiations for the revision of Annex C are with the Foreign Office, known as Itamaraty.

Time is pressing and the date that marks this turning point between the neighboring countries on the company’s financial bases will be April 26, 2023, when the countries will be able to adjust it to current reality, and the plant’s construction debt will be practically zeroed, which will bring the contracting cost to a lower level.

“We have to move towards a market model,” he defends. “The difficulty is that our partner’s integrated power system is far behind ours. They have only one company, Ande [Paraguay’s state-owned company], which does everything,” he adds.

Half a century after it was created, Itaipu is still a key piece in the power security chessboard of both countries. The hydroelectric plant has 14 gigawatts (GW) of installed power, accounts for 8.4% of all the electricity consumed in Brazil and 85.6% of Paraguay’s power. Even though it is the second largest in the world in installed capacity, the binational power plant holds the title of largest power generator on the planet, having produced more than 2.8 billion MWh.

It will be difficult to balance these interests. The Brazilian diplomacy is trying to convince the Paraguayans to give in the negotiations, especially in relation to the price of Paraguayan electricity sold to Brazil. The expectation is that both countries will benefit from Itaipu’s power generation without paying construction costs that represented more than half the price of the company’s power.

Source: Valor International

https://valorinternational.globo.com
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War to boost renewables, expert predicts

To former president of Energy Research Company (EPE) Luiz Barroso, rising oil prices may drive demand for biofuels

03/07/2022

Luiz Barroso — Foto: Leo Pinheiro/Valor

Luiz Barroso — Foto: Leo Pinheiro/Valor

Luiz Barroso, former president of Energy Research Company (EPE) and the current president of consultancy PSR, sees opportunities, especially in Brazil, for renewable energy with the rise in oil and gas prices caused by the Russian invasion of Ukraine. Last week, after the outbreak of the conflict, the international prices of the oil barrel went over the barrier of $100 and saw the highest prices of the last eight years.

For Mr. Barroso, the global geopolitics are already aligned towards the replacement of fossil sources, with higher carbon emissions, by renewable ones. With the scenario of rising fossil fuel prices, the search for clean energy and greater consumption efficiency is likely to accelerate, as well as the development of new technologies, he believes. “Access to energy transition technologies is a geopolitical tool,” he emphasizes.

In this context, the expert says that Brazil may pay more attention to biofuels, in addition to pre-salt gas, as a way to become less dependent on liquefied natural gas (LNG), which is imported.

On the energy planning side, he also believes that the crisis will lead to questions about energy integration in Europe and, consequently, to the search for reducing European dependence on Russian gas, which can increase exports from regions such as North Africa and the United States. Below are the main excerpts from the interview.

Valor: What are the impacts of the Russia-Ukraine crisis for the energy transition in Brazil?

Luiz Barroso: Brazil automatically aligns the main objectives of the energy transition: the cleanest energy, the renewable ones, are the most competitive. This foundation remains and already places us among the global leaders in terms of low carbon intensity in the energy sector. With the crisis, LNG [liquefied natural gas] becomes more expensive, which increases the attractiveness of renewables. This scenario also brings pre-salt gas into the energy equation, with the attribute of greater independence from international prices.

Valor: And biofuels?

Mr. Barroso: The increase in oil prices may stimulate the demand for biofuels, a sector in which Brazil is self-sufficient, in addition to accelerating the discussion of other forms of sustainable mobility. Brazil can also seek to reduce its international dependence on other important components, such as fertilizers, and increase its role in other energies that will redesign the future of energy, such as green hydrogen and, who knows, carbon capture and sequestration.

Valor: Is there any other source that can benefit, in the Brazilian market, from the geopolitical crisis?

Mr. Barroso: The current scenario reminds us of the importance of actions on the demand side and is an opportunity to organize the national energy efficiency agenda. There is room for much gain in commerce and industry. Reducing consumption, through efficiency, is the cheapest and most self-sufficient energy the system can achieve, in addition to being a permanent energy gain. This adds to dynamic demand response actions at prices and tariffs [mechanisms to charge more for energy at times of peak consumption]. On the other hand, there is the reflection that it is essential to transform the way we consume energy with new emerging technologies. There is no point in having an abundant supply of hydrogen and electricity if most of the demand does not run on hydrogen and electricity.

Valor: Could there also be a trend towards greater search for the use of oil, gas and coal in Brazil?

Mr. Barroso: For purely economic reasons, I don’t believe so; all these energy sources will be much more expensive in this decade.

Valor: What are the immediate impacts that you see on global energy policy, especially in Europe, as a result of the current crisis?

Mr. Barroso: More immediately, there will be a quest to reduce dependence on Russian gas, which supplies 40% of European gas consumption, and to ensure sufficient storage levels to ensure consumption in the coming winter. Russia is responsible for more than 60% of the total energy imported by the European Union.

Valor: How can Europe replace Russian gas?

Mr. Barroso: On the supply side, abandoning Russian gas means importing non-Russian gas, basically from North Africa, Norway and the United States, increasing coal production and relying on nuclear power plants. It will also be important to reduce energy consumption. This can be done through energy efficiency actions, such as reducing the temperature of heaters, which are mostly gas-powered in Europe.

Valor: How will conflict impact the energy transition? 

Mr. Barroso: The European energy transition was already one of the most ambitious before the war and it could be accelerated. The geopolitical imperative is aligned and the current environment puts further pressure on reducing dependence on fossil fuels. This can accelerate the development of the technologies we will need in a carbon-neutral future. Massive investments have made it possible to create economies of scale that, together with increases in oil and gas prices, reduce the additional cost of choosing a clean technology over one that emits a greater amount of greenhouse gases, making renewables more accessible to others parts of the world, such as Brazil. But it is not possible to say that it will be a global trend, as each country has its reality and its energy transition.

Valor: May it be necessary to review the emission reduction targets?

Mr. Barroso: I don’t believe in expanding emission reduction targets right away, but the possible increase in emissions in the short term could, in fact, impact the planet’s carbon budget. Further on, this can challenge the sufficiency of the targets, which can trigger a global discussion about who should raise the target and when.

Valor: Could an eventual increase in military spending in the world as a result of this crisis lead to a reduction in resources and collaborative efforts between countries for the energy transition?

Mr. Barroso: It’s still too early to talk about that. In absolute terms, the North Atlantic Treaty Organization [NATO] has planned military expenditures that have not always been met, in amounts currently lower than the annual budgets of government stimulus programs and private direct investment to new technologies for energy transition. So, in theory, I don’t believe in resource reduction. However, and speculating a bit, we may have Western sanctions that ban some countries, like Russia, from accessing some key technologies. Access to energy transition technologies is a geopolitical tool.

Source: Valor Econômico

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War may worsen supply of semiconductors in Brazilian industry

More than 60% of industrial companies that buy chips pointed out difficulties in finding these items in January

03/07/2022

Divulgação TSMC — Foto: Asian semiconductors factory; in Brazil, inventories are likely to be further pressured by conflict

Divulgação TSMC — Foto: Asian semiconductors factory; in Brazil, inventories are likely to be further pressured by conflict

The inventories of semiconductors in Brazil, already in a critical situation, are likely to be further pressured by the Russia-Ukraine war. More than 60% of the industry pointed out difficulties in buying those items in January.

Russia and Ukraine are major global producers of palladium and neon gas, respectively, which are key inputs to make chips. Palladium is a metal especially used in sensors and memory components. Semiconductor-grade neon, on the other hand, is purified by Ukrainian industry and is critical for lasers used in chip manufacturing.

“The war is a new component that has us very concerned, because we have been having problems with semiconductors since suppliers in Asia were no longer able to meet the demand for these items,” said Humberto Barbato, head of Abinee, the Brazilian trade group of the electrical and electronics industry.

Now the war creates a bottleneck in the previous stage, in the suppliers of these semiconductor manufacturers. “Available stocks of raw materials in the semiconductor factories exist, but they are not infinite. From the talks we’ve had with semiconductor makers, the impact is expected to be limited in the short term. But the longer the war lasts, the greater the risk of shortages,” Mr. Barbato said.

Computer and mobile device makers say it is still early to assess any impact of the war in the supply of components to Brazil. “More than the shortage of raw materials, there is inflationary pressure on components,” said Norberto Maraschin, head of consumer business and mobility at Positivo Tecnologia. He refers to the prices of electric and electronic components and freight costs, which surged as Asian plants closed at the beginning of the pandemic.

Although supply is restricted, the scenario is no longer one of shortage and shows signs of improvement. “The value of the container rental for importing components, which went to over $15,000 from $2,000 during the pandemic, has been gradually dropping,” Mr. Maraschin said.

Santa Catarina-based Avell, a high-capacity notebook maker, has adapted to the pace of the semiconductor market, moving up orders by six months instead of two months, said Emerson Salomão, the company’s founder and CEO. Now, according to him, the suppliers’ delivery times are getting shorter. “The situation is better than last year,” the executive said.

The duration of the conflict between Russia and Ukraine will define the impacts on the sector and the deadline for the regularization of the supply chain. “If there was no war, we were anticipating a normalization in the second half of the year”, says Mr. Salomão.

Abinee’s last survey, conducted in January with 80 members, showed that 67% of the respondents that use these components in their production reported difficulties in acquiring them. This means an improvement over the previous survey, from December, in which 73% reported difficulties. Among the respondents, 53% said they believed that the supply of semiconductor components would be normalized by the end of 2022: 22% believed that it would still be in this first half of the year, while 34% predicted that this would only happen in 2023. Still, 13% of the interviewees said that their suppliers had not given any forecast. There has not yet been a survey after the invasion of Ukraine.

As Reuters reported on February 24, many semiconductor manufacturers said they were monitoring the situation. Korean memory chipmaker SK Hynix said it had a large volume of raw material, and GlobalFoundries, which is based in the United States, said it has the flexibility to seek suppliers from other countries.

Source: Valor Econômico

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Embraer halts services, sales to Russia

Russian airline S7 operates 17 aircraft made by the Brazilian company

05/03/2022

Embraer plane — Foto: Divulgação

Embraer plane

Like Boeing and Airbus, Brazilian company Embraer halted the execution of maintenance services and the supply of spare parts for aircraft to customers in Russia and in certain regions of Ukraine.

The decision was taken after new sanctions were imposed by the international community on Russia, in response to the invasion of Ukraine. One of Russia’s largest airlines, S7 Airlines operates 17 Embraer aircraft, all E170s, according to information on its website.

Without providing details of the practical ramifications of the decision, Embraer stated “it is closely monitoring the evolution of the situation and has been complying, and will continue to comply, with the international sanctions imposed on Russia and certain regions of Ukraine”. As a result, “parts, maintenance and technical support services for customers affected by the sanctions” were suspended.

The suspension of commercial activities by aircraft manufacturers, combined with initiatives by leasing companies to ask for the return of jets operating in Russia, could leave most of the local fleet on the ground in the coming weeks.

But the risks aren’t just on the eastern side of that scale. For the world’s three largest aircraft manufacturers, suspending commercial ties with Russian entities is something expected to compromise access to titanium, the light metal used in the manufacture of aircraft and engines.

Russia’s VSMPO-Avisma, part of state-owned conglomerate Rostec, is the world’s largest producer of titanium and parts made from the metal. It is also the main supplier of material to aircraft manufacturers. In this group, the most exposed to the Russian state-owned company is the Brazilian company.

Virtually all of Embraer’s titanium needs are met by VSMPO-Avisma. Questioned, the company said on Sunday that the titanium supply was not a concern at the moment, as its stocks are high.

However, prolonged sanctions will force all companies to seek alternative supply. There are other suppliers in the world — China is the biggest — but costs are likely to rise with competition for the metal.

In the political field, Embraer’s decision is also not simple. The Brazilian government holds a golden share in the aircraft manufacturer, which gives it power over some of the company’s strategic decisions. And, in the Ukraine war, while Brazilian diplomacy approved the United Nations resolution condemning Russian attacks on Ukraine, the position of the head of state has been much less scathing.

Source: Valor International

https://valorinternational.globo.com
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Startup digitalizes agricultural commodities trading

Based in Minas Gerais, Grão Direto has German giant Bayer among investors

05/03/2022

Frederico Marques, Alexandre Borges and Pedro Paiva — Foto: Divulgação

Frederico Marques, Alexandre Borges and Pedro Paiva — Foto: Divulgação

When a farmer has a crop to sell, he has to deal with a series of phone calls to get the best offer for his products or even exchange grains for fertilizers and pesticides, in an analogical — and sometimes stressful — process that can last over a week until the contract is signed.

Grão Direto — a startup created by three friends who have known each other since childhood in Uberaba, a country town in Minas Gerais state — wants to change this logic, digitalizing the negotiation of agricultural commodities by connecting rural producers from all over the country to the most diverse buyer profiles, from large trading companies to feed mills and grain warehouses.

Little by little, the agtech founded by the trio Frederico Marques, Alexandre Borges and Pedro Paiva has been gaining traction, and attracting more and more investors. This time, Grão Direto brought to its shareholders the trading companies Amaggi, ADM, Cargill and Dreyfus, which are among the main grain buyers in the country — on the list of big companies, only Bunge and Cofco are not included, for the time being.

To scale up the operation, Grão Direto has raised R$40 million in the third round of investments. In addition to the minority contribution of trading companies, investors who had already supported the startup in the first funding rounds followed.

The list of shareholders also includes names such as the German giant Bayer (the largest seed company in the world), the managers Lanx Capital and Barn, the investment arm of the Rendimento Group, as well as individual investors. Since it was founded in 2017, Grão Direto has raised R$58 million.

“Agribusiness is probably one of the last multi-trillion markets without a marketplace in the physical market,” Alexandre Borges, founder and CEO of Grão Direto, told Pipeline, Valor´s business website.

In the world, agtechs such as Argentina’s Agrofy, the U.S.-based FBN, and Orbia have already advanced in building a marketplace for agricultural inputs, but the journey to creating an ecosystem for trading commodities (in Brazil, mostly grains) is still in its infancy.

Not by chance, Grão Direto managed to attract trading companies, which are also clients of the platform. But the pioneering does not mean that the startup is alone in the market. In Brazil, agtechs such as Tarken (founded by Luiz Tângari and Carlos Neto, the entrepreneurs behind Strider), sold to Syngenta, are also building a grain marketplace.

“Startups are less of a competitor and more of a facilitator for the digitalization of the agribusiness to happen faster. Our main competitors are the inefficient and analogical negotiations,” argues Mr. Borges.

In the Grão Direto model, rural producers have no cost to negotiate grain. So far, the agtech application has had 200,000 downloads. Last year, the startup hit 1 million tonnes traded — a small volume for the size of national production, but a milestone for the business.

To monetize the business, Grão Direto offers services such as digital contracts, which can also be hired by farmers and trading companies. On the buyers’ side, the startup charges a fee per deal closed. In the future, Grão Direto will also get into credit, offering the anticipation of receivables for producers.

With the available data and real-time connections to commodity exchanges, Grão Direto can also offer insights and help producers price their product, pondering variables such as freight. “Our system updated prices more than 1 billion times in 2021. It’s as if we replaced 1 billion phone calls,” jokes the CEO of Grão Direto.

To make the commodities trading platform be accepted by all, the principle is that the strategic partners are minority. Inspired by the New York stock exchange, built by brokerage houses, Grão Direto wants to involve most of the agribusiness players.

“We will bring in other strategic operators in new rounds. The idea is to have diversity, with the entry of rural producers as well. More important than control is to maintain neutrality and independence,” says Mr. Borges.

Due to the involvement of the trading companies, the conclusion of the round depends on the approval of antitrust regulator Cade.

Source: Valor International

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