Agribusiness revenue drops with smaller harvests, weaker exports

Indicator expected to fall by 13.8% and reach R$953bn in 2024, the lowest figure since 2019; analysts see a normal adjustment

07/22/2024

Sérgio Vale — Foto: Claudio Belli/Valor

Sérgio Vale — Foto: Claudio Belli/Valor

Agricultural revenue is expected to total R$953 billion in 2024, 13.8% less than last year, already discounting inflation, reflecting a smaller harvest and weaker exports, with some effect from the severe floods in Rio Grande do Sul. This will be the lowest figure since 2019, according to projections by consultancy MB Agro, a sign of adjustment after an exceptional period for the segment—and in a year when weather conditions are less favorable.

The sector’s weaker performance is one of the reasons for lower growth in the Brazilian economy this year. In terms of GDP, agriculture is expected to fall in 2024, after growing by 15.1% in 2023. The market consensus points to a 1.6% drop in the segment in the national accounts, one of the factors that will lead GDP to expand closer to 2% this year—last year it was 2.9%.

These figures, however, do not show a crisis in agriculture, according to analysts. For Sergio Vale, chief economist at MB Associados, 2024 “is a year of adjustment” after three very favorable years. Between 2021 and 2023, agricultural income was above R$1.1 trillion, in updated values at 2024 prices. The indicator takes into account prices and quantities produced.

According to Mr. Vale, the three key variables for the sector—price, volume and exchange rate—have cooled this year or in part of it, contributing to a weaker result. With the prospect of higher interest rates in the U.S., commodity prices have settled, and the harvest in Brazil is suffering the effects of El Niño, which is contributing to a drop in volumes, even more so after the exceptional performance of 2023, he said. In addition, only recently has the exchange rate come under pressure again, added Mr. Vale.

The exchange rate got stronger in the second quarter and rose further from June onwards, but spent practically the entire first quarter below R$5 to the dollar. It wasn’t a bad level for exporters, but a stronger real against the dollar is less favorable for those who sell abroad.

In 2024, agricultural income is expected to be R$642 billion, a drop of 12.9%, already discounting inflation, compared to last year, estimates MB Agro. Livestock income is expected to fall more sharply, by 15.4%, to R$306 billion.

According to the most recent figures from statistics agency IBGE, this year’s grain harvest is expected to be 295.9 million tonnes, 6.2% lower than last year. Mr. Vale noted the impact of soybeans, a product that is expected to see a sharp drop in exports in 2024.

According to MB Agro estimates, foreign sales of the soy complex (grain, meal, and oil) are expected to reach $51.8 billion this year, a 23% drop compared to 2023, with a 6% drop in volumes and 18% in prices.

“It’s the product that ended up showing the greatest loss in exports this year,” said Mr. Vale, noting that “there was a little more difficulty in the soybean crop, but nothing too dramatic. It’s not a significant drop, but because of the importance of the crop, it has a significant effect.”

Total agribusiness exports, including industrially processed products, will also fall this year. According to MB Agro’s forecasts, they should stand at $146.5 billion in 2024, 12% less than last year, with a 10% drop in volumes and a 2% drop in prices. Corn exports will also fall sharply, according to the consultancy. The decline is expected to be 42%, to $7.861 billion, with a 37% drop in quantities and 8% in prices.

The 2024 result, however, is not a trend for agriculture, said Mr. Vale. “This should be seen as a temporary factor,” he said. “The expectation for 2025 is a better harvest, with a higher exchange rate and slightly better prices in general, with the prospect of falling interest rates in the United States.”

Fernando Honorato, Bradesco’s chief economist, also sees the drop in agriculture in 2024 as a normal phenomenon. According to him, the decline was expected, given the exceptional advance last year, in a scenario in which soybeans in Argentina are recovering this year, after a 2023 in which the harvest of the product in the neighboring country was shaken by a severe drought. “The year 2023 was atypical; our production was very strong,” said Mr. Honorato.

For 2024, the weaker performance of agriculture this year will, of course, affect GDP performance. “Agriculture was essential for the almost 3% expansion last year, but this year it tends to take away from growth,” said Mr. Vale, projecting that the pace of GDP expansion will be slightly lower, between 2% and 2.5%. MB’s June estimate for agriculture in the GDP was a 0.5% drop, but Mr. Vale noted that the fall could be a little more intense.

Bradesco, on the other hand, sees a much stronger drop in GDP for agriculture in 2024. Two weeks ago, the bank revised its projection for the sector in this year’s national accounts to a fall of 5.2% from a drop of 3.5%. This revision incorporates the effects of the floods in Rio Grande do Sul on the sector, but also the expectation of a weaker result for the entire agricultural segment.

Mr. Honorato reiterated that he doesn’t see a crisis in the segment, but rather one-off problems. “There will always be some ‘uncovered’ farmers, who may have leveraged themselves and are now suffering the financial consequences of the drop in production,” he said. As a result, some have fallen into debt and have to deal with the problems caused by the fall in production. The bank expects the sector to recover in 2025, with a 3.9% rise in agricultural GDP. In June, the forecast was for growth of 1.9% next year.

For economists at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), agricultural production is still negative “simply because of the less favorable weather conditions this year and the record harvest in 2023”. For the second quarter, they estimate a 2.2% drop in agricultural GDP compared to the previous quarter, seasonally adjusted.

“There will undoubtedly be a negative impact on the sector due to the disaster in Rio Grande do Sul, but this effect is more moderate due to the advance of harvests in the region until April 2024,” wrote researchers Silvia Matos, Caio Dianin and Bruno Issler in FGV Ibre’s most recent Macro Bulletin. For this year, they predict that GDP will grow by 2%, with agriculture and livestock falling by 2%.

The dominant bet is that next year will see a recovery in farming, but there are still unknowns in the scenario. “For 2025, the picture is still not very clear, as the climate has been much more volatile than in recent years,” said Mr. Vale.

“At first, I estimate a 3% expansion. But that will depend on the harvest, the combination of price and exchange rate,” he said. “With a drop in the U.S. interest rates, commodity prices could have a positive reaction. The exchange rate, in turn, depends on the fiscal situation,” said Mr. Vale. “As it doesn’t look like there will be a definitive solution, the exchange rate may be seeking a new equilibrium point above the R$5 to the dollar it was at previously. This tends to give the sector a sense of recovery next year.”

In GDP, the direct weight of agriculture and livestock is 7.1%, according to figures from the 2023 national accounts. The share of agribusiness is much higher, reflecting the sector’s effect on other segments of the economy. Last year, the share stood at 23.8% of GDP, according to estimates by the Center for Advanced Studies in Applied Economics at the School of Agriculture of the University of São Paulo (Esalq-USP), in partnership with the Brazilian Agriculture and Livestock Confederation (CNA).

The calculation takes into account agriculture, the input sector, agricultural industry, and agricultural services. Thus, an upturn in agriculture in 2025 will have a positive impact on various sectors, amplifying its effects on the Brazilian economy.

*Por Sergio Lamucci — São Paulo

Source: Valor Inaternational

https://valorinternational.globo.com/
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Newcastle disease causes Brazil to suspend chicken exports

Federal government placed a preventive embargo on sales to certain countries following confirmation of case in Rio Grande do Sul

07/19/2024

Carlos Fávaro — Foto: Leo Pinheiro/Valor

Carlos Fávaro — Foto: Leo Pinheiro/Valor

The Brazilian government has preventively suspended sales of chicken meat, eggs, and other poultry products to some importing countries following confirmation of an outbreak of Newcastle disease on a commercial farm in Anta Gorda (Rio Grande do Sul).

Sales of poultry and poultry products from all over Brazil to Argentina and European Union countries have been temporarily suspended. The self-embargo of sales to 32 other markets, including China, is for specific poultry products from Rio Grande do Sul only.

There are also countries to which exports of chicken meat and other products originating in regions 50 km from the outbreak site are suspended. The restrictions follow the pre-established requirements in the International Health Certificates (ISC), agreed with each importing country. Valor learned that there may be changes.

Anticipating this scenario of export restrictions, investors drove down the shares of the meatpackers on exchange B3 on Thursday and led BRF, JBS, Marfrig, and Minerva to lose a combined R$6 billion in market capitalization

The outbreak of the disease was confirmed on Wednesday on a commercial farm. According to a market source, the poultry farmer is part of the integrated chain of BRF, which has slaughterhouses in Marau and Lajeado (Rio Grande do Sul)

After a meeting with farmers in Porto Alegre, Agriculture Minister Carlos Fávaro said on Thursday that the focus seemed to be an “isolated case”, but admitted that there could be restrictions from importers.

“As the disease needs to be notified to the World Organization for Animal Health (WOAH), it could lead to trade restrictions and embargoes,” said the minister. According to Mr. Fávaro, the government has already contacted all the buying markets to report the situation.

The last time Brazil had an outbreak of the disease, which is caused by a virus, was in 2006.

JBS, which owns Seara, did not immediately respond to a request for comment. BRF said that the position would be taken by the sector, by the Brazilian Animal Protein Association (ABPA). The two companies are the country’s largest chicken exporters.

ABPA and the Rio Grande do Sul Poultry Association (Asgav) said in a statement that the federal and state authorities acted quickly to identify the case and halt the farm, ensuring that no birds left the place. “The official protocols established to mitigate the specific situation have been activated and the surroundings are being monitored,” they said.

On the stock exchange, BRF was the most affected company in the sector, losing R$3 billion in one session. As a result, the company’s market capitalization fell to R$35 billion. JBS then lost R$1.8 billion and its market capitalization reached R$69.8 billion.

Considering a scenario of export restrictions, Gustavo Troyano and Bruno Tomazetto, with Itaú BBA, said in a report that “the operations of BRF and Seara will probably be affected by a scenario of oversupply in the domestic markets”.

The two companies would have to redirect shipments, increasing the product mix of the Rio Grande do Sul units for the domestic market, said Citi analysts Renata Cabral and Tiago Harduim.

XP Investimentos noted that neither BRF nor Seara have plants in Anta Gorda. BRF has three poultry plants in Rio Grande do Sul, while Seara has only one. The nearest BRF plant is located approximately 55 km from the municipality with the focus, while the Seara plant is around 80 km away. Thus, the impacts would be indirect and market-related.

BRF’s parent company, Marfrig, also lost R$1 billion on B3, and its market capitalization fell to R$10.5 billion.

Despite having no exposure to the poultry segment, Minerva felt the pressure on a bad mood day in the market. The company lost R$190 million in market capitalization, to R$4 billion.

Minister Fávaro said that the outbreak of Newcastle disease was identified in just one bird from a commercial farm with 14,000 animals in Anta Gorda.

After a meeting with farmers in Porto Alegre to discuss the situation of those affected by the floods in May, he said that the other birds on the property had no symptoms and were being monitored. “We think it’s an isolated case. There was a hailstorm on the property, the roof of the farm collapsed, and 7,000 animals died. The remaining animals show no symptoms of the disease,” he said.

According to Mr. Fávaro, the area of occurrence is isolated, and no spread of the virus has been identified on the property or in its surroundings. “It’s important to emphasize that we haven’t yet assessed it as an epidemic because it’s one animal that was found, from an accident that occurred on this farm, in a total of 14,000 animals,” he said.

The biosafety protocols provide for the sacrifice of other birds in the event of contamination. Still, when he made the statements, the minister noted that there would only be a cull if the virus spread, which would not have happened.

Valor has learned, however, that the cull of the animals at the farm in Anta Gorda will begin soon. The measure is indemnifiable by the state’s Sanitary Defense and Development Fund (Fundesa), but there is a possibility that BRF will assume the costs to speed up the process. The measure could speed up the extinction of any possible trace of the outbreak in the remaining animals.

*Por Rafael Walendorff, Nayara Figueiredo — Brasília, São Paulo

Source: Valor International

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Sabesp reaches record demand; offer below market price

Sale of 17% of shares attracted R$187bn in orders; price closed at R$67

07/19/2024

Sabesp: the final step of the process is expected to take place on Monday, with the settlement of the offer — Foto: Divulgação/Sabesp

Sabesp: the final step of the process is expected to take place on Monday, with the settlement of the offer — Foto: Divulgação/Sabesp

The second stage of water utility Sabesp’s privatization, in which the São Paulo government offered 17% of the company’s shares, attracted R$186.8 billion in orders, according to people familiar with the matter.

The shares will be sold at R$67 per share—18.3% below the value at the end of Thursday trading session. The stake offered will involve the payment of R$7.9 billion. The offer totaled R$14.8 billion, considering the other 15% of shares acquired by Equatorial in the first stage of the process.

The demand reached an all-time high in Brazil, according to a source. Analysts said that one of the key aspects behind the high demand was the share price, which was set well below the value traded on the stock exchange, indicating gains for investors who sell the shares.

Sources also note that the orders are artificial, as investors inflate orders, given the expected pooling at the offer closing. Equatorial, the company taking the position of Sabesp’s primary shareholder, has a good reputation in the market, which helped boost demand.

The market considers the book-building was positive, which attracted major investment funds. Foreign investors were responsible for 53% of total orders, while 65% came from long-only funds, those who buy assets betting on appreciation.

The deal closing had a high distribution among investors. According to sources, more than 80% was allocated to long-only funds, divided by 50-to-50 between local and foreign investors. Another 10% was allocated to individual investors.

Valor’s business website Pipeline informed that Equatorial has relevant investors among its primary shareholders, which boosted the market confidence in the company’s participation in Sabesp. These investors had indirect exposure to the company and decided to seek direct exposure. The price discount also encouraged participation. Atmos, Squadra, Opportunity, and Canada Pension Plan (CPP) are among the primary shareholders. Among the foreign investors in Sabesp are also well-known players, such as the Singapore fund GIC.

The model of the deal is seen as a reason for a price far below the value traded on the stock exchange. According to Sabesp’s model, the price of the first stage should serve as a cap for the second stage, as the value of the shares would have to be the same.

In the first phase, Equatorial was the only group submitting a proposal to become Sabesp’s primary shareholder. The price offered was R$67, which was considered low compared to the trading price at that time—7% below the closing price on June 20th (the day before the release of the initial prospectus) and 10.6% below the price on June 28th (when Equatorial’s proposal was revealed).

In the second stage, investors could make an offer below that amount. However, as demand was high, the price reached the cap, of R$67 per share.

Equatorial must hold the shares for five years, but the other investors can sell at any time, which means expected gains for investors.

As a result, demand reached a record high in the country. According to a person familiar with the matter, the demand was three times higher than the previous record offer—Petrobras’s follow-on offer, in 2010, which reached R$61 billion.

The next step is the settlement date, scheduled for Monday.

After the process is concluded at the stock exchange, the acquisition of the shares by Equatorial should be analyzed by the antitrust watchdog CADE. Sources expect the analysis by the antitrust regulator to take a maximum of 60 days. After that, the new primary shareholder could take over the management of Sabesp. The company will be able to appoint one-third of the board of directors and the chairman.

Faced with criticism regarding the price, the São Paulo government argued that privatization has the main purpose of ensuring universalization of services and attracting a strategic partner to carry out the necessary improvements in the company. Sabesp’s model sought to fix problems identified in the privatization of Eletrobras, in which equity became dispersed.

In the Sabesp privatization, the state government will still hold an 18% stake. Of the total funds raised with the deal, 30% will be allocated to a fund aimed at universalizing sanitation in the São Paulo state. This fund will also ensure subsidies for a tariff reduction, as promised by the São Paulo government. For social and vulnerable customers, the reduction will reach 10%. Tariffs for residential customers are expected to fall by 1%.

The new contract provides for R$68 billion in investments until 2029, for the universalization of water and sewage services—which was previously scheduled for 2033 in Sabesp’s investment plans.

*Por Taís Hirata, Maria Luíza Filgueiras, Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Finance Ministry announces R$15bn freeze in this year’s budget

A cost-cutting of R$11.2 billion was due to increased spending, and the spending freeze of R$3.8 billion was related to revenue frustration

07/19/2024

Fernando Haddad — Foto: Rovena Rosa/Agência Brasil

Fernando Haddad — Foto: Rovena Rosa/Agência Brasil

Finance Minister Fernando Haddad announced on Thursday the freezing of R$15 billion from this year’s budget as a way of complying with the rules of the fiscal framework.

“It’s a cost-cutting of R$11.2 billion and a spending freeze of R$3.8 billion, due to revenue,” said Mr. Haddad. The decision aims to keep the primary deficit between zero and 0.25% of GDP in 2024, in a context of lower-than-expected extra revenue and higher than expected increases in compulsory spending.

On Monday, the figures will be detailed in the Revenue and Expenditure Assessment Report for the third quarter. “[The deficit] is within the range between zero and 0.25%. It will be close to the ceiling of the range in this report,” said Mr. Haddad.

According to him, the spending freeze of R$3.8 billion could be re-evaluated if the discussion on tax compensations progresses in the Senate. “Spending freeze can be reviewed. Cost-cutting is more difficult,” added Planning Minister Simone Tebet.

The meeting aimed to seek mediation from President Lula for two currents within the government: the one that defends the expansion of spending—and wanted a freeze of between R$10 billion and R$16 billion at most—and the economic team, which was studying a greater restriction. Asked if President Lula had been convinced of the need for the cut, Minister Haddad said that “if he was making the announcement, it’s because Lula had been convinced”.

The containment of R$15 billion in discretionary (non-compulsory) spending was generally well assessed by experts, as it came in above the R$10 billion floor suggested by financial market participants. The amount, however, is still considered insufficient to bring the fiscal deficit to zero.

“The announcement is very positive and comes very close to our forecast, R$16 billion,” said Felipe Salto, chief economist at Warren Investimentos and former Secretary of Finance of the State of São Paulo.

Cost-cutting and spending freeze are two types of temporary spending restrictions, which comply with different rules in the new fiscal framework. Cost-cutting occurs when government spending increases by more than 70% of the growth in revenue above inflation. The spending freeze occurs when there is a lack of revenue that jeopardizes compliance with the primary result target.

According to Mr. Haddad, the report to be released on Monday will detail these figures and will indicate a fiscal deficit between zero and 0.25% of GDP, the tolerance range of the framework.

“It’s within the range, between zero and 0.25% [of GDP]. Remembering that in this exercise that the Federal Revenue Service did, it is not considering at this time the effects of the compensation provided for by the Federal Supreme Court decision. It’s going to be close to the ceiling of the range in this report,” said Mr. Haddad, referring to the Court’s decision to postpone the deadline for the agreement between the government and Congress on compensation for the payroll tax exemption for labor-intensive sectors, defended by companies and trade unionists.

For next year, the government continues to foresee cuts of R$25.9 billion in the budget proposal, said Mr. Haddad.

The announcement was generally well received by economists, as it came in above the R$10 billion suggested by market agents. The amount, however, is still considered insufficient to guarantee compliance with the zero primary result target this year.

The cost-cutting of R$11.2 billion in non-mandatory spending “was a positive move, which is expected to reduce the fiscal risk of non-compliance with the spending limit,” said Tiago Sbardelotto, an economist with XP. “In our assessment, a cost-cutting of R$16 billion [for the year] would be necessary, and an important part of this amount will be made now, which makes smaller additional adjustments less costly,” he said.

On the other hand, the spending freeze of R$3.8 billion still seems insufficient to Mr. Sbardelotto. “To reach the target, taking a damming up into account, we see the need for a bigger cut, of R$25.5 billion,” he said.

When revenue performance is weaker than expected, the government can compensate by freezing discretionary spending. If the total expenditure estimate exceeds the amount allowed by the fiscal rule because of excessive growth in compulsory spending, the government blocks discretionary spending.

“The cost-cutting is a change in the composition of spending, a zero-sum game between mandatory and discretionary items. Spending freeze, on the other hand, all else being equal, results in a decrease in total spending,” said Roberto Secemski, chief economist for Brazil at Barclays. In the end, both measures imply cuts in non-compulsory spending, but a spending freeze is what really affects the primary result.

The government’s announcement shows an adjustment of R$15 billion. Gabriel Leal de Barros, chief economist at ARX Investimentos, was expecting a higher figure, of R$19.5 billion. For him, the composition of what was released indicates that little was changed in the revenue line.

“The market is expected to be positive [in its reaction] on the margin, but it is far from solving the problem, because there is considerable uncertainty as to whether the government will achieve this volume of revenue,” he said.

With the cutting of R$11.2 billion, the adjustment seems to have been made more on the spending side, says Mr. Leal. His suspicion is that the main vector was the upward reassessment of mandatory spending on social security and social assistance, two items that were growing a lot, according to him.

The government’s announcement came closer to Warren Investimentos’ forecast of a R$16 billion freeze and was considered “quite positive” by chief economist Felipe Salto. In his assessment, it was a sign that the government wants to fulfill its promise to meet the targets set out in the new fiscal framework.

Warren estimates that this will require a cut of R$26.8 billion in discretionary spending this year. With the containment of R$15 billion, that leaves R$11.8 billion to be frozen, which could still happen in the next editions of the bimonthly evaluation report, in September and November.

Ana Paula Vescovi, Santander’s chief economist and former Secretary of the Treasury, also said in a comment that “explicitly, the government did not aim for the center of the primary result target”. Santander projected an adjustment of R$15 billion in its July assessment.

Economists say they need to wait until the July report is released on July 22 to understand which mandatory expenses have been revised upwards and which revenues have been revised downwards.

Doubts regarding the government’s commitment to the fiscal targets set for 2024 once again caused a sharp deterioration in local financial assets on Thursday.

While the amount of resources that will be frozen this year to achieve the zero deficit was not known, the exchange rate rose sharply, and once again the real depreciated to R$5.58 for one dollar, while future interest rates rose sharply.

At the end of the day, however, Mr. Haddad announced that the government would freeze R$15 billion in spending, which brought some relief to the markets—a move that players believe could extend into Friday’s session.

The Brazilian real ended the day down sharply against the dollar. The exchange rate rose 1.89% in the spot segment, trading at R$5.5872 for one dollar and at R$6.0889 for one euro.

After the announcement, however, the futures for August moved away from the day’s high and closed up 1.13% at R$5.56.

A similar dynamic was observed in interest rate futures, which shot up along the entire curve during the trading session, but moved away from the day’s highest levels after the government signaled that it was trying to meet the targets of the framework.

The interbank deposit rate (CDI) for January 2026 jumped to 11.31% from 11.185%, but closed below the 11.40% mark it was trading at before the government’s announcement.

The Ibovespa, already closed during the announcement, fell 1.39% to 127,652 points.

*Por Renan Truffi, Fabio Murakawal Julia Lindner, Anaïs Fernandes, Marcelo Osakabe, Ívina Garcia, Gabriel Roca, Gabriel Caldeira, Victor Rezende — Brasília, São Paulo

Source: Valor International

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Amazon, Cerrado agribusiness at risk due to environmental pressures

Report warns that 74% of agricultural land in the region may become unviable by 2060

07/18/2024

Agriculture in jeopardy: large-scale monocultures, with intensive irrigation systems and excessive use of inputs, fertilizers, and pesticides — Foto: Valter Campanato/Agência Brasil

Agriculture in jeopardy: large-scale monocultures, with intensive irrigation systems and excessive use of inputs, fertilizers, and pesticides — Foto: Valter Campanato/Agência Brasil

If the current agribusiness model is maintained in the future, with pressure on natural capital and producing major environmental impacts, the activity runs the risk of becoming unviable. Scenarios project that the viability of 74% of current agricultural land on the border between the Amazon and the Brazilian savanna (“Cerrado”) could be compromised by 2060.

This data is part of the executive summary of the “Thematic Report on Agriculture, Biodiversity and Ecosystem Services” produced over three years and launched on Tuesday by a group of 100 researchers from several fields linked to 40 institutions in all Brazilian biomes.

“We want to highlight the importance of an integrated agenda between agriculture and conservation in Brazil, alerting people to the environmental liabilities generated by conventional farming,” said biologist Rachel Bardy Prado, one of the coordinators of the report and a researcher with the soil department of the Brazilian Agricultural Research Corporation (Embrapa) for 21 years.

Brazilian ecosystems are home to nearly 20% of the planet’s described species. The country is first in the ranking of the 17 most megadiverse nations in the world. On the other hand, agribusiness is responsible for 20% of formal jobs and 27% of the country’s GDP—or R$403.3 billion in 2020. “For the most part, it is marked by large-scale monocultures, with intensive irrigation systems and excessive use of inputs, fertilizers, and pesticides,” said the note to press.

The report mentions that crops dependent on pollinators account for 55% of the annual monetary value of national production. “This service is very important and has been compromised by pesticides, the fragmentation of the landscape, and the destruction of forests,” said Ms. Prado. “Pollination is one of the essential services, like clean water.”

“The conservation and production agendas are separate. Our proposal is for them to be shared”, she added. The biologist said what has been known for years in the country, but has not become a reality: “We have to stop seeing biodiversity as an obstacle to development. It’s the other way around. This is our great wealth, for different sectors of production and especially for agriculture.”

The summary of the report was produced by the Brazilian Platform on Biodiversity and Ecosystem Services (Bpbes), an initiative launched in 2017 that brings together 120 university professors, researchers, environmental managers, and holders of traditional knowledge.

The summary indicates what is in the six chapters of the report: the first is about the benefits provided by nature, the second mentions the trajectory of land use. The third shows future scenarios, and the fourth practical solutions for managing agriculture and natural resources.

The fifth chapter discusses opportunities for greater social inclusion and income generation. The last is about governance, where the main successful examples of reconciling conservation and agriculture with international requirements have been consolidated.

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“We have to look at a multifunctional rural landscape. This means a landscape that can provide more than food, but all the ecosystem services essential to human well-being such as clean water, fertile soil, climate regulation, and pollination,” said the biologist.

*Por Daniela Chiaretti — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Ahead of spending cuts, Ministry of Finance maintains growth forecast

Macrofiscal Bulletin is expected to endorse official growth projection of 2.5% for this year

07/18/2024

Fernando Haddad — Foto: Leo Pinheiro/Valor

Fernando Haddad — Foto: Leo Pinheiro/Valor

The Ministry of Finance is unlikely to make any major changes to its new macroeconomic projections, according to a source consulted by Valor on Wednesday. The figures will be released this Thursday by the ministry in the Macrofiscal Bulletin.

The Macrofiscal Bulletin is important because it serves as a guide for the preparation of the federal budget and the calculations of the spending freeze—necessary for the federal government to comply with the spending limit established by the fiscal framework and the primary result target.

The economic team was working on a total expenditure freeze of R$10 billion. The official figure will be released on Monday in the revenue and expenditure assessment report.

According to the source, the tendency is for the document not to bring “major news” and to follow a “more parsimonious scenario”. Currently, the Ministry of Finance projects a GDP growth of 2.5% for this year and 2.8% for next year.

On Tuesday, President Lula said that “if the money we put into circulation in this country is circulating, we will grow by more than 2.5%” in 2024.

The statement was made at a meeting with representatives of the food industry at the Planalto Palace, where the executives announced investments of R$120 billion by 2026. Of this total, R$23 billion was already invested last year.

At the same event, Finance Minister Fernando Haddad also said that it is “likely” that the ministry’s official projection for this year’s GDP growth will be revised upwards.

“We’re always parsimonious because we don’t want to suffer setbacks. But everything indicates that, even with the calamity in Rio Grande do Sul, which affected a state that accounts for almost 8% of Brazil’s GDP, the economy hasn’t stopped growing. Even with the external lockdown, the concerns about the Fed, the repercussions on our Central Bank here, the economy continues to grow,” he said.

On Tuesday morning, after a meeting with Mr. Haddad, the president of the Brazilian National Bank of Social Development (BNDES), Aloizio Mercadante, also said that the Finance Ministry would need to recalculate its projections upwards.

“For the BNDES, we’re going to have greater growth than what has been projected so far,” he said, citing the expansion of both approvals and disbursements of credit operations carried out by the institution.

In the case of inflation indicators, the Ministry of Finance’s respective projections for 2024 and 2025 are Brazil’s benchmark inflation index IPCA of 3.7% and 3.2%; National Consumer Price Index (INPC) of 3.5% and 3.1%; General Price Index – Internal Availability (IGP-DI) of 3.5% and 3.4%.

*Por Estevão Taiar — Brasília

Source: Valor International

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Marriot plans economic brand, rival with Accor, Hilton in Brazil

Plan includes 2,500 City Express rooms; focus on Ibis brand investors, independent groups

07/18/2024

Vanessa Martins — Foto: Gabriel Reis/Valor

Vanessa Martins — Foto: Gabriel Reis/Valor

The Marriott International hotel chain is moving with its plan to enter the economy and midscale segments with the arrival of the City Express brand in Brazil. According to Vanessa Martins, top executive of Marriott Brazil, the chain has three letters of intent signed and 10 more projects under negotiation. The plan is to achieve 2,500 rooms under this brand in Brazil in the medium term—between two and four years.

Marriott’s move increases competition in the segment, currently dominated by French chain Accor with its Ibis brand.

In May, the Hilton chain also announced plans to bring its new brand Spark to Brazil and become an alternative to Ibis hotel owners when contracts for properties currently in operation are approaching their renewal period.

“The midscale and economic segments are growing not only in Brazil. In the region, Marriott entered this category with the recent acquisition of City Express. It is a 20-year-old brand, which is strong in its markets,” Ms. Martins said, in an interview with Valor. City Express currently has 150 hotels, with 10 others in its pipeline—in total, there are five brands added. The operation is focused on Mexico, Colombia, Chile, and Costa Rica.

Marriott announced the chain acquisition in October 2022 but the deal was only completed in the second quarter of 2023, after regulatory approvals.

With the deal, Marriott added 17,500 rooms to its portfolio and became the largest company in the Caribbean and Latin America region, with almost 500 properties, rivaling Accor, with around 450. In Brazil, however, Accor is the leader.

According to data from the Forum of Hotel Operators of Brazil (FOHB), the economic segment is the largest in the domestic hospitality industry, accounting for 46% of properties. The midscale segment represents 36%, while the upscale segment has 16%, and resorts account for 2%.

Accor is the market leader, with 332 hotels in Brazil, 240 of which are part of the Ibis family (including the Ibis, Ibis Budget, and Ibis Styles brands). That means 72% of the French company’s portfolio is in Brazil.

Despite leading in the region, Marriott currently has only 12 hotels in Brazil, with a total of 3,197 rooms and eight brands.

Ms. Martins said the group is more attentive to opportunities in Brazil and seeks to grow in all segments. She points out that central cities like São Paulo still have a lack of room supply, especially in the luxury segment. The company launched its first luxury hotel in São Paulo, the JW Marriott, only in 2022.

“We see many brands arriving. There is demand in the midscale market, Other brands could arrive and bring innovation. We want to be an alternative for building owners and customers,” she said.

The strategy involves expanding City Express in the country’s fastest-growing markets, including primary destinations, such as São Paulo, and secondary and tertiary destinations, which are seeing strong tourism growth—the countryside of São Paulo, for example, has been on the industry’s radar.

Low competition in the segment prompted Hilton to seek to gain ground with Spark, the group’s conversion brand. The project has been adapted for the Brazilian market. While in the United States, the average size of a Spark room is 24 square meters, in Brazil it will be 16 square meters, which is in line with the Ibis portfolio.

In the same direction, City Express rooms will start at 16 square meters but the expected average is between 18 and 22 square meters.

Marriott also sees an opportunity to use the City Express brand to attract independent hotel owners, a strong segment in Brazil. “One of the tools we have for making hotels enter our portfolio is the [Marriott Bonvoy] loyalty program. We have more than 200 million members. In Brazil alone there are 1.1 million,” she said.

Conversion is a strong strategy, especially at a time of high interest rates, which makes the construction of new buildings more expensive. Last year, 35% of Marriott’s pipeline in Latin America and the Caribbean resulted from conversion. “We are very strong in markets sought by Brazilians, like Miami and Orlando. It’s a well-known portfolio,” the executive pointed out.

The group is also advancing in other segments, with openings in the luxury sector with the W São Paulo and W Residences São Paulo—at the end of 2024—, and the Westin São Paulo (premium segment), in 2025. Globally, Marriott posted net earnings of $564 million in the first quarter, a drop of 25% year-on-year amid higher operating costs.

After the strong impact of the pandemic, the business is now favorable. The group does not disclose further details but the executive says the operation has recovered from the pandemic levels. “It’s encouraging to see the market situation today,” she said, pointing out the strong increase in the number of events, such as the Madonna concert, which took place in Rio, and the G20 scheduled for the end of the year.

*Por Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Food industry to invest R$120bn by 2026

Announcement made at meeting of the sector with President Lula includes contributions already started in 2023

07/17/2024

President Lula announces investments at the Planalto Palace — Foto: Ricardo Stuckert/PR

President Lula announces investments at the Planalto Palace — Foto: Ricardo Stuckert/PR

Representatives of the food industry confirmed on Monday to President Luiz Inácio Lula da Silva that R$120 billion will be invested in the country by 2026. Around R$75 billion will be earmarked for the expansion and modernization of plants, as well as the construction of new units throughout Brazil. Companies in the sector will also invest R$45 billion in research and development.

João Dornellas, president of the Brazilian Food Industry Association (ABIA), told Mr. Lula that the sector grew by 3.3% in the first half of this year, but did not give any more details about the figures. In 2023, the sector’s turnover was R$1.161 trillion.

“This meeting confirmed to the government that the Brazilian food industry is committed to the country. We continue to bet on the potential of our country. And the numbers are coming in,” said Mr. Dornellas to journalists after his meeting with President Lula.

Part of the investments had already been announced. In 2023, R$36 billion had already been invested. Among the initiatives are investments of R$15 billion by JBS to expand production in Mato Grosso, R$7 billion by Nestlé to expand factories and coffee production in Araras (São Paulo), and R$5.6 billion by BRF in meatpacking plants across the country.

The list of investments also includes R$4 billion by Coca-Cola to modernize and expand its factories; R$3.5 billion by Coamo to expand its grain storage and processing capacity, and R$3.5 billion by CMAA to expand its sugar milling and production capacity in Minas Gerais.

Other confirmed investments are by Cargill (R$2.6 billion), Nutriza Alimentos Nordeste (R$2 billion), Bunge Alimentos (R$1.7 billion), Cocamar (R$1.3 billion), Pepsico (R$1.2 billion) and Mondelez (R$1 billion). Contributions from Bauducco, Camil, Cooperativa Oeste Catarinense, C. Vale, Caramuru, Cerradinho, Comigo, Cooperativa Agropecuária Tradição, Copasul, Laticínios Tirolez, Kellanova, Natural One, Cutrale, Usinas Cariripe, General Mills and Unilever add up to another R$8.2 billion.

Agriculture Minister Carlos Fávaro said that the government has been working to “hinder less agro-industries”, with measures to reduce bureaucracy, such as the electronic certification of exports.

“We already had a strong field [production] and now we have become the world’s supermarket, as we are the largest exporter of industrialized, ready-to-eat food,” said Mr. Dornellas.

According to Abia, 61% of the Brazilian agricultural production is bought and processed by the domestic industry.

*Por Rafael Walendorff — Brasília

Source:Valor International

https://valorinternational.globo.com/
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Eneva announces public offering, acquisition of BTG thermal plants

BTG will back 75% of the capital increase; company expected to be its main platform in the sector

07/17/2024

Lino Cançado — Foto: Divulgação

Lino Cançado — Foto: Divulgação

Power generation company Eneva is acquiring four thermopower plants from BTG Pactual and will carry out a public offering of up to R$4.2 billion to back the acquisition and reduce leverage.

In the deal, BTG commits to backing up to R$3.2 billion in the base offer at R$14 per share, which corresponds to Eneva’s shares average price over the last 60 trading sessions on the B3 stock exchange.

The deal also places the bank as a primary shareholder with the possibility to double its stake in the company, currently at 23.3%. Under the new arrangement, BTG ensures that the company will be its investment platform in energy generation and natural gas assets in Brazil. On the other hand, the bank cannot vote at the meeting to approve the deal, as it is the seller of the assets and the company’s primary shareholder.

That was one of the conflicting points identified among minority shareholders, Valor learned from two sources. There was disagreement among shareholders and management about the direction of the company.

One party defended running Eneva as a corporation (with dispersed ownership). However, the existence of two relevant primary shareholders—BTG and the Cambuhy fund—generated conflicts. Minority shareholders raised the governance issue as a sensitive point, according to these two people familiar with the matter. There was some discomfort given the fact that BTG held other assets in the sector, in addition to Eneva. The bank and the Cambuhy fund did not immediately respond to Valor’s requests for an interview.

The announcement of the deal was expected by the market. With the capital increase, backed by BTG by around 75%, the company will be able to support the acquisition of the four thermal plants (estimated at R$ 2.9 billion) and will seek to reduce its debt, says Eneva’s CEO Lino Cançado. The announcement of the deal did not excite investors in the stock market on Tuesday (16). Eneva’s shares closed the trading session with a slight increase, of 0.23%, at R$ 13.28. BTG’s shares fell 0.37%, to R$32.05. Benchmark stock index Ibovespa ended the day 0.16% down.

The question in the market is whether the other shareholders will follow this offer to avoid capital dilution. Sources interviewed by Valor argue that the shareholders need time to evaluate the offer.

At the end of last year, Eneva proposed a “merger of equals” with Vibra. The proposal did not move forward, as the fuel distributor considered that the valuation placed the company in an unfavorable position and that the share exchange ratio would not be fair as originally proposed. Therefore, negotiations did not move forward.

In a conference call with analysts and investors, Mr. Cançado said the acquisition of BTG’s thermal plants is in line with Eneva’s businesses. He emphasized that the deal will diversify Eneva’s geographic position, currently focused mostly on the North and Northeast regions.

Eneva will issue 126,071,428 new shares to BTG, considering the asset price of R$1.76 billion, to acquire two thermal plants: Tevisa and Povoação. The deal also includes BTG’s rights issue to up to 16,330,346 shares. The other two thermal plants, UTE Linhares and Gera Maranhão, are priced at R$1.14 billion. The acquisition of these two plants will be backed with the offering funds.

Due to three large acquisitions carried out by Eneva in 2022, the company’s leverage, measured by the net debt/EBITDA ratio, is 4.1 times, according to the financial statements for the first quarter of 2024. The acquisitions involved the incorporation of Focus for R$936 million, plus the acquisitions of Celse for R$6.1 billion and Termofortaleza for R$489.8 million.

“The deal strengthens Eneva’s balance sheet through the public offering and acquisitions generating cash in the short term, when Eneva is committed to a large investment program, including ongoing projects. It will also have a significant impact by reducing debt,” Mr. Cançado said.

Eneva is also considering re-purchasing 148 megawatts (MW) of installed capacity from the plants involved in the deal with regulated contracts expiring in December 2025.

Marcelo Lopes, Eneva’s chief commercialization officer, said in a conference call that there is an estimate of a potential increase in the company’s installed capacity of up to 3.3 gigawatts (GW). For Mr. Lopes, the distribution of thermal assets in three states enables access to liquefied natural gas (LNG) terminals, with around 1.1 GW located in Espírito Santo, including access to the TAG network and possible gas supply from the Sergipe hub, with the participation in the capacity reserve auction. “The acquisition gives us competitive strength to participate in the auction and meet the sector’s demand.”

Edvaldo Santana, a former director at the Brazilian Electricity Regulatory Agency (ANEEL), points out that Brazil has no problem related to energy supply or security, but rather to meeting the peak of demand, between 6 pm and 9 pm, when solar power generation stops and electricity consumption in homes remains high. Mr. Santana says Eneva could tap into relevant businesses, as the security of the service and the reliability of the electrical system have been met by thermoelectric plants dispatch during times of high demand.

With the deal, Eneva estimates the company’s revenue will grow to R$12.2 billion, from R$10.1 billion in 2023. EBITDA (earnings before interest, taxes, depreciation, and amortization) could increase to R$6.1 billion. Eneva’s net earnings of R$200 million in 2023 would be added to the thermal plants’ profit, to reach R$1.6 billion in projected net earnings. The company did not provide a deadline for achieving this target.

For Ativa Investimentos analyst Ilan Arbetman, the deal could face questions about governance, since BTG is also a relevant shareholder of Eneva. “The board approved it and the BTG member declared himself unable to vote, as reported in the conference call. It remains to be known whether the same will happen in the general shareholders’ meeting.”

Eneva expects that the meeting aimed at evaluating the deal will be held in the third quarter of 2024. The deal also pends approval by the Administrative Council for Economic Defense (CADE) and the Central Bank.

The analyst also says minority shareholders may consider the deal as positive as it provides room for the company to open new investment fronts and pay dividends. “Last year the company said it could pay dividends at the end of 2023, and then moved to the beginning of 2024. With recent acquisitions, the possibility of compensating shareholders has fallen off the radar.”

*Por Kariny Leal, Robson Rodrigues, Mônica Scaramuzzo, Felipe Laurence, Maria Luíza Filgueiras — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Finance Ministry to shape BC and CVM into market super-regulators

The proposed model mirrors the UK’s approach, segregating responsibilities between prudential and conduct regulation

07/17/2024

Otavio Yazbek — Foto: Silvia Costanti/Valor

Otavio Yazbek — Foto: Silvia Costanti/Valor

The Ministry of Finance is exploring the implementation of the “twin peaks” model in Brazil. This approach would elevate the Central Bank (BC) and the Securities and Exchange Commission (CVM) to “super-regulators” overseeing the financial, capital, insurance, and pension markets.

This proposal would maintain the Central Bank’s operational autonomy, already secured by law. As told to Valor, discussions began early in Minister Fernando Haddad’s tenure and were initially planned for the third year of President Lula’s term. However, the idea has gained momentum amid debates on a constitutional amendment (PEC) to ensure the Central Bank’s financial autonomy.

The concept, already shared with a few senators and inspired by the UK system, involves one body handling prudential regulation of financial, capital, and insurance markets and another overseeing conduct and consumer protection.

Brazil’s regulatory model currently involves the Central Bank, the CVM, and the Superintendence of Private Insurance (Susep) managing regulatory and supervisory roles. According to the Ministry of Finance and various experts, this arrangement leads to overlapping functions and hampers the agencies’ ability to oversee systemic issues and monitor irregular activities effectively.

Given the complexity of implementing the new model, the Ministry of Finance is considering a phased approach to minimize disruption to these institutions and their operations. The initial step would involve integrating Susep into the Central Bank due to perceptions that Susep is currently an underpowered entity that would benefit from the structure and support of the Central Bank.

Subsequently, the plan is to bolster the CVM, enabling it to assume some responsibilities currently held by the Central Bank, while the Central Bank would take over specific duties from the CVM. Ministry experts see this reassignment of roles as the optimal arrangement.

Under the proposed restructuring, the Central Bank would be tasked with regulating and supervising financial and capital markets, along with overseeing monetary policy. The CVM, on the other hand, would focus on regulating and supervising market conduct, extending its oversight to banking activities.

Additionally, the Ministry of Finance is contemplating integrating the responsibilities of the National Superintendence of Complementary Pensions (Previc) into this model. This change would streamline the regulatory landscape by reducing the number of agencies from four to two.

Similar to how the Central Bank’s operational autonomy was established through a complementary law in 2021, this new framework would also be instituted through legislative means. While the Central Bank would retain financial autonomy, the proposal diverges from the current Constitutional Amendment Proposal (PEC) being debated in the Senate, which suggests transforming the agency into a public company—an idea the economic team opposes.

The CVM might also be granted financial autonomy under the new model. Currently, the CVM collects approximately R$1 billion annually in fees from the entities it regulates; however, its discretionary spending is capped at only R$30 million.

Drawing from the United Kingdom’s framework, which Brazil is considering as a model, the UK has the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). This structure was adopted gradually, transitioning from a system where the Financial Services Authority (FSA) was the sole regulator.

In Brazil, there is a consensus between the government and the Senate that the “twin peaks” model and the autonomy outlined in the PEC should be seen as complementary measures. Consequently, the PEC will continue to progress through legislative processes. Government factions are open to modifications in the legal structure of the Central Bank, provided it does not become a “public company.”

The proposal aims to transform the Central Bank into a “Financial Corporation,” a legal framework wherein its employees would not be traditional civil servants, enabling salaries comparable to those at the Brazilian Development Bank (BNDES). This concept aligns with the organizational structures of the Federal Reserve in the United States and the European Central Bank. However, there is no unified agreement on this change among the involved parties.

The voting on the Central Bank’s PEC in the Senate’s Constitution and Justice Committee (CCJ) is currently in limbo. Davi Alcolumbre, the committee chairman, has said that he will not move forward with the deliberation until a consensus is reached.

Neither the Central Bank nor the CVM has issued comments regarding this matter. “Susep supports any proposal that enhances the quality of financial regulation in Brazil,” said Alessandro Octaviani, president of Susep. He further said to Valor, “The current administration at the Finance Ministry has been actively working to improve Susep, which will be evident in the upcoming changes.”

Otavio Yazbek, former director of the CVM and a staunch proponent of adopting the “twin peaks” model in Brazil, argues that the main advantage of consolidating functions into just two agencies is to rectify inefficiencies in supervision and misconduct enforcement within the overlapping sectors of banking, capital markets, insurance, and pensions. “Currently, not only are there gray areas, but also opportunities for contradictory regulations,” he noted.

Mr. Yazbek said, “The ‘twin peaks’ model allows for more efficient management of overlapping areas of action and the gaps in financial regulation activities, as well as better handling of innovation processes within the financial and capital markets.”

He also noted that due to the complexity of such changes, which require redefining the responsibilities of existing regulatory bodies, the implementation must be phased.

Marcelo Trindade, former president of the CVM, also commended the model, saying, “If the proposal advances in this direction, it will represent a significant progression for regulated markets in Brazil. It’s a model that has greatly developed globally and addresses crises arising from the current system’s lack of focus. This model would either eliminate or significantly diminish such issues.”

*Por Guilherme Pimenta, Lu Aiko Otta, Fernando Exman, Andrea Jubé, Caetano Tonet — Brasília

Source: Valor International

https://valorinternational.globo.com/
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