Uncertainty about the future of the state-run oil company and recovery in China explain the distance
12/13/2022
In mid-October, when Petrobras shares peaked, the state-owned company was the most valuable company on the Brazilian stock exchange, R$116 billion ahead of second-place Vale. By early November, after the second round of presidential elections, the gap had narrowed to R$85 billion. Within two weeks, on the 11th, Vale had moved ahead. Today, one month later, the mining company has already put R$77 billion ahead.
The swap of positions, which seems to have come to last, was the result of the combination of uncertainty about the future of the state-run oil giant with the return to power of the Workers’ Party (PT) and the expectation of a recovery in China, the main market for Vale, with the easing of restrictions because of Covid-19. Iron ore has been up 9% in the month.
Investors’ distrust of the election winners, which was great before, has only increased with the news over the last few weeks, following the movements of the huge transition team. Monday, the day of the graduation of the elected, two pieces of information did the damage: Aloizio Mercadante would be considered to be the CEO, and the state-owned companies law would have its days numbered.
At 4:00 pm, Petrobras preferred shares fell 4.17% to R$23.68, accumulating an 11% drop in the month and 30% since October’s record high of R$33.72 — equivalent to R$187 billion less in market capitalization. Meanwhile, oil was up 2.48%.
It has been such a good period for the oil companies that the stocks remain in the black for the year, up 42%, while Ibovespa went into the red today. Among peers, however, Petrobras has also fallen behind. Prio, considered by analysts as an option for the state-owned company to invest in the sector, rose 63% in the year. The American Exxon advanced 71%.
Ministry of Agriculture received a technical questionnaire to check the feasibility of starting a partnership
12/13/2022
Bean harvest is just under 3 million tonnes per season — Foto: Claudio Belli/Valor
The Brazilian private sector has insisted for years, and now China is showing the first signs of interest in importing beans and pulses (lentils, chickpeas, and peas) from the country. Last month, the Ministry of Agriculture received a request for answers to a technical questionnaire sent by the Chinese to check the feasibility of starting shipments.
Although the document is not an official manifesto, producers and industries in Brazil are celebrating, since the opening may represent good opportunities. In China, the per capita consumption of beans is only 1.7 kilos per year, but the average has grown 400% annually.
“This is a work that has been going on for years, involving the Ministry of Agriculture, Foreign Affairs Ministry, and the interested segments. In the specific case of mung beans [also known as moyashi and used to produce edible sprouts], it was very celebrated in Brazil,” Ariana Guedes, international advisor to the State Secretariat of Economic Development (Sedec) in Asia, told Valor.
The beginning of this process is also related to the loss of area destined for the planting of beans, especially for crops such as soybeans, as has also happened in Brazil, added the advisor. Given this trend, exporting to China may represent even more than compensation.
According to the most recent data from the U.S. Department of Agriculture, in the 2019/20 harvest, China produced 4 million tonnes of beans, lentils, chickpeas, and peas, down 10% from 2018/19. In Brazil, the bean harvest is just under 3 million tonnes per season, with gross production value estimated by the government at R$15 billion this year.
It is worth remembering that Brazil makes occasional imports of black beans from China, especially when there are difficulties in Argentina, which supplies 90% of the 100,000 tonnes imported by the country annually.
Although the Chinese do not consume beans as much as Brazilians, the demand for processing has been growing in the country, for use in human food and animal feed. According to Ibrafe, between 2018 and 2021 there was a 172.3% increase in Chinese imports of mung beans, 819.7% in purchases of pinto beans, 503.7% in red beans, 2.8% in peas, and 79.7% in chickpeas.
According to Mr. Araújo, Canada currently supplies 93% of pulses imported by China, while the United States keeps the rest. The world market for beans and pulses is worth $26 billion annually, according to the Brazilian Institute of the Bean (Ibrafe), and it is natural that China’s greater appetite, considering its population of 1.4 billion, will transform the landscape.
In addition, Larissa Wachholz, former special advisor to former Minister Tereza Cristina (Agriculture) for issues related to China and partner at Vallya Agro, stressed that the growth of China’s middle to lower-middle class, today with about 800 million people, has broadened the debate on food security and health.
“There is a trend that those people who have moved to urban areas and achieved a better income be more concerned about food diversification and nutritional issues. Pulses fall into that category, which is a great opportunity for Brazil,” he said.
Despite the euphoria of the Brazilian private sector, Fábio Coelho Correa de Araújo, Brazilian agricultural attaché in China, reinforced, in an interview with Valor, that the Chinese questionnaire does not mean official interest in buying Brazilian products. At least for now. “The opening of the market for plant products is done through risk analysis of the product, and this can take months or years.”
This does not discourage optimists, though. And Marcelo Lüders, president of Ibrafe, is one of them. “With the problems of the war in Ukraine, the Chinese needed to expand their peanut suppliers and authorized Brazilian purchases in a few months. The same can happen with pulses,” he said.
It was Mr. Lüders who forwarded the questionnaire received from the Chinese to Embrapa (Brazilian Agricultural Research Corporation Rice and Beans) and IAC (Agronomic Institute of Campinas). But both are waiting for an official request from the Ministry of Agriculture to contribute with the technical aspects.
System integrator competes with Ericsson and Nokia; in Brazil, Telefónica’s Vivo is a client
12/13/2022
U.S.-based company Mavenir is taking advantage of the deployment of the 5G wireless technology in Brazil by phone carriers to expand its presence in the country. A provider of network software in the cloud, with end-to-end operations, Mavenir is a systems integrator that competes with large suppliers such as Ericsson and Nokia. In Brazil, it has already won Telefónica’s Vivo as a client. Now, it is negotiating with other large carriers and regional providers, according to Antonio Correa, senior regional vice president for Southern Europe, the Caribbean, and Latin America.
Mavenir has been a Vivo supplier for seven years for messaging systems and three years for cybersecurity. To serve the phone carrier in this last project, it has established a commercial partnership with NEC, said Mr. Correa.
Vivo declined to comment. NEC said that the alliance was designed for the integration of a “proof of concept” of open RAN (open network, with different suppliers) for Vivo in Pernambuco. Mavenir wanted the Japanese multinational to lead the equipment implementation process. The result was considered very positive, according to NEC, and served at the time as a successful case of network architecture for the two companies worldwide.
Mavenir serves more than 250 communication service providers in 120 countries and employs 5,000 people around the world. The company expects to post a global revenue of $750 million this year. In Brazil, the operation is still small.
The company, which is focused on applications for 5G technology, made a capital increase of $155 million in October. The company has raised $250 million in strategic capital since July. The funds will be used to finance products that drive the company’s growth.
With the capital increase, Siris, a private-equity firm focused on technology, which was the first investor, remained the largest shareholder. In the last four years, Koch Strategic Platforms, a subsidiary of Koch Industries, and microprocessor manufacturers Intel and Nvidia have joined as minority shareholders.
On Mavenir’s website, CEO Pardeep Kohli said that it took seven years for the company to reach its current level and that he has spent the last three years building a team to design and build radios for network communication. In the case of Brazil, Mr. Correa said that there is interest in assembling these open RAN radios, but this will first depend on the business “getting off the ground.”
Anderson André — Foto: Divulgação
“We have global assembly partners, including in Brazil, to start [producing] as soon as we have contracts,” said Mavenir’s vice president for Brazil, Anderson André. The primary production process will be the model used.
Mr. Correa said that he started to focus on Latin America in the last three years, mainly interested in increasing the company’s presence in Brazil, due to the potential 5G market and integrating its geographical service area, which became its territory almost three years ago. The executive said that besides negotiating with providers and phone carriers, he has also talked to integrators already established in Brazil with the aim of expanding the service arm and accelerating opportunities in the local market.
For now, the investments in Brazil are with personnel. The company has an office in São Paulo and a team in Rio de Janeiro.
Anderson André said that an ecosystem of integrators is being built that will “sew” the pieces to supply customers. The executive is confident in the wide range of possibilities that are opening up with 5G to serve the corporate market that operates in wholesale and retail.
Market participants are already working with real rate of 5%
12/13/2022
As discussions about public spending move forward with the Transition PEC (proposal to amend the Constitution), the worsening perception of fiscal risk and the possibility of increased subsidized loans via state-owned banks have put pressure on the neutral rate of interest, the one that neither speeds nor slows economic growth. The international landscape is not helpful either, with tighter monetary conditions in the major economies, which props up the feeling that the local interest rate will remain at higher levels in the future.
The lower levels of neutral rates of interest have been left behind. Before the pandemic, the Central Bank and the market worked in their scenarios with a neutral rate of interest of around 3% in real terms. In June, the monetary authority started to adopt in its scenarios a neutral real rate of 4%, but in the last few weeks the market has been working with even higher numbers –some institutions have already put in their scenarios a neutral rate of interest of 5%.
In the Banco Original’s calculations, which consider the difference between the key interest rate Selic and the IPCA (Brazil’s official inflation index) estimated by the Focus (Central Bank’s weekly survey with economists) for a three-year period ahead, the neutral rate of interest implicit in the expectations of market economists is 4.9% in real terms. The environment with a higher neutral rate makes it clear that, in the market’s view, even if the Selic does not rise above the current level of 13.75% per year, it will not fall as much as was expected months ago. This is linked to recent scenarios of market participants who have raised projections for the Selic in 2023 and 2024.
Fernando Genta — Foto: Silvia Zamboni/Valor
This is the case of XP Asset Management, whose central scenario includes a neutral real interest rate of 5%, with an upward bias, said chief economist Fernando Genta. For him, the signs of neutral rate of interest hike are “unequivocal” and Brazil is likely to transition to a new macroeconomic balance of higher public spending, higher interest rates, faster inflation, and some increase in the tax burden.
“With the prospect of higher public spending, the Focus survey is likely to show upward revisions in the Selic projections, with no downward revisions in inflation expectations. This combination of more interest and inflation expected, for an extended period, is interpreted by the model as an increase in neutral rates of interest,” said Mr. Genta, who was assistant secretary of the Ministry of Economy between 2017 and 2018.
The most recent discussions about possible changes to the Long-Term Rate (TLP) also interfere with the sense of a higher neutral rate of interest. Rumors that former Minister Aloizio Mercadante may take over the Brazilian Development Bank (BNDES) in the next administration gained steam Monday and impacted long-term interest rates substantially. The interbank deposit (DI) rate for January 2027 rose to 13.05% from 12.865%; while the DI for January 2029 climbed to 13.1% from 12.9%.
Last week, Mr. Mercadante criticized what he considers an excessive transfer of profit from the BNDES to the National Treasury, advocated the bank’s role as a booster of industry and guarantor of long-term loans and, internally, also discussed ways to rebuild the bank’s funding system and change the TLP. The presidential transition team’s view is that, besides being excessively high, the TLP is inflexible and, thus, inefficient.
In Mr. Genta’s view, the recent discussion about changes in the TLP moves in the direction of a higher neutral rate of interest, since, in case of reversal and return to the previous scenario, the power of monetary policy would be weakened. “As you increase the percentage of credit not impacted by monetary policy, you need a higher interest rate to achieve the same impact on inflation. It may sound semantic, but I think this is more a reduction in the power of monetary policy per se rather than a rise in the neutral rate of interest. But both things go together,” he said.
Banks such as Credit Suisse and Citi are also working in their scenarios with a neutral real interest rate of 5%. Santander embeds in its scenarios a neutral rate of interest of 4%, but stressed that this variable shows some tendency to the upside.
“Our calculations, which are based on the real yield curve and smooth market moves, the neutral rate of interest is actually moving towards 5%. We are not incorporating this into our scenario yet; we are waiting for fiscal decisions and signals about economic policy,” said Mauricio Oreng, Santander’s head of economic research. While uncertainty is high, he said, “in fact, there is a preliminary indication that the neutral rate of interest may be going to 5%.”
“All else constant, a higher neutral rate of interest also means that the neutral primary result gets higher,” said Mr. Oreng, as he points to the fiscal challenges ahead. “And we are also seeing a scenario where international interest is higher. For a few years ahead we will be working with a higher interest rate abroad. The environment with Fed funds at 5% is quite different from what we expected before.”
When evaluating the recent history of the neutral rate of interest, Mr. Oreng recalled that, after Congress passed the pension reform and TLP was put in place, the risk premiums of Brazilian assets fell to “very low” levels, which led the market to project a neutral rate of interest of 3%. “However, the evolution of the post-pension reform scenario, with new discussions of the fiscal framework and spending above the cap, led to a higher neutral rate of interest scenario. If we excluded the pension reform, our interest rate would be at an even higher level.”
The baseline scenario of Apex Capital’s chief economist Alexandre Bassoli includes the neutral rate of interest at 5% in real terms. “The trend has been upward since the pandemic. The estimates of the Central Bank itself, which used to be 3%, went to 4%. There is a global component because clearly there is a trend of a significant increase in interest rates in the world, but there is also a local component, which is the issue of the risk premium, which is related mainly to fiscal uncertainty.”
Mr. Bassoli points out that the spending cap brought predictability to public spending and increased the confidence of economic agents. “It is unclear what kind of regime may come to be adopted, but if the adoption of the cap contributed to reduce the neutral rate of interest, the extinction of the cap increases the rate.”
Original’s chief economist Marco Antonio Caruso observed the same. “If you have a federal administration willing to reduce public savings, there is, in theory, less availability of funds, and this helps you to have a higher neutral rate. Brazil has a high debt – almost 20% above its emerging peers – and the signaling of an increase in this debt causes risk premiums to rise. This also brings a higher neutral rate of interest,” said Mr. Caruso.
Since the neutral interest rate is an unobservable variable, according to Mr. Caruso, the evidence of a higher neutral rate of interest may show up in the economy through slower disinflationary processes and higher nominal rates for longer periods.
Mr. Caruso also draws attention to the recent discussion on the resumption of the Long-Term Interest Rate (TJLP). “BNDES used to offer subsidized loans to large companies, in relevant volumes. You end up making a large part of the economy’s credit unresponsive to monetary policy. If this scenario comes back, it would also require a structurally higher interest rate over time,” the economist said.
Cautious messages about the resumption of subsidized interest rates have even been sent by Central Bank authorities, especially by the monetary authority’s president, Roberto Campos Neto, in recent events. But despite the discussion being on the rise among market players in recent months, Mr. Caruso does not believe there will be any sharp change in the neutral rate of interest in the Central Bank’s next communications.
“The Central Bank is a ‘taker’ of fiscal information and cannot assume things that are not yet materialized. And it would be strange. Nature does not make jumps. It is difficult for the Central Bank to indicate that it has a high conviction that an unobservable variable went to 5% from 4% overnight. I think it would be a longer and more discussed process,” he said.
Price hikes made sales jump 24%, but deficit exceeds $64bn in the year
12/12/2022
The strong rise in international prices of chemicals has boosted revenues of the industry this year. According to preliminary data from Abiquim, the trade group that represents the sector, net sales probably reached R$969.4 billion, up 24% year-over-year and an all-time high, despite the stable output volume. In dollars, there was a 27.3% jump, to $187 billion.
At the same time, the most pessimistic projections for the balance of trade in chemicals materialized. In the year, the deficit probably reached the unprecedented level of $64.8 billion, up 40.3% year-over-year, driven by the country’s low share in the global market – despite having the sixth-largest industry in the world – and the relevant weight of imports in the domestic demand.
According to Abiquim, while imports grew 36.1%, to $82.6 billion, the highest ever, Brazilian exports advanced less only 22.1%, to $17.7 billion, also a record.
“There were good results in 2022, which shows that there are very competent companies in the country at what they do and they knew how to take advantage of the favorable moment. But the absence of structural solutions once again affected the results and the last four months showed a downward trend,” Abiquim’s head André Passos Cordeiro told Valor.
The figures estimated for 2022 will be presented Monday during the 27th Annual Meeting of the Chemical Industry. In the event, key players will debate the sector’s strategic agenda, which will be taken to the President-elect Luiz Inácio Lula da Silva’s transition team and governors of states that are home to important industrial hubs including Bahia, São Paulo, and Rio Grande do Sul.
The main objective of the agenda is to interrupt the decline of manufacturing that has been impacting the sector for years, said the executive, for whom natural gas is a central topic. Today, the chemical industry accounts for 30% of the country’s gas consumption, either as raw material or energy, and competes in the global market especially with the United States and China, countries that, for different reasons, have lower production costs.
“The discussion includes a solution for sufficient gas supply and competitive price,” said Mr. Cordeiro. There were advances in the current administration, such as the Gas Law, and the industry’s perception is that the next administration is sensitive to this matter, as well as to the need to resume an industrial policy to benefit the chemical industry and other sectors as well, he added.
According to Fatima Giovanna Coviello Ferreira, Abiquim’s economics and statistics director, there is an opportunity for expansion of the Brazilian chemical industry if conditions are more favorable. The record trade deficit confirms this potential for the industry.
“Europe is now facing a gas crisis. It is the main input for the petrochemical industry in the world. This will open space in the market, but China and the United States, which have idle capacity, are ahead of us. Brazil could compete with these players if there were gas at a lower price and in sufficient volume to increase production capacity, and adjustments in the tax burden and infrastructure,” he said.
As for the industry’s results, although sales have been a record, margins in 2022 were below those seen in previous years. Just as chemical prices skyrocketed on the international market with the war in Ukraine, raw materials and energy also became more expensive and reduced profitability particularly in Brazil, where gas still costs three times as much as in other regions. “The cost went up and logistics saw a brutal increase, so the margin was lower,” she said.
In 2023, according to the executive, prices of chemical products are expected to fall, with a reduction in the trade deficit as well. “Momentarily, there was some improvement in terms of logistics, but it is still unclear how the crisis foreseen for 2023 in the international market will reflect on costs,” she said.
Of the net sales of $187 billion estimated for the Brazilian chemical industry in 2022, a little less than half, or $88.3 billion, is generated by chemical products for industrial use, such as resins, elastomers, and various preparations. Compared to last year, the expansion in this segment was 24.6%.
In 2021, the chemical industry will account for 3.1% of Brazil’s GDP. This share reached 3.6% in 2004, the peak since Abiquim’s records began, in 1995. In the transformation industry, the sector’s share is the third largest, with 12.4% of the industrial GDP in 2020, behind food and beverages and oil products and biofuels.
Justices rule multi-billion impact disputes over PIS, Cofins, Funrural, Difal-ICMS
12/12/2022
Ricardo Lewandowski — Foto: Carlos Moura/SCO/STF
A package of tax disputes that represent a significant impact on federal government and state accounts is being decided by the justices of the Federal Supreme Court (STF) this week. There are almost R$150 billion under discussion. Financial institutions, agribusiness, and retail companies are the most impacted by the trials, which are expected to end on Friday.
It is at stake R$115 billion in one of the cases analyzed, related to the collection of social taxes PIS and Cofins from financial institutions, which will have a general impact — meaning that their ruling applies to all similar cases.
At the beginning of the trial, on Friday, the rapporteur, Justice Ricardo Lewandowski, accepted the thesis of banks and brokerage houses that they were entitled to collect, between 1999 and 2014, the contributions on a lower basis than that claimed by the federal government.
The discussion, which has been awaiting definition for more than a decade is whether the National Treasury can demand contributions on financial revenues — on interests, for example. Banks argue that they should only collect taxes on revenues from the provision of services, the sale of goods, or a combination of the two. This would be the case of those generated with the payment by customers for checkbook issuance, current account maintenance, and transfers, for example.
Since Bill number 12973 of 2014, which provided for social taxes PIS and Cofins taxation on all revenues from business activity, the dispute has been stalled. A year before the bill, the government opened an installment program for tax debts (Refis) to try to eliminate this liability and end judicialization.
According to lawyers, banks joined the program en masse because of the possibility of paying the taxes due with a waiver of fines and interest. In exchange, they would give up their lawsuits.
In his 11-page vote, Justice Lewandowski proposed the following thesis to be applied to all similar cases: “The concept of revenues as a tax base for the collection of social taxes PIS and Cofins, against financial institutions, is the revenue from banking, financial and credit activities arising from the sale of products, services or products and services, until the onset of Constitutional Amendment 20/1998.
The conclusion is based especially on two decisions of the STF. The first, in 2005, the Court declared unconstitutional paragraph 1 of article 3 of Law 9718 of 1998. This provision established as gross revenue “the totality of the revenues earned by the legal entity, being irrelevant to the type of activity performed by it and the accounting classification adopted for the revenues.”
At the time, the Supreme Court interpreted “gross revenue” and “billing” as synonyms, the latter referring to the sale of goods, services, or goods and services (Extraordinary Appeal [RE] 346.084).
In the second decision considered by Justice Lewandowski, the STF understood as a consumer any individual or legal entity that uses, as the final recipient, banking, financial, and credit activities (action of declaration of unconstitutionality [ADI] 2591).
“As a result of these understandings the financial institutions offer products or services, whose revenues are part of the concept of billing, again, even if they do not require the issuance of an invoice,” said the rapporteur. The other Justices are yet to give their opinions (REs 609096, 880143, and 1250200).
Another dispute in progress this week and with a multi-billion impact is about Funrural, which is the Rural Workers’ Assistance Fund, the social security contribution for the agribusiness sector.
There are three lawsuits under analysis. One of them discusses whether there is an obligation to pay Funrural (ADI 4395). Interrupted in May by a request for examination, the virtual trial resumed on Friday. The score is six votes to five to uphold the constitutionality of the contribution but rejects the obligation of the individual rural producer to pay the tax in sales operations to legal entities.
In the other lawsuits, the dispute is over Funrural’s tax base — whether it is the gross revenue from production, or the remuneration paid or credited to insured employees. The impact of both is R$24 billion and affects agribusinesses (RE 611.601) and rural business entities (RE 700.922).
In the first case, the rapporteur justice Dias Toffoli validated the social security contribution levied on gross revenue from the sale of production.
In the appeal involving business entities, in turn, there are four votes with distinct opinions. The retired Justice Marco Aurélio Mello, which used to be the case’s rapporteur, ruled for the unconstitutionality of the social security contribution levied on the gross revenue from the commercialization of production, payable by rural employers who are legal entities. Justice Edson Fachin followed him.
Justice Alexandre de Moraes, however, opened the divergence. He understood as constitutional the contributions due to social security by the employer, a business entity that is engaged in rural production levied on the gross revenue from the sale of its production. Justice Dias Toffoli partially followed that understanding.
The justices are also analyzing a crucial issue for the state’s cash flow. It is the dispute over the collection of the ICMS rate differential, the so-called Difal. By reopening the trial on Friday, Justice Gilmar Mendes reduced the advantage of the companies over the states. The score, with his vote, is five votes to three.
The justices are deciding on the starting date of the collections. If the states could have demanded the payment of the Difal in 2022, or if the collections will only start in 2023. This time difference, although short, has a high cost. States estimate that they will lose R$9.8 billion without the Difal in 2022.
Representatives of the companies, especially in retail — the most affected sector — say that an unfavorable decision can generate debt because until now companies have sold goods without considering the payment of the tax, which resulted in lower prices to the consumer.
If the collection is authorized, they say, in addition to carrying the loss of sales in a lower value, they risk receiving a tax-deficiency notice and having to pay the Difal since January, adjusted by the Selic, Brazil’s benchmark interest rate, plus a 20% interest for late payment.
Difal is used to divide the ICMS tax collection from e-commerce between the company’s state of origin and the consumer’s state. The company pays the interstate rate — 7% or 12% (depending on the location) — to the state where it is located, and the Difal, to the destination state.
*By Bárbara Pombo, Adriana Aguiar, Joice Bacelo — São Paulo, Rio de Janeiro
Yet, lower house mulls requiring a fiscal rule; lawmakers also disagree with suggestion for new anchor to be introduced through complementary law
12/09/2022
Alex Manente — Foto: Luis Macedo/Câmara dos Deputados
Approved by the Senate on Wednesday night, the Transition PEC (proposal to amend the Constitution) will begin to be negotiated only now by parties in the Chamber of Deputies. Members of the lower house complain that they were not consulted about changes made and that the proposal provides for a greater expense than expected, but that the deadline is short for changes.
Chamber Speaker Arthur Lira called on party leaders and deputies to begin discussions in Brasília on Monday, and the caucuses will meet Tuesday and Wednesday to debate and count the votes. One of the more criticized points, which could be potentially rejected, is the permission for the country’s new fiscal rule to be put in place by a complementary bill, which would repeal the spending cap.
The leader of Citizenship, Deputy Alex Manente, said he will advocate the need for passing a PEC instead. “If you do it by complementary bill, you can change it by majority vote. This causes instability,” he said. To approve a PEC, it is necessary the votes of 308 of the 513 deputies, while a complementary law requires the support of only 257. Sources say that Brazil Union and the Progressive Party (PP) are also concerned about this matter.
The PEC is expected to be voted on Wednesday night, after the resumption of a trial by the Federal Supreme Court (STF) that may consider unconstitutional the so-called rapporteur’s amendments, also known as the “secret budget.” This is a mechanism by which deputies and senators distribute money to their electoral bases without much transparency about whom the authors are.
The result of this process can cause problems in the vote because some lawmakers believe that President-elect Luiz Inácio Lula da Silva asked STF justices to block the secret budget. This forced Mr. Lula to call the Chamber speaker on Wednesday to deny the move. Messrs. Lula and Lira made an agreement at their first meeting that possible changes in these amendments would occur through political negotiation.
Valor heard four party leaders. They spoke on condition of anonymity because they want to hear other party members before taking a position. They said the vote is likely to take place on Wednesday, even if the Supreme Court trial is not over, and that there is little room to change the draft. At most, deputies will exclude provisions.
It is only possible to enact the parts of the PEC passed in both houses of Congress. If there are substantial changes, for example in the amounts, the proposal will have to be voted on again by the Senate. But the deadline is short, and the lawmakers intend to vote on the annual budget law for 2023 on December 19-21.
The lawmakers intend to reduce the amount of spending authorized by the PEC, which would total R$191.9 billion in 2023, the lower house’s budget consultants say. The figure includes R$145 billion of expansion of the spending cap, R$23 billion excluded from the cap for investments if there is surplus revenue, and R$23 billion of investments using funds from inactive accounts of the Workers’ Severance Fund (FGTS), which would be possible to do only once.
In addition, the proposal releases the spending of educational and scientific research institutions made with their own funds or agreements, investments made with funds from multilateral organizations or transfers from states and municipalities to the federal government, and socio-environmental projects carried out with money from donations. All of these items would be excluded from the spending cap.
Deputy Danilo Forte said the volume authorized by the Senate caught the deputies by surprise. “The PEC came much more hypertrophied than the debate was suggesting,” he said. “Everyone thought the Senate was going to restrain it and go along the lines of the proposals of Senators Tasso [Jereissati] and Alessandro Vieira, with an expenditure of a hundred and a few billion [reais].”
Deputies are also advocating the reduction of time authorized for this extra spending to one year from two. But, again, the short timeframe hinders this change. Leaders of parties allied with Mr. Lula, on the other hand, said that the significant score in the Senate, with a 64-13 vote, indicates that the situation with the parties would be more comfortable for voting in the lower house than previously expected.
Partnership includes renewable power generation for 10 to 15 years to 1,000 consumption points in four states
12/09/2022
Aurélien Maudonnet — Foto: Divulgação
Helexia Brasil, a subsidiary of the French group Voltalia, has signed long-term contracts to supply phone carrier TIM, fuel distribution company Vibra, and pharmacy chain Raia Drogasil with solar power. There will be nearly 1,000 consumption points for clients of these companies in Rondônia, Rio Grande do Norte, São Paulo, and Mato Grosso do Sul.
In total, it will be 14.7 megawatts-peak (MWp) of installed power, divided among eight photovoltaic plants in the distributed generation (DG) model for 10 to 15 years. The company already has the permits for access. The construction works of the solar units are scheduled to start in the first quarter of 2023 and end by December.
The investment to start generation in these ventures totals R$76 million. In this contract format, the power produced is injected into the National Interconnected System (SIN) and will be transformed into credit for the companies, which will have, on average, a 10% discount backed according to the regulated market, a segment served by power distributors. Another kind of contract was signed in 2020 with Telefónica’s Vivo, in Paraná.
CEO Aurélien Maudonnet said that Vibra will keep 4 MW of the power generated, TIM will get 8.5 MW and Raia Drogasil will take 2.2 MW. “With these projects, we now have 100 MWp in the portfolio signed and projects that we will execute in 2023,” he said. “In addition, we have a portfolio of 250 MW” with the necessary permits.
Today the distributed generation segment is one of the most profitable in the power industry and increases about 1 GW per month in the generation mix, higher than any other source. This is because the legal framework for self-generation of energy (distributed generation), signed into law by the Bolsonaro administration last January, created a sense of urgency in the development of new projects to ensure the use of distributors’ network free of charge by 2045.
Companies have a legal requirement to build the projects up to 12 months after permits are issued. Mr. Maudonnet, however, says he is confident in putting the number of projects to operate since funds are available for promising markets.
“In this 250 MW of projects, in addition to the portfolio of signed contracts, our shareholder is ready to invest with equity of our own,” said Mr. Maudonnet.
The executive does not reveal the number, just that Voltalia has a four-year investment plan and by 2027 intends to disburse €3 billion to double the installed capacity and reach 5 GW. It is known that 35% of these funds will come to Latin America, especially Brazil, since the activities in Colombia and Mexico are embryonic, and 60% will be for solar power.
“The shareholders are willing to invest R$3.5 billion in the solar segment in Brazil in the next four years. Of course, this money will have to be shared with Voltalia, but these mega projects of centralized [large-scale] solar generation tend to disappear,” he said.
Asian country plans to reduce import volume in the next years
12/09/2022
Corn — the second most important agricultural crop in Brazil — has been gaining space in the country. The chain strengthens as companies invest in the genetic improvement of seeds, the cultivated area grows, and markets open up, such as China, which this year issued licenses for imports of Brazilian grain, generating euphoria among farmers. The first cargo, of almost 70,000 tonnes, was shipped in November.
But if on the one hand, the exporters look with an appetite to the Chinese market — there are 1.5 billion people — on the other hand, Beijing’s plans to ensure food security in China are still alive and may frustrate the Brazilians in the long run. The government of Chinese President Xi Jinping wants to rely less and less on food imports.
One of the most recent policies to expand Chinese grain production was launched last year. Named the “revitalization of the seed industry,” it includes partnerships with foreign biotechnology companies, such as the Argentinean Bioceres, approval of transgenics, and governmental contributions to genetic studies.
Brazilians who deal with the international grain market affirm that the Chinese objective is not new. “For at least a decade I’ve been hearing about this intention of China to increase productivity,” says Glauber Silveira, executive director of Abramilho, which gathers producers in Brazil. “But so far they haven’t succeeded,” he adds.
Whether it is the first or the tenth attempt, China knows the size of the challenge — and has set goals to be pursued in this decade. The country wants to raise corn production by about 2% a year, which would result in 324 million tonnes by 2031. With consumption rising by close to 1.5% a year over the same period to 328 million tonnes, the Chinese project to import an average of 7.5 million tonnes of corn in 2031.
The plan is to reduce foreign purchases of corn each year until then. Soybeans and wheat are also the focus of policies to increase productivity. The data is from the Chinese government and was compiled in China Agricultural Outlook 2022-2031, prepared by InvestSP, linked to the São Paulo government, and the Confederation of Agriculture of Brazil (CNA).
“They are highly focused on seeds, seeking to raise productivity by 30% or more. There are important studies involving drought-resistant corn at Sichuan University,” exemplifies José Mario Antunes, COO of InvestSP in Shanghai. Sichuan is a province in the southwest of the country. China has productivity about 40% lower than the United States, for example.
Besides productivity, which is the key issue for Chinese agribusiness, there are other challenges, such as the very implementation of the policies outlined. China does not have a lot of large landholdings like Brazil. It is a much more fragmented, family-based activity, with costs almost all made up of labor and land prices — and there is less use of machinery.
However, the investment in precision agriculture systems, which uses plenty of equipment, is another strategic pillar that has been evolving: “The number of drones used in agriculture has increased 100% per year,” says Mr. Antunes.
China, a traditional corn producer, started to import corn recently, and there was a peak in purchases in the past five years. According to the United States Department of Agriculture (USDA), in the 2017/2018 harvest, the country bought nearly 4 million tonnes of grain from other countries. It has grown ever since, culminating with the 29.5 million tonnes recorded in the 2020/21 cycle. For 2022/23, the U.S. agency projects a lower import, of 18 million tonnes.
The Chinese government’s data is similar: imports in 2021 totaled 28.4 million tonnes, slightly more than double that of 2020. “One reason for this recent increase is the growing demand and the interest in building stocks,” says Francisco Guerreiro Jr., executive director of FJR Consultoria. Besides, there was a change in the swine breeding policy that demanded more raw materials used for the herd ration. According to the summary that brings government data, the food industry consumption grew more than the feed industry.
China likes to keep its grain stocks high. “It’s part of the Chinese obsession,” explained a source close to local negotiators. “They have three obsessions over there: food security, energy security, and technology security,” he added.
The country usually has stocks of corn for 200 days, and wheat for 500 days. Soybean stocks are lower due to a higher turnover, said the source. The plan is to have stocks for six months to a year, and this information is treated almost as a state secret, he continued.
It is because of this need to maintain ample stocks and the accelerated increase in Chinese consumption that Brazilians doubt the reduction of Chinese imports, even in the long term.
Mr. Antunes, with InvestSP, who has already represented Brazilian Animal Protein Association (ABPA) in China, highlights that it is important not to underestimate the capacity of the Chinese to make “fast changes.” “The country’s pig herd was decimated in 2018 by African swine fever. At the time we thought recovery would take four or five years, but after just two [years], the stock was already re-established,” he recalls.
Brazilian subsidiary is among fastest growing operations; focus is on savory snacks
12/09/2022
Alexandre Carreteiro — Foto: Silvia Zamboni/Valor
PepsiCo will invest R$1.2 billion in its food operations in Brazil in 2023 as part of a project to double in size within five years.
This is the food giant’s largest annual investment in 70 years of operating in Brazil and doubles the average amount invested per year between 2020 and 2022. The company also left the cookie market after reviewing some strategies.
The new investments will be directed to expand the capacity of the nine plants, and will also focus on automation, logistics, digitalization of the sales force, and product research and development. Savory snacks are the main bet. Alexandre Carreteiro, the chief executive of Pepsico Alimentos, said the category grows 18% a year in Brazil, while PepsiCo’s sales increase above this level.
“We are doing something historical in Brazil. It is a vote of confidence in the country’s potential. We have never grown or invested at these rates. And we believe it will continue,” said Mr. Carreteiro, who received global CEO Ramon Laguarta for a one-week visit last month.
In the third fiscal quarter through September 3, PepsiCo’s global revenues saw an organic growth (excluding acquisitions and exchange rate variations) of 16%. Latin America posted the best regional performance, with a 22% growth, to $2.5 billion. The global revenue reached $22 billion. Although the company does not break down revenues for Brazil, it said the country grew above the regional average.
“Many habits developed during the pandemic, such as having people over, barbecuing, and consuming snacks, remained. People indulge in some pleasures thinking about today, and possibly delaying acquisitions of durable goods,” he said. Besides, he argued, the per capita consumption of savory snacks in Brazil is one of the lowest in Latin America, and has the potential to grow. It is around 1.8 kilos per year, lower than in Chile and less than half Mexico’s rate.
PepsiCo has a 55% share of Brazil’s snack food market, according to the company. The food giant owns brands such as Cheetos, Doritos, Ruffles, and Lay’s, plus “Brazilian jewels” like Torcida and Fandangos.
The company expects to expand sales by betting on the expansion of the portfolio, with packaging and prices that meet different social classes and moments of consumption, in addition to regionalization. This year, for example, the company launched Torcida Camarão com Pimenta in the Northeast region, developed from the flavor of a typical regional fried pastry. “It is very important to be close to local consumers,” he said.
According to the executive, the consumption of savory snacks is the one that grows the most within the category of “snacks,” and has been expanding its share over cookies, chocolates, and chewing gum. “The consumer sees savory snacks as healthier than sweet products, and we see a migration between both categories. There are many opportunities to grow,” he said.
The company left cookies in Brazil in August, with the sale of Mabel to Camil, for R$152 million. The multinational did not reveal how much it paid for the company about 10 years ago, but the company reportedly faced losses with the deal – it allegedly disbursed between R$700 million and R$800 million.
Mr. Carreteiro does not comment on values but said that the logic of the sale is to focus on segments of higher growth and where the company is the market leader or vice-leader, which occurs, besides snacks, with the brands Toddynho (chocolate milk), Toddy (chocolate powder), Kero Coco (coconut water) and Quaker (oatmeal). “We were number 6 in cookies,” said Mr. Carreteiro. “We were operating in the doughnuts segment with a more popular alternative, with a lower value added. And there are many players in this category around here,” he said.
“So the decision was: either you become more relevant and make acquisitions and grow, or you leave to focus on where you have more ability to win,” he added. In addition, he recalled that the company needed funds to invest in its core products. The contract with Camil also provides for the licensing of the Toddy brand for the cookies market.
In his view, the bet in industrialized savory snacks does not contradict the consumers’ search trend for healthier products. “You have two fronts in the savory snack segment: indulgence, as people want to give themselves a daily pleasure, so the flavor is key, and healthy eating. We work on both fronts.”
The executive states that the company has, in the last years, been reducing the salt and sugar concentrations in its preparations and using healthier fat options, such as sunflower oil. The products no longer contain trans fat.
With the work to review the formulas, PepsiCo says that more than 90% of its portfolio will not need to use warning labels of high concentrations of sodium, sugar, and saturated fat, part of the new food labeling implemented in October by the National Health Surveillance Agency (Anvisa).
“Our products have an increasingly adequate nutritional profile, and we have also entered the healthy products segment, a market that has been growing, with products like Popcorners,” he said.
Popcorners, produced from a process of high-speed frying without oil, was launched in July, part of a portfolio of 25 new items that reached the shelves this year.
While the perspective in the Brazilian market is of strong expansion, in the United States The Wall Street Journal reported this week that the company plans to cut hundreds of jobs in North America, in response to unfavorable perspectives for the U.S. economy, with higher interest rates and lower demand. The newspaper cited people familiar with the matter and internal documents to which it had access.
At the end of last year, PepsiCo employed 129,000 people in the U.S., according to Dow Jones. Asked by Valor, the company said that, in Brazil, hiring is planned due to the investment plan. Today it employs 11,000 in the country.
*By Ana Luiza de Carvalho, Luciana Marinelli — São Paulo
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