Price of international freight seen as top problem faced by exporters

In addition to logistics costs, exporters are impacted by the high volatility of the foreign exchange rate, the growth of global trade barriers and the “Brazil cost”

10/17/2022

The rise in fuel prices and the disruption of global transport chains have put the price of international freight at the top of the problems faced by Brazilian exporters. This is what shows the survey conducted by the National Confederation of Industry (CNI), still unpublished, seen by Valor. In addition to logistics costs, exporters are impacted by the high volatility of the foreign exchange rate, the growth of global trade barriers and the “Brazil cost.”

Jose Velloso — Foto: Leo Pinheiro/Valor

Jose Velloso — Foto: Leo Pinheiro/Valor

“The purpose of the survey was to have a snapshot of the complaints of Brazilian exporters,” said Constanza Negri Biasutti, CNI’s trade policy manager. “We understand that it should be the main base for trade policy strategies from now on.”

The survey was answered by almost 600 exporters of all sizes, which evaluated 43 different obstacles.

Logistics had already been pointed out as a critical point in the most recent edition of the survey, 2018, but the problem became much worse with the pandemic, said José Velloso, head of the Brazilian Machinery Builders’ Association (Abimaq).

Even as the most acute phase of the pandemic has passed, the maritime routes are still disorganized and there is a lack of containers, said Luis Rua, the director of markets of the Brazilian Association of Animal Protein (ABPA).

Before the pandemic, 80% of the ships arrived at Brazilian ports in the estimated time, he said. Today, only 30% manage to do so. This impacts land logistics and document flow, with increased costs. In addition, the delay in shipment may lead to the collection of fees by the ships for the delay.

The cost of international freight and the lack of containers are also pointed out as an obstacle by the Brazilian Association of the Cosmetic, Toiletry and Fragrance Industry (Abihpec). The CNI survey indicated results for the sector convergent with the nationwide snapshot.

The Economy Ministry informed that the international freight cost was $1,500 in May 2020, then peaked at $11,100 in September 2021. In the first week of this month, it was at $3,700. The values refer to the transport of a 40-foot container considering the Freightos Baltic Index (FBX), the industry’s benchmark.

The hikes are explained by the higher demand after restrictive measures to locomotion, increase in fuel prices, and reduction in the transport offer. The recent drop is related to lower fuel prices and reduced global demand for goods.

The logistics costs occupy four positions among the five biggest problems pointed out by Brazilian exporters in the survey. The second most cited problem is the high tariffs charged by the ports.

This complaint is related to the charge of cargo screening fees by ports, said Ms. Negri. Since 2016, CNI has been discussing the illegality and abusiveness of this fee at the National Agency for Waterway Transport (Antaq). CNI alleges that the task should be performed exclusively by the Secretariat of Federal Revenue. There is, however, a double screening.

The cost of domestic transportation is the third most pointed out problem in the survey. Mr. Velloso believes that infrastructure concessions, which have gained momentum since the Temer administration, are in the right path. However, it will still take time before domestic transportation problems stop being a factor in the loss of competitiveness of Brazilian products.

“These obstacles pointed out as the main ones shed more light on the need for Brazil to attack this logistics and foreign trade agenda,” Ms. Negri said.

Improving this point would support gains in other fields showed by the survey – such as the time spent on customs clearance, shortened with the implementation of the Single Foreign Trade website. Customs bureaucracy, indicated as a critical obstacle by 39.56% of the companies in 2018, was now listed by 21.9% of them.

The main exporter of products from the manufacturing industry, the machinery and equipment sector highlights the so-called Brazil cost, said Mr. Velloso. For example: imported inputs are about 20% to 30% more expensive than in other countries because of customs clearance costs, import taxes and the foreign exchange rate.

Several tax rules, complex and interpreted in different ways by government agents, are also the target of exporters’ complaints. According to Mr. Velloso, Brazilian products are exported with nearly 7% of their value in taxes that should, but were not eliminated along the production chain.

In his view, the three main steps to be taken by the next administration should be: approve a tax overhaul (more specifically, the proposal to amend the Constitution 110, which is pending only the approval by the Senate) and the restoration of the insurance instruments and export credit.

The Economy Ministry says that it has taken measures to soften the impact of higher commodity prices and transportation costs. It cites the 20% reduction in import tax rates for almost 90% of products. In addition, the rate of the Freight Additional for Renewal of the Merchant Marine was cut to 8% from 25%. A third initiative was the exclusion of the terminal handling charge from the calculation basis of the import tax.

Increasingly present in the national production chain, the import of services was included in the drawback regime. Thus, the collection of taxes will be suspended for services used in the production of items for the foreign market.

The ministry also highlighted the Single Foreign Trade website, with which the average time spent by a company to import fell to nine days from 17. At the current stage, this tool can be used for about 30% of foreign purchases.

The website also reduced the clearance time for exports to less than five days from 13. According to the ministry’s calculations, the savings with less delay reach $30 billion a year.

*By Lu Aiko Otta — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Boehringer Ingelheim expands investment in Brazil

Company to invest R$56.2m in Paulínia unit until the end of the year

10/14/2022

Xavier Andivia — Foto: Divulgação

Xavier Andivia — Foto: Divulgação

Boehringer Ingelheim’s Animal Health division in Brazil has been growing above the nationwide average, and in order not to lose traction the company will invest R$56.2 million by the end of the year in its plant located in Paulínia (São Paulo). In the last two years, the plant has already received R$92.2 million in investments.

“We want to secure the supply of our products, preserve our value chain and avoid emergencies and unplanned costs,” said Xavier Andivia, who took over the command of the division in July.

According to the National Union of Animal Health Products Industry (Sindan), the segment grew 21.9% in the first quarter and 7.6% in the second quarter, compared to the same periods in 2021. Boehringer Ingelheim advanced 34% and 11.2% in the same comparisons. The company does not inform its revenue in Brazil.

“Despite the war [in Ukraine, which increased production costs] and inflation in the world – and in Brazil – animal production is very strong. We are not exempt from the impacts, but our team has been able to bring great results in all segments,” the executive said.

The Paulínia plant is important for Boehringer’s strategy because, besides supplying the Brazilian market, it also produces medicines that are exported to 70 countries – mainly antiparasitic for pets and bovines.

“We will not stop investing, as we have to increase production and be more efficient. We have long-term investment plans, which involve investments in people and technology. The demand for Paulínia’s products grows worldwide,” Mr. Andivia says.

The drop in the Chinese demand for imported pork and low beef prices due to the livestock cycle are on Mr. Andivia’s radar. But, according to him, the company is expected to continue growing at double-digit rates in Brazil.

*By José Florentino — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Apple fined R$100m for selling iPhone without charger in Brazil

Retailers and telcos will also be subject to sanctions if they have sold smartphones in the same conditions

10/14/2022

Apple filed a writ of mandamus asking the granting of injunction suspend the decision — Foto: Jeenah Moon/Bloomberg

Apple filed a writ of mandamus asking the granting of injunction suspend the decision — Foto: Jeenah Moon/Bloomberg

The 18th Civil Court of São Paulo determined on Thursday that Apple will pay a fine of R$100 million for selling iPhones without a charger. And retailers and telecom operators that sold Apple phones without a charger are subject to the same penalties imposed on the manufacturer, including fines, search and seizure of devices, says Rodrigo Roca, head of the National Consumer Secretariat (Senacon) of the Ministry of Justice.

“We will start administrative proceedings against every retailer who disobeys our determination,” Mr. Roca told Valor. The lawsuit linked to the R$100 million fine was filed by the Brazilian Association of Borrowers, Consumers and Taxpayers (ABMCC). Apple will also have to deliver a charger for those who bought a model that comes without the accessory in Brazil. The court decision can be appealed.

At 6:20 pm this Thursday, Apple filed a writ of mandamus in the 20th Court of the Federal District, asking “the granting of injunction to immediately suspend any and all effects […] against Apple and its resellers”. This Friday the new iPhone 14 starts being sold in the country, without charger. The brand’s cell phones are sold without charger since 2020.

According to the Retail Development Institute (IDV), which represents 72 associated retailers, the responsibility for offering the charger lies with the manufacturer. “The industry must respond for their strategic decisions to launch products, officially offered to the market, not fitting to retail, which, as everyone knows, sells the products purchased from industry, any responsibility,” the institute said in a statement. Conexis, the organization that represents the operators, did not reply to a request for comment.

Mr. Roca pointed out that Thursday’s court decision, which mentions a provisional remedy applied by Senacon, opens an important milestone in the judiciary’s perception of the issue. “Apple has already been the target of previous administrative sanctions coming from [Consumer-protection watchdog] Procon in São Paulo, Rio de Janeiro and Fortaleza, including million-dollar fines, but it continues in the infringing practice,” Mr. Roca said. “And there is no news of payment of fines so far.”

In early September, the Ministry of Justice determined the suspension of the sales of all iPhone models without charger and imposed a fine of more than R$12.2 million to Apple, in a decision published in the Daily Gazette on September 6. On September 12, Senacon sent administrative notices to Apple product resellers informing them of the penalties related to selling the device without the accessory considered essential to the operation of the devices.

For Mr. Roca, the argument that the charger removal follows a sustainable manufacturers’ agenda is flawed and overdue. “If the charger harms the environment, the initiative is 12 years overdue because no one gave massive warning in a campaign about conscious disposal of these items.”

Mr. Roca notes that the Ministry of Justice’s determination is not restricted to smartphones. “No device can be sold without items essential to its operation.”

The sale of smartphones without wall chargers is not exclusive to Apple. In October last year the Ministry of Justice notified Samsung and Apple again for non-compliance with an administrative decision made in 2020 on the subject.

Some Samsung devices, such as the Galaxy S22 line, launched earlier this year, are sold without a charger in Brazil. However, the manufacturer offers a free charger to consumers who wish it.

“We reinforce that the company always offers the consumer the option to redeem the charger, free of charge, when the product does not bring the accessory inside the box,” the manufacturer stated.

The compatibility of electric and electronic equipment chargers is also a concern in Europe. On October 4, the European Parliament approved legislation that standardizes the charging ports for cell phones and electronic equipment sold in the countries of the European Union. The measure adopts USB-C as the standard charging port in the European bloc and will force Apple, for example, to modify its iPhones, which currently use Lightning connector. By the end of 2024, all cell phones, tablets, and cameras sold in the bloc must have the USB-C standard. Laptops must be adapted by the end of 2026.

At the end of June, telecoms regulator Anatel opened a public consultation in order to define technical requirements for the standardization of wired smartphone chargers to the USB-C port.

*By Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Change in certification of products from new forest benefits Brazil

Measure also increases competition with inclusion of forests in Asia

13/10/2022 8:45PM  Updated 20 hours ago

Brazil has close to 10 million hectares of planted forests, of which almost 5 million are FSC certified — Foto: Divulgação

Brazil has close to 10 million hectares of planted forests, of which almost 5 million are FSC certified — Foto: Divulgação

After 11 years of negotiations, the Forest Stewardship Council (FSC) approved Thursday the possibility of including new forests in its certifications, under strict conditions. The decision was made at a global meeting held in Bali, Indonesia, and will certainly have an impact on the planted forest sector in Brazil.

FSC was created in 1994, aggregating several “green seal” initiatives around the world and creating an international, non-governmental, independent forest certification system based on environmental, social, and economic viability criteria.

Until now, a rule of thumb in the FSC system has prevented certification for forests planted on deforested areas after 1994. The Bali meeting has changed this rule, paving the way for certification of areas that were converted between 1994 and the end of 2020, provided that strict compensation criteria are met.

In other words, companies will have to pay the price. If a company is directly responsible for the deforestation and planted a forest later, it will have to compensate each deforested hectare with a recovered hectare. In the case of indirect responsibility – that is, the company bought a property from someone who deforested it –, it will have to restore 30% of the area.

In addition, the company that wants certification for its products will have to repair any social damage, regardless of direct or indirect liability.

Rafael Benke, CEO of Proactiva Results, a consulting company in ESG and human rights, who is taking part in the global meeting in Indonesia, said that the change in FSC’s rule “is a milestone not only for the forestry segment, but for sustainable development.”

“There are hundreds of millions of hectares that will be able to integrate the FSC system through socio-environmental compensation,” he said. “It will be a commercial stimulus for the integration of these areas which, consequently, will generate a positive socio-environmental impact with the compensations.”

Lineu Siqueira Junior, a co-founder of FSC and a member of its Policy and Standards Committee, emphasized that the measure does not mean an incentive to deforestation, but a standardization of conversion issues (deforested areas converted into forest plantations), with strict principles and rules.

Brazil has close to 10 million hectares of planted forests, of which almost 5 million are FSC certified. And with the seal, recalls Mr. Siqueira Junior, Brazilian industries of paper and pulp, wood panels, boards and floors, among others, have gained a lot of market abroad.

In this context, he acknowledged that there was a strong resistance from the segment in the country to the change in the FSC rule, due to the greater competition that will be generated.

Large Asian companies, which were out of the market due to lack of certification, are expected to start to compete for market if they meet all the criteria. Investors, especially from the United States and Europe, are also fostering plantations in Africa.

But Brazil is well positioned when it comes to technologies and customers, said Mr. Siqueira Junior, and will also be able to profit. There are many companies in the country that can use the new rule.

The decision made by the FSC after more than a decade of discussions falls within the “United Nations Decade on Ecosystem Restoration (2021-2030),” created by the United Nations General Assembly, following a proposal by 70 countries concerned about the loss of biodiversity and the impact of climate change on nature and living beings.

Led by the United Nations Environment Programme (UNEP) and the Food and Agriculture Organization (FAO), this initiative is considered crucial: today, only 1% of climate funding is dedicated to forest restoration, while restoring 30% of priority ecosystems would prevent 70% of species extinctions, according to a study published in 2020 by “Nature.”

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/

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What crisis? Agribusiness sector grows in parallel reality to Brazil’s

Sector is independent of economic policy, profits from external scenario

10/14/2022

Braulio Borges — Foto: Ana Paula Paiva/Valor

Braulio Borges — Foto: Ana Paula Paiva/Valor

Brazil’s agribusiness sector grew 25 percentage points faster than the country as a whole in recent years and saw income increase threefold compared with states in the Southeast region in the second quarter. Most people involved with this sector voted for Jair Bolsonaro (Liberal Party, PL) in the first round of the presidential election, on October 2, and will probably do it again in the runoff, two weeks from now.

The sector has expanded above the national average in the last two years and was less impacted by turbulences during the latest recessions and the pandemic. This thriving economic reality diverges from that of the country, and the sector’s rising political influence partly explains why people in this field back President Bolsonaro, experts say.

In the first round, former President Luiz Inácio Lula da Silva (Workers’ Party, PT) received 48.43% of the votes, compared with Mr. Bolsonaro’s 43.2%. Mr. Lula da Silva got more votes in the North and Northeast regions. Mr. Bolsonaro won in the Central-West, South, and Southeast regions, especially where the agribusiness sector is dominant – rural regions of Santa Catarina, Paraná, and São Paulo, the Central-West region, the so-called Triângulo Mineiro (in the west part of Minas Gerais) and the southern part of the North region.

Between 2019 and 2022, the territory where Mr. Bolsonaro did better, the same where Brazilian agriculture is stronger, showed a real average growth of 30% higher, while GDP growth in the other regions was much slower, with an income level below the peak seen in the 2011-2014 period, said Braulio Borges, an economist at LCA Consultores.

“This remarkable jump in the real income from agriculture between 2019 and 2022 was not due to a higher volume, but to relative prices much more favorable as a reflection of more expensive agriculture commodities in dollars and a very weakened real against the dollar since mid-2020,” he said.

In volume, agricultural GDP – considering only production, not the whole chain – probably saw an average growth of 1% a year between 2019 and 2022, while the Brazilian GDP expanded by 1.1%, he said.

The agricultural GDP over the 2019-2022 period reached R$2.08 trillion adjusted by inflation, up 29.4% from the previous four-year period, Mr. Borges said. “Even though this is a sector with an 8% share in Brazil’s GDP, this is a spectacular jump. This means R$472 billion more compared with the 2015-2018 period in terms of income,” he said.

Looking at the rest of the economy, excluding sectors such as public administration, imputed rent, and financial transactions, which would account for 60% of the Brazilian GDP, the growth was much lower, at 3.8%.

While the high price of commodities and the weakened real favors farmers, it means more expensive food and higher inflation for the rest of the population, the economist said. The agriculture sector accounts for 8% of the Brazilian GDP but can reach 28% if services and the whole chain are included.

This is a different Brazil, said Mr. Borges. “A country that queues up to buy R$500,000 pickup trucks,” he said. “A Brazilian Texas, more conservative and strengthened by the agribusiness sector. It starts in the north of Rio Grande do Sul, and goes through Santa Catarina, the Central-West, and the new frontier in the Northeast. This region has grabbed most of this income gain and voted massively for the current administration.”

Even though voters associated this situation with the Bolsonaro administration, historical and cyclical factors explain the recent bonanza in this part of the country, said Sergio Vale, the chief economist at the consultancy MB Associados.

“Over the last four decades, the states with the greatest weight of agribusiness have grown the most,” said Mr. Vale. “There are two main reasons for that. One is that agribusiness ended up integrating more with the world [than other sectors, like industry]. The other is prices, which led agriculture-producing states to have a higher real income growth.”

Mato Grosso and Mato Grosso do Sul are expected to grow above 5% this year. The other agriculture-producing states in the Central-West, North, and Northeast regions will also perform above the country’s average, MB Associados projections show.

Mr. Vale’s calculations, based on figures from the Brazilian Institute of Geography and Statistics (IBGE), show that between 1986 and 2023 Mato Grosso will grow 695%, compared with Brazil’s 108.7%. From 2012 to now, the per capita GDP of the Central-West states will probably have expanded by more than 10%, compared with Brazil’s 4.7%.

This year, the states where income grew the most in the second quarter, compared with the same period in 2021, are those with a greater share of agribusiness in the local economy.

This bonanza is seen not only in Brazil, he said, as it has benefited all the agricultural commodity-exporting countries.

In his view, linking this income boom to the Bolsonaro administration, therefore, sounds exaggerated. “It’s not about fiscal policy, reforms, or Bolsonaro. It has to do with agricultural commodities. They are driving this growth,” said Mr. Vale.

The economist divides Brazil into three major categories: the South and Southeast regions, which have developed and, in a way, stagnated; the Central-West region and the new agricultural frontier, which are getting rich through agribusiness; and the Northeast, which could become an important hub, especially due to its proximity to markets such as the European Union.

Messrs. Borges and Vale believe that, despite the sector’s majority association with Mr. Bolsonaro, a victory of Mr. Lula da Silva could ease the pressure on the environmental front, favoring exports to markets like the EU.

“There is a backward-thinking segment of agribusiness that considers that environmental protection is an obstacle. Nothing could be more wrong: the Mercosur-EU trade agreement was put on hold precisely because [Brazil’s] environmental policy is moving backwards,” said Mr. Borges. “And this agreement would greatly expand the market for Brazilian agricultural products in Europe.”

The regions where agribusiness is predominant have experienced less economic turbulence in recent decades, said Felippe Serigati, a researcher at the Agribusiness Center of Fundação Getulio Vargas (FGV Agro).

“From 2000 to now, the agribusiness universe was by far the economic sector that grew the most. It was an average growth of 3.5% per year, compared to the Brazilian economy’s 2.3%,” he said.

“The regions where agriculture is the predominant economic activity and was able to boost regional services and employ most of the local labor force did not feel the impacts of the crises we have gone through since the 2000s with the same intensity,” he said.

He cites as examples the 2015-2016 recession and the crisis caused by the Covid-19 pandemic, which had a greater impact on industry and services.

In addition to the growing economic importance, in the last 20 years the sector has gained political relevance, both in terms of representation in Congress and in the search for political support from the sector’s representatives and in defending the interests of the Legislative and Executive branches’ agenda, the expert said.

“From 2000 on, the sector has clearly gained a greater political space and more prestige. And it has a greater capacity for mobilization. The agribusiness agendas today have greater convergence with a larger fraction of the Brazilian population,” he said.

In the first round of the election, 70% of the members of the Parliamentary Agricultural Front (FPA) who ran for reelection to the Chamber of Deputies won and will have a new four-year term. Of the 241 members in the lower house, 218 ran for new seats and 153 were reelected.

A survey by FPA indicates that the group will have at least 158 representatives in the new legislature. The list only accounts for former members who were out of office and are returning to the lower house, and the continuity of reelected members.

Despite the substantial number of FPA members, important representatives from the agricultural sector will be left out in 2023, including Neri Geller (Progressive Party, Mato Grosso, MT), a former Agriculture minister and vice-president of the FPA, and Aline Sleutjes (Social Liberal Party, PSL, of Paraná), the group’s institutional coordinator.

FPA, a strong ally of President Bolsonaro that typically has a great presence in the lower house, is expected to also grow in the Senate.

With the return of former members who were out of the office and the victory of allies who occupied other positions, FPA projects at least 40 senators from 2023 onwards – out of 81. New members may raise this number to 45 seats. In the last legislature, there were 39 senators aligned with this group.

The group, reinforced by names like Tereza Cristina (PP of Mato Grosso do Sul), a former minister of Agriculture, can be crucial for passing measures dear to the agribusiness sector that are stalled in the Senate, such as changes in how environmental permits are granted, in land regularization, self-control of agricultural inspection and registration of pesticides.

(Rafael Walendorff contributed to this story)

*By Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Apollo raises offer, and Braskem sale gains new steam

The proposal increases to R$47 per share from R$40

10/13/2022

Apollo raises offer, and Braskem sale gains new steam
The proposal increases to R$47 per share from R$40
By Stella Fontes, Mônica Scaramuzzo — São Paulo
12/10/2022 7:04PM 

The negotiation to sell petrochemical Braskem got hectic again — still before the outcome of Brazil’s presidential elections, which were being pointed out as a milestone in Novonor’s (formerly Odebrecht) calendar. Valor found out that U.S.-based asset manager Apollo Global presented last week a new proposal to buy 100% of the petrochemical company, at R$47 per share.

According to sources close to the negotiations, the bid, which evaluates Braskem at around R$37 billion — considering 100% of its capital — is being formalized with Novonor.

The first offer made by Apollo, at R$40 per share, was considered too low by both the controlling shareholder and the creditor banks, which hold the petrochemical company’s shares as a guarantee for the debts of former Odebrecht. Other interested parties also came to formalize offers, but none pleased the sellers.

A source says that Apollo had indicated in informal talks the new price and would already be formalizing the proposal. Other potential buyers, including Unipar and BTG Pactual, did not make new offers. Unipar would still be interested in Braskem’s assets in São Paulo, in an operation with a price equivalent to R$60 per share.

In reaction to the news about the sale process, Braskem shares rose 20.4% on Tuesday on B3, the highest on Ibovespa, traded at R$33.58 each. Still, they are far from the R$55 seen at the beginning of this year. According to analysts consulted by Valor, in addition to uncertainties about the company’s sale process, which will not be immediate, the prospect of a downturn in the global petrochemical cycle will continue to punish the stocks.

Apollo is interested in the stakes held by Novonor and Petrobras in the Braskem. In addition, it plans to make a public offering for the outstanding shares, taking the company private in Brazil.

According to a source close to the sale proceedings, Apollo has conditioned its offer on due diligence and one of the most critical points, for the manager, would be Braskem’s situation in Alagoas. Although the petrochemical company has advanced a lot in the negotiations with authorities about soil sinking in Maceió — linked to its old rock salt operation, the understanding is that there are still risks, including financial ones. Along with the second-quarter results, the company updated the amount provisioned to cover expenses with the geological problem, bringing the account to R$12.9 billion so far.

Apollo, Novonor, and Unipar declined to comment.

For BTG Pactual analysts, Apollo’s new offer is positive and represents a substantial premium over the share price. Still, the bank points out that the negotiations are still expected to take a long time.

Analysts Pedro Soares and Thiago Duarte point out that Novonor’s debt with creditor banks is around R$14 billion. In the values of the new offer — of R$50, considering the price informed by the columnist Lauro Jardim, with daily O Globo, which reported first-hand that Apollo had presented a new bid — Novonor would raise R$15.3 billion with the sale.

After discounting the taxes on the capital gain of more than R$1.6 billion, the net amount received would be below the amount necessary to fully cover the debt. “We believe that creditors will play an important role in the final terms of any proposal, so the current value suggests that negotiations are unlikely to be as direct and may last a bit longer,” they wrote.

Still, for the bank, the investment thesis remains unchanged with or without a proposal, reflecting a company that currently has a more diversified portfolio and the capacity to generate cash even under the current adverse macroeconomic conditions. BTG Pactual has a buy recommendation for Braskem, with a price target of R$68.

(Felipe Laurence contributed to this story.)

*By Stella Fontes, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Woodland joins competition for Kimberly-Clark in Latin America

U.S. company is said to be strongly interested in assets of Neve and Kleenex brands

10/13/2022

A new name has appeared in the negotiations for Kimberly-Clark assets in Latin America. U.S.-based Woodland Partners is being considered a frontrunner at this stage of the negotiation, sources say. Woodland has hired Bank of America as an advisor in the talks, according to Pipeline, Valor’s business website.

RGE, the owner of Bracell, also remains strongly interested. Suzano is also interested, but maintains its interest restricted to the asset in Brazil. Kimberly-Clark’s proposal is to get rid of the regional package in a single negotiation. The company is advised by J.P. Morgan.

The Chilean CMPC, the owner of Softys, dismissed its financial advisors, considering that the asking price at that moment, around one time the revenue, was high. Kimberly-Clark is looking for between $800 million and $1 billion for the Latin American operation, sources say.

Kimberly-Clark, a company founded in the U.S., owns brands such as Neve and Kleenex. The process of selling the assets began in May.

The loss of competitiveness led Kimberly-Clark, the fourth-largest company in the sector with an 8.3% share in Brazil, to review its business in Latin America, except for Mexico, people familiar with the matter say. The multinational does not break down data by region.

According to a source, Kimberly-Clark intends to sell its assets in a block at once, but there is a consensus among buyers that there is no interest in the whole package. Part of these investors hopes that the company will slice up the assets. In another alternative, the buyer would sell the regions that are not of interest in a separate operation.

The size of the Brazilian market for personal care papers and the potential for growth attract domestic and foreign groups, despite the strong competition. Last year, the production of tissue, which is absorbed locally, totaled 1.3 million tonnes, a flat figure compared to 2020, according to the Brazilian Tree Industry (Ibá). The annual consumption per inhabitant is estimated at 6 kilograms — it is 27 kilograms in the United States.

Suzano declined to comment. In a statement, Kimberly-Clark said it does not comment on market speculations regarding its operations. “The organization stresses its commitment in the locations where it is present, based on 150 years of close partnership with customers and respect for consumers and its employees.”

RGE said Bracell consistently reviews attractive business opportunities, also in the tissue sector. However, it also cannot respond to M&A speculation in the market at this time. Woodland Partners did not immediately reply to a request for comment.

The original story in Portuguese was first published on Valor’s business website Pipeline.

*By Maria Luíza Filgueiras, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Educational groups close down college programs

Reduction in in-person offerings intensified in the pandemic, while distance learning grew

10/13/2022

Several private educational groups are requesting to close colleges and face-to-face programs all over the country. At the end of August, a decree by the Ministry of Education (MEC) authorized the closure of more than 500 undergraduate programs at once. In the past few days, Ser Educacional has asked to end six schools, whose campuses are in Duque de Caxias and Nova Iguaçu (Rio de Janeiro), Vitória (Espírito Santo), Anápolis (Goiás), Uberlândia and Montes Claros (Minas Gerais).

Besides Ser, other large groups such as Cogna’s Kroton, Yduqs’s Estácio, and Cruzeiro do Sul have asked for the closure of programs. A relevant part of them is in the fields of engineering and business management. There are also degrees in law, biomedicine, accounting sciences, nursing and pedagogy.

According to specialists consulted by Valor, the cancellation of in-person programs is related to a combination of factors: students’ lack of interest in this learning model, especially after the outbreak of the coronavirus; the financial crisis that led many students to migrate to the online format, which has lower tuition fees; the drastic reduction of Fies (a financing program funded by the federal government for in-person programs); and graduations with outdated methodologies and content, which are disheartening students, especially the younger ones.

With the low demand, colleges are unable to fill classrooms with enough students to be profitable. In distance learning (DL), this problem does not exist, and the profit margin is higher because there are fewer fixed costs with teachers and infrastructure.

In 2020, there were 31,100 face-to-face programs in the private sector, which together offered 5.3 million places. “There are many programs and places, and proportionally, the number of cancellations is not representative. But the issue is relevant. We need to better understand this lack of student interest. It may also be related to the outdated content of the higher education programs,” said a source connected to the MEC.

Kroton started to close part of its 2020 in-class undergraduate programs and has been following a strategy of only keeping the more expensive ones, such as medicine and engineering. “Cogna, loyal to its strategy of encouraging and promoting the growth of digital programs, a movement that was intensified due to the pandemic, has been migrating its portfolio of programs to distance learning from in-class. This way, it is necessary to close some classroom programs, while we increase our portfolio of distance learning by approximately 50% between the beginning of 2021 and the end of 2022, duly registered with the MEC. The two movements seek to adjust the portfolio of higher education programs, with a focus on digitalization, allowing for greater diversification, efficiency and operational leverage,” said Cogna, owner of Kroton, in a statement.

Yduqs explained that the “termination of activities in programs takes place in the midst of the natural dynamics of educational institutions for assorted reasons, such as adaptation to demand, increased efficiency, commercial strategy or a combination of them. When they happen, they are always associated with careful planning and alternative offerings for students, which are made possible by a broad portfolio of programs and an equally broad network of campuses,” said the company, which owns Estácio.

Cruzeiro do Sul said that “adjustments of programs in some locations are healthy and normal to ensure the best use of physical space to serve the growing base of in-person students. In addition, there are program upgrades (extinction and creation of a program in the same field of knowledge) necessary to meet the demand for knowledge of the students.”

Ser Educacional declined to comment. The Ministry of Education did not immediately reply to a request for comment.

The reduction in the supply of in-person programs was intensified during the pandemic. According to the Ministry of Education, in 2020 (the most recent data available), the number of in-class programs decreased to 35,837 from 35,898, that is, 61 fewer programs. It is the first time that the sector has reported such a decline. Those figures also include public universities, which account for 22.5% of students in higher education.

This movement goes against the backdrop of the DL market, which has been growing at a dizzying pace since 2017, when legislation was eased. Between 2017 and 2020, the number of online programs tripled to 6,100.

The supply of DL vacancies in relation to the number of students in the private sector draws attention. There are 3 million students for 13.4 million vacancies. For comparison, there are 3.7 million enrolled students for 5.4 million vacancies, which leads to an occupation rate of 70%. In other words, there is an excessive amount of vacancies for online programs, even considering that, in the last three years, the volume of students enrolled in distance learning programs has surpassed that of face-to-face programs. In 2020, of the 3.2 million new students, 1.9 million enrolled in online programs and 1.2 million in onsite undergraduate programs. There is no official data on the current volume of enrollments in each modality today.

This gap between supply and demand has generated a price war in the sector, leading to a questioning of the quality of these programs. “Today, it is possible to find in-person programs for R$250 per month, and distance learning programs for R$99. With these prices, the quality of education falls definitely,” said João Vianney, a consultant with Hoper Consulting.

There is a discussion between the sector and MEC to regulate hybrid programs, but many educational institutions only digitalize the didactic content for remote classes, without binding to new learning methodologies — one of the reasons for the high dropout rate in online programs. The Semesp Institute released about 10 days ago a study warning about the risk of a shortage of 235,000 basic education teachers by 2040. In addition to the young people’s lack of interest in professions, 60% of undergraduate students study in distance education.

*By Beth Koike — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Consumer prices get closer to this year’s target

Inflation projections around 5% consider that fuel prices will not be raised

10/13/2022

Brazil’s official inflation index IPCA is seen by some economists closer to the top of the target range for 2022, of 5%, or slightly below this level. These analysts believe that the recent inflation slowdown cannot be explained by the federal government’s tax-cutting move alone –a broad-based price settling down has also played a role, according to their view. But such projections depend, in general, on oil giant Petrobras holding down prices despite the higher cost of the commodity abroad.

The median projection of Focus – the Central Bank’s weekly survey with analysts – for IPCA in 2022 is at 5.7%. But since the end of September, the minimum projection is below 5% and declining, having reached 4.74% on October 7, the latest reading.

“Our projection is at 4.9% and the market is moving to something around 5.5%,” said Carlos Thadeu Freitas Gomes Filho, a senior economist at Asset 1. Among the reasons for projecting a slower inflation rate than the consensus of the market, and below the top of this year’s target range, he cited durable goods prices, which are expected to give a break; slowing food inflation; and lower travel prices.

The economist highlighted durable goods, saying that both supply and demand indicate lower prices. “Sales of cars are weak, for instance. On the supply side, we have already seen the chains indicating deflation in wholesale.” In addition, Mr. Gomes Filho sees slower food inflation ahead, including animal protein, a “well-stocked” segment.

Lower energy prices have also spread to other parts of the economy, said Alexandre Lohmann, the chief economist at Constância Investimentos. “In addition, raw materials have also contributed positively,” he said. He sees the IPCA at 5.2% at the end of this year.

Mr. Lohmann recalled that general price indexes have shown strong deflation, which may indicate that the IPCA will slow down. Plus, inflation cores – measures designed to ease the effect of more volatile items – have also sped up. The average inflation of the five main cores followed by the Central Bank went to 0.41% in September from 0.66% in August, and to 10.12% from 10.42% over 12 months, data by MCM Consultores show.

“If there is any additional fear of global recession affecting oil and other commodity prices, this could put the IPCA at the target this year, for example. At this moment, the projected inflation is very close to 5%.”

In the coming months, the federal decision to cut ICMS tax levied on telecommunications services will probably still reach final prices, which may ease pressure on services, said Mr. Lohmann. “Plus, cheaper energy is also expected to reach other prices, and commodity prices, which had been rising strongly, are likely to settle down,” said Mr. Lohmann. He believes that the Brazilian real could even gain ground against the dollar after risks brought by the presidential election are dispelled, which could help the IPCA to fall even more. “But now the focus is on waiting to see what will happen with gasoline prices.”

On Tuesday, after statistics agency IBGE released a 0.29% reading for the IPCA in September, some firms revised downwards their projections for this year, including Bank of America (to 5.3% from 5.9%), LCA Consultores (to 5.5% from 5.8%), Barclays (to 5.6% from 6%) and Credit Suisse (to 5.6% from 5.9%). Last week, Santander Asset had already cut its projection to 5.2% from 5.9%, while Itaú Asset reduced its forecast to 5.2% from 5.8%.

David Beker — Foto: Silvia Zamboni/Valor

David Beker — Foto: Silvia Zamboni/Valor

David Beker, Bank of America’s head of economics for Brazil and Latin America strategy, cites as a reason for the change a stronger slowdown of regulated prices and service prices and the lower commodity prices and inflation core. Yet, according to him, the projection “included a larger impact of tax cuts on communication items and assumed that Petrobras will not raise fuel prices in the short term.”

On the other hand, BTG Pactual economists raised the projection for IPCA this year to 5.5% from 5.3% citing the worsened short-term perspectives for food inflation. “Recent news indicates harvest losses, and our reading for unprocessed food prices in the wholesale market indicate higher prices,” they wrote. This way, although BTG still sees lower inflation for semi-processed and processed food, the bank sees higher prices for fresh food “and, consequently, for food at home.”

*By Victor Rezende, Anaïs Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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