Brazilian Agribusiness: Facing the Coronavirus Crisis in the Field
Like the rest of the world, Brazil faces the challenge of dealing with the threat the coronavirus pandemic poses to the health of its citizens and to the country's economy. As the world's leading exporter of a number of agricultural commodities, Brazil's capacity to maintain production and exports is a key influence on the global markets for these commodities and a key concern across the supply chain. This brief report focuses on the operational challenges that arise specifically as a result of the coronavirus crisis, highlighting measures being taken by commercial agribusiness players to address these challenges. For a broader update on Brazilian commodity markets, see our Brazil Agribusiness Quarterly Q1 2020.
To date, there have been isolated examples where authorities at the municipal level have restricted the circulation of vehicles, affecting the movement of grains and of collective transport of workers to two cane mills. However, in general, a federal decree that food production, processing, transport, and delivery are essential activities and must be maintained during the pandemic is being respected and reinforced at the state and municipal levels.
The movement of cargo into and out of the country has also been decreed as an essential activity, and ports have been functioning normally. Strike action was threatened in Santos (the country´s largest port) in early March. For now the issue appears to have been resolved, and a series of measures to increase the protection of port staff against the possible spread of coronavirus are being implemented.
Finance and Credit
The turbulence in global markets unleashed by the coronavirus crisis has swept through Brazil´s local markets. Fearing that the shock to markets could result in a temporary credit squeeze, many borrowers have sought to bolster liquidity. Meanwhile, lenders have had to re-evaluate risks and assess the outlook for their own cost of funding.
Grains and Oilseeds
The impact on grain and oilseed farming is seen as limited. The soybean harvest is nearly over, and cotton and second-crop corn planting (for which farmers often contract some temporary employees in January and February) were completed before quarantine measures were adopted across the country.
Field operations are now focused on crop protection spraying, and these operations are being carried out by employees who live on-farm. Visitors (except for trucks to move soybeans to grain elevators) have not been allowed on farms. Hence, for now, weather issues are seen as the main risk to production.
Meanwhile, record nominal values for soybeans (in BRL terms) and some concern regarding possible problems at ports have accelerated farmers’ sales compared with previous years, boosting liquidity needs for grain originators.
For originators (co-ops, crushers, traders), administrative and managerial staff are working at home where possible, and operations are continuing as normal but with a high degree of safety precautions, including, in some cases, regular temperature monitoring of workers.
Sugar and Ethanol
Cane harvesting and milling is a 24/7 operation. The season is about to start and will continue until November. A one- to two-week delay has been mentioned by some players, but with ethanol prices falling sharply (see Rabobank’s Brazil Agribusiness Quarterly), it could have significant commercial consequences.
Field operations are close to 100% mechanized, and much of cane processing is highly automated. The risks posed by employee groupings occur during collective transport to and from work and at mealtimes. Mills are putting on more transport (creating greater spacing between employees within vehicles), phasing meal times, and increasing space in dining facilities. The cleaning routines for workplaces, cafeterias, and collective transport are being intensified.
Managerial and administrative staff are working from home wherever possible. Some mills are initiating temperature checks for workers arriving each day and for visitors (e.g. drivers of trucks transporting sugar and ethanol).
The situation regarding internal and port logistics is normal but being monitored closely.
Many players in the industry are donating ethanol to the public health system for the production of alcohol gel and 70% alcohol, used in disinfection.
Beef cattle properties are naturally fairly isolated and tend to have relatively few employees, the majority of whom live on the property. Raising awareness regarding coronavirus and minimizing risks have been the main strategies. For farm businesses that operate offices in nearby cities, administrative and managerial staff are working at home wherever possible.
To date, processing has been suspended in nine beef facilities (an estimated 6% of total processing capacity) for 20 days, with the possibility of further extension, but this is because farmers in these regions are not selling cattle. Prices have dropped, and pasture is still abundant. Meanwhile, all poultry and pork facilities remain up and running.
Regarding logistics, there have been no interruptions to date, but pork and poultry players in the south of Brazil are concerned about possible problems with feed supplies from more distant grain regions (e.g. Mato Grosso) if transport companies were to experience staff shortages in the future.
According to Brazil’s Ministry of Health, the peak of coronavirus cases may occur in April, May, and/or June, when the coffee harvest is also at its peak. This is a concern in regions where harvesting remains largely manual (south and east of Minas Gerais, São Paulo, south Espírito Santo, and other robusta areas).
On the farm, strategies to deal with the challenge include hiring local workers and applying products to control maturation (to stagger and extend the harvest, thus requiring fewer workers on the farm). For harvesting by stripping or hand picking, mandatory equipment (boots, gloves, glasses, and, in some activities, the use of masks) for individual safety provides good protection for workers. Measures for worker transport and mealtimes mirror those mentioned for the sugar and ethanol sector.
To date, there have been no issues with logistics or at the ports. However, looking ahead, there are concerns that container availability – crucial for coffee exports – may be limited if inflows of container-based imports diminish.
Where to go from here
Andy DuffHead of RaboResearch Food & Agribusiness - South America; Global Strategist - Sugar Read more
Matheus AlmeidaSenior analyst – Farm Inputs Read more
Victor IkedaSenior Analyst - Grains & Oilseeds Read more
Guilherme MoryaAnalyst - Beverages Read more
Andrés PadillaSenior Analyst - Beverages, Dairy, F&A Supply Chains Read more
Wagner YanaguizawaAnalyst - Animal Protein Read more