After a good phase, the producer loses income, but the consumer pays less for food – 02/05/2024 – Vaivém

The boom in food prices is out of the hands of agricultural producers and now provides some relief to consumers. After a period of good margins in the sale of their products, farmers are facing a phase of strong slowdown in prices.

Consumers, who had accumulated food inflation of 57% from 2019 to 2022, paid, on average, just 2.7% more for these products in the last 12 months, according to data from Fipe (Fundação Instituto de Pesquisas Econômicas ) referring to January.

The year 2022 will be unforgettable for agricultural producers, who received record prices. Building stocks for food security during the pandemic and Russia’s invasion of Ukraine raised world prices. Brazil, which has been accumulating record after record in grain production, had commodities to meet global demand.

The producer gained from the increase in external prices, and the consumer paid dearly for products on the domestic market, which is always a reflection of the external market. Food inflation was 15% that year, double the general average.

In 2022, an arroba of beef reached R$352, and is now at R$242. In the same period, a sack of corn fell from R$104 to R$62; soybean, from R$203 to R$111 in Paraná; that of Arabica coffee, from R$1,503 to R$1,014. A ton of wheat, months after the Russian invasion, rose to R$2,211 on the domestic market, but returned to R$1,235 this month.

Producers obtained record prices at a time when production costs were not yet as under pressure as they were after the Russian invasion. Now that prices are falling, costs have not yet returned to their previous levels.

Lower food pressure does not only occur in Brazil. The FAO (Food and Agriculture Organization of the United Nations) price monitoring index indicated a 10% drop in food prices in January this year compared to the same period in 2023.

Cereals, due to the decline in corn and wheat, have seen an accumulated decline of 19% in the period; dairy products, 18%; vegetable oils, 13%, and meat, 1.2%. Conversely, sugar rose 16%, according to the entity. Lower production in India and Thailand and concerns about the 2024/25 Brazilian harvest, which begins in April, are driving up prices.

The same happens with sugar in Brazil. After paying 92% more for the product, from 2019 to 2022, the consumer saw an increase of 12% in the last 12 months.

There are few products with an increasing trend, but, in some cases, this pressure begins to recede, as occurs with rice and beans.

With such high prices, soybeans have taken space from rice in recent years and, in 2023, the country will have the smallest area under cultivation of the cereal in history. The result was a smaller supply and a 29% increase in rice prices over the last 12 months.

The approaching harvest and the burning of stocks from the previous harvest are already putting less pressure on prices. The cereal, which began January with an accumulated increase of 7.3% in 30 days in supermarkets, ended the month with an increase of 4.8%, according to Fipe.

Beans follow the same rhythm as rice. With a drop in production in the first harvest, the legume is expected to have greater supply in the second. In January, prices rose 8%, after rising 13% in the first four weeks of the month.

Bakery products, with the slowdown in wheat prices, went into deflation. The bread already has a decline of 0.5% in the month and accumulates only 0.4% increase in 12 months.

Even cornmeal, which rose 112% from 2019 to 2022, due to the rise in corn prices, has fallen 4.7% in the last 12 months.

Soybean oil, one of the main price hikes for consumers in recent years, due to the acceleration in international soybean prices, has accumulated a 26% drop in supermarkets in the last 12 months. In the previous four years, the increase had been 164%.

Prices in the field also fall for fruit and vegetables. After intense rains, harvests return to normal in several regions, increasing domestic supply. This is a sector, however, that has accumulated inflation at a high level over 12 months. “In natura” products, classified by Fipe as fruits, vegetables, tubers (potatoes, onions and garlic) and eggs, increased by 15% from February 2023 to January 2024.

The biggest pressures come from fruits, mainly oranges. The reduction in supply on the consumer’s table, due to the effects of diseases in orchards, weather and a drop in the global supply of juice, caused a 33% increase in orange prices in the last 12 months.

Beef, after a slowdown, is experiencing a slight recovery in prices. Beef, which started January with a drop of 1.2% in the last 30 days, ended the month with an increase of 0.7%. Chicken and pork meat has a lower evolution rate in January than in December.

The drop in the prices of inputs, such as corn and soybeans, reduces the cost of production. Furthermore, external demand is weaker, mainly due to the recovery of pork production in China.

In addition to low prices, the field is experiencing adverse weather conditions that will reduce production. For now, evaluations of crop performance continue. The crop failure and the lower income coming into the countryside will cause a reduction in the sector’s GDP (Gross Domestic Product), and, consequently, the general economy.

Commodity prices are falling, but the definition of the Brazilian harvest and those of Argentina and the United States, later, could change this scenario.