Agro favors Lula again, but political gain will be smaller

Agribusiness, the main source of good news for the government’s economic team, is a frequent target of attacks by President Luiz Inácio Lula da Silva (PT), who has already labeled the sector “fascist”, praised invaders of rural properties and endorsed government decisions. Judiciary, such as the recent end of the time frame for the demarcation of indigenous lands and the green light to expropriate productive lands in agrarian reform that do not fulfill a “social function”.

Despite this hostile climate, the field is heading to present federal advertising with a historic feat in 2023 – the record annual surplus in the country’s trade balance, projected at US$90 billion. The share of agribusiness in total Brazilian exports now exceeds 51%.

In Lula’s first two terms, especially the second (2007-2010), the success of agribusiness contributed decisively to him achieving record popularity of 80% upon leaving the Presidency, a direct result of income gains for salaried workers via massive inflow of dollars , which also contained inflation. All thanks to an overvaluation of agricultural and mineral raw materials. This time, Lula will once again reap the rewards of grain and cellulose exports, driven by growing volumes. Experts consulted by People’s Gazetteare betting, however, that the political impact of this success will be smaller and less lasting compared to past PT administrations.

Lula’s gains in popularity that boosted the election of his successor Dilma Rousseff (PT) in 2010 are unlikely to be repeated for several reasons. Firstly, the positive results in the trade balance are strongly linked to export volumes, which may decline in the coming years.

Furthermore, in his third term the president faces new challenges arising from a more fragile fiscal framework, as well as more intense vigilance from the National Congress regarding the expansion of spending, which makes it difficult to transform these momentary gains into direct benefits for the income of the government. public or investment projects with a populist profile.

As a backdrop, the climate of confrontation between the PT member and representatives of the sector also prevents greater collaboration and still generates uncertainty regarding future numbers. Finally, external conditions also depend on adequate government planning to ensure the sustainability of agricultural sector growth, which does not appear to be occurring.

Agricultural performance is due to the volume exported

Released last Monday (18), by the Foreign Trade Secretariat (Secex) of the Ministry of Development (MDIC), trade balance data for the third week of September registered a record annual balance of US$68.14 billion, with US $240.52 billion accumulated in exports and $172.38 billion in imports.

The jump above 40% in the surplus over the same period of the previous year is due to the performance of agribusiness in recent months. As a result, the trade balance already indicates a balance of US$90 billion by the end of the year, the highest since the beginning of the historical series, in 1989. The latest records were recorded precisely in the two previous years, with US$61, 4 billion (2021) and US$62.3 billion (2022).

Unlike the phenomenon that benefited Lula in the first decade of the century, called the super cycle of rising mineral and agricultural commodities, the performance of exports this time is due more to the volumes exported, the result of a record harvest of soybeans and corn, in addition to of a decline in imports. The Tendências consultancy predicts a trade surplus of US$93.4 billion this year, but indicates a smaller balance of US$60 billion for 2024. For the economy as a whole, one of the positive consequences of the increase in the volume exported by agribusiness will be, once again, the more valued real, which helps to control the increase in prices in the country.

Soy, corn and cellulose are among the products that have grown the most in exports in recent years. The production of cereals, legumes and oilseeds is expected to record a new record this year, totaling 313.3 million tons. This number represents a 19% jump compared to 2022, or 50.1 million more tons. If the estimate is confirmed, it will be the first time that the harvest will surpass the 300 million ton mark.

In June, Lula announced a record volume for the 2023/2024 Harvest Plan, worth R$364.22 billion. The amount will be destined to support the agricultural production of medium and large rural producers until June 2024. The announcement of the plan was made within the favorable context for the country of the so-called rearrangement in global production chains, after the pandemic, the invasion of Ukraine and “cold war” between the United States and China.

Despite the good numbers, agribusiness has complained about the lack of coordination and few deliveries from the Minister of Agriculture and also senator for the PSD, Carlos Fávaro, who also suffers distrust from the agricultural bench in relation to issues such as land invasions and the ideological confrontation with the sector promoted by Lula.

Experts show trade balance dependent on agriculture

“Historically, the effect of agribusiness on the balance has been positive and largely explains the successive records in the trade balance, reinforcing how strategic this sector continues to be for the Brazilian economy, regardless of price fluctuations that are very common in times of crises and uncertainties, such as wars and disputes between the biggest competitors in the market”, recalls Gustavo Bernard, specialist in foreign trade and director of Bernard Consulting.

The expert highlights, however, the persistence of structural limitations of Brazilian competitiveness in other areas that also require research and innovation, but which have not yet reached levels of agricultural efficiency in global markets. “The performance of Brazilian foreign trade has remained sustainable and structural adjustments, such as tax reform and definitive and clear legal frameworks, can improve investments in other businesses relevant to exports,” he said.

For Eduardo Galvão, director of Public Affairs at the international consultancy BCW, the September foreign trade figures show the leadership of soybeans, despite a slight decline of 20.4%, with a 13.7% share in exports, closely followed by crude petroleum oils and iron ore.

“The performance of Brazilian exports throughout the year is also impressive, with agriculture, processing and extractive industries showing solid growth. The results indicate Brazil’s ability to adapt and prosper in a challenging global environment, while strengthening its presence in international markets. As the country continues to expand its commercial horizons, we can only wait for the economic development that the trend can bring”, he assesses.

In an analysis for the Brazilian Institute of Economics (FGV), linked to the Fundação Getúlio Vargas (FGV), Armando Castelar, economist and professor at UFRJ, recalls that 60% of the economy’s growth estimated for 2023, of 2.5%, will come from “excellent performance of agriculture and extractive industry”. In other words, 1.5% of the expansion of the Gross Domestic Product (GDP) this year will largely come from the performance of the field. Working against this aid is the inflation outlook for the year still above the 3% target and high real interest rates.

Furthermore, the external environment remains turbulent, with interest rates rising in the United States and the Chinese economy still slowing down. “This is still a challenging situation, despite the positive surprise of the economy expanding this year more than previously expected”, he summarized.