Beans and rice put Lula to the test and will become more expensive in 2024

The combination of beans and rice is expected to maintain rising prices in 2024, after difficult growing seasons – sometimes due to excessive rain, sometimes due to prolonged drought in the main producing regions of the country – and also due to the increase in international prices.

The upward pressure will test President Lula’s speech that he would intervene in the market, when necessary, to build regulatory stocks and control food prices – a formula that has never worked, as this report has already shown. People’s Gazette.

In October 2022, Lula declared: “Conab (National Supply Company) was a very important thing in my government because through Conab we created a kind of regulatory stock. When beans were getting too high, we put the beans on the market to make them cheaper. We’re going to do it.”

Black beans have reached a record price in recent weeks, in the range of R$400 per bag for the extra product, imported from Argentina and of higher quality. For national beans, which are of inferior quality due to excess moisture, a bag cost around R$350 to R$370. And for rice, international prices are the highest in the last 15 years, making the price of a bag reach close to R$140 in Rio Grande do Sul, the country’s largest producer. In Mato Grosso, prices fluctuate between R$160 and R$170 per bag, a historic value, above soybeans.

India blocked rice exports

“Not even in the most optimistic scenario would we imagine that India, the largest global exporter of rice, and Thailand, would have problems. India banned exports in an attempt to control inflation. Prices soared to the highest levels in 15 years, in the midst of the Asian harvest, which should have been a period of falling prices”, observes Evandro Oliveira, consultant at the Safras e Market agency.

“Retail is juggling so as not to fully pass on this cost increase. Sometimes, the retailer prefers to lose on rice, and use the product as a lure, to win on other items. Those who suffer most in this situation are the industries, which have compromised margins and idle capacity. They are unable to pass on adjustments and are also unable to rebuild stocks”, points out the analyst.

Both rice and beans have suffered this year because of weather extremes. In Paraná, the country’s largest bean producer, crop failure reached 18%, due to excessive rainfall. In Minas Gerais, another prominent producing hub, the problem was the prolonged drought.

In the case of rice, Rio Grande do Sul, which accounts for 70% of national cultivation, faced a severe drought in the western region of the state. Uruguaiana, the municipality that produces the most rice in the country, had one of the worst droughts in 40 years. Paraguay, which supplies part of the Brazilian market, saw a large part of its plantations suffer from flooding.

Heated demand in 2024, even with a reaction in the planted area

“Our rice stocks will be low. We produce 10 million tons, but consume 11 million. There won’t be much rice left over. We are going into a year that can plant a little more, harvest a little more, but it still won’t meet demand”, warns agricultural commodities consultant Vlamir Brandalizze.

“The price of rice will remain firm in 2024, with relief only at the time of harvest, at the end of February, in March and April. After this period, the price will begin to rise. For the first time in history, rice is worth more than soybeans”, observes the consultant.

The diagnosis of the Federation of Rice Growers Associations of Rio Grande do Sul (Fedearroz) is that rice prices reacted due to the decrease in planted area, after years of consecutive losses for rice farmers. In the last 15 years, Rio Grande do Sul, which accounts for 70% of the rice produced in Brazil, went from a planted area of ​​1.2 million hectares to 840 thousand, in the last harvest.

Pressured by costs, producers replaced rice with soybeans and livestock. And rice exports emerged as an option to balance domestic market prices. What would have changed the game now was the restriction of exports by large producing countries in Asia, such as India, which accounted for 40% of global exports.

Rice has changed its price level worldwide

“Rice has reached a new level worldwide, but it remains an affordable product. Today the average price is between R$5 and R$6, already considering this year’s increase. Until then it was between R$4 and R$5 Even so, within the basic food basket, it does not represent more than 5%”, assesses Alexandre Velho, president of Fedearroz.

He points out that current values ​​represent the off-season, with little product supply. Given better prospects, in Rio Grande do Sul an increase of 7% in the planted area is already estimated, totaling 900 thousand hectares, compared to 840 thousand hectares in the last harvest.

In both the rice and beans scenarios, there is little the government can do. And this does not involve intervening in the market to create buffer stock. “The market is adjusting. It has nothing to do with the government. Rice is the international market that is reflected here. And in beans, there was discouragement among producers, who did not make a profit in other crops”, ponders Brandalizze.

Alexandre Velho, from Fedearroz, notes that current prices simply prevent any public purchase as a regulatory measure for stocks. “There’s no way to do it, because the minimum price of rice [do governo] It’s R$65, and on the market it’s double that. The government cannot buy it and no one will sell it for R$65, because it would be a monstrous loss. Public purchasing is completely ruled out”, he assures

For Velho, within 45 days, when the new harvest begins, there should be a price adjustment, favoring the consumer. The level, however, will no longer be the same as in previous years, due to the appreciation of the product globally.

Production support, without breaking market rules

In this context, it is likely that President Lula will “forget” his promise to intervene in the market by creating regulatory stocks or withholding exports, in an attempt to control prices. In addition to being economically unfeasible, measures like this may even bring some immediate relief, but they tend to generate highly harmful consequences in the medium-long term. The most emblematic example of this is the chaos created by Argentina’s interventionist policies in recent years.

“This logic doesn’t work. Argentina held back meat exports and bankrupted livestock farmers. When the government thinks about suspending or taxing exports, it takes away the producer’s spirit and there will be a lack of product in the following harvest”, says Brandalizze. This does not mean, however, that the government cannot contribute.

“The logic is to leave the market free and create mechanisms for producers to move forward. Where are there obstacles? Take people from Rio Grande do Sul, for example. It makes life easier for the producer to create more ponds, to have more water trapped when it rains and to be able to plant more. This way, we can continue to meet domestic demand and continue exporting”, explains the agronomist.

Another example is soybeans, in which Brazil is the world leader – Brandalizze emphasizes – “because the government never got in the way of anything”. In basic foods, in order to be able to offer cheap food, it is necessary to leave the market flow free.

“We also need to let Brazil be an exporter. Whenever we are exporters, the cheapest product is from here. The cheapest soybean oil in the world is the one on the shelves in Brazilian supermarkets. And the cheapest chicken is also ours, because we have cheap soy and corn for feed”, emphasizes Brandalizze.

Trade agreements can help balance prices

For Oliveira, from Safras e Market, a more efficient policy would be to close new commercial agreements. He mentions Mexico, which could buy Brazilian rice and send beans here.

“Building stocks wouldn’t make much sense. The government would be buying at a high price and would not have much choice. It may cause some recoil [no preço]but if the dollar rises and starts exporting, the price will rise again”, he points out.

The indicators point to a 2024 with more satisfactory margins for rice and bean producers, with a consequent increase for consumers, albeit at modest levels, as maintained by Fedearroz.

Given the circumstances, it is most likely that the Lula government’s interventionist discourse will remain merely rhetorical, except for government purchases in support of social movements and small cooperatives, or premiums for the flow of production to less well-supplied regions.

The new, slightly higher global price level for the product is not harmful to the country, in the opinion of Alexandre Velho, from Federarroz. “What does Brazil want? Break the sector and depend only on imported rice, which does not have the quality of ours and costs the same or more expensive? Or does it want to encourage the area to recover a little to bring balance, greater supply and prices a little minors? That’s what we need to look at”, he concludes.

Contacted by People’s Gazette, the National Supply Company (Conab) reaffirmed that, for the federal government, “the replenishment of public stocks is strategic”. For this to happen, however, he said in a note, “it is essential to expand the supply of strategic foods.”

“After eight years, the National Supply Company resumed building stocks with the purchase of 500,000 tons of corn in 2023. There was the intention of restoring rice stocks, but it is necessary to wait for the results of the harvest,” he stated. to Conab.