How a record heat wave in Argentina could affect the Brazilian’s pocket – 03/25/2023 – Market

The recent heat wave in the Argentine summer, which led the country to register the highest temperatures in history, not only significantly affected the local economy, but also has had an impact on neighboring Brazil, its main trading partner for 20 years.

The drought has caused “dramatic” losses in agriculture, while fires have damaged national infrastructure, leaving half of Argentina without power.

“The prospects for agricultural production for the 2022/23 season are dramatic, and estimates may be revised downwards in the coming weeks,” says Santiago Manoukian, head of research at consultancy Ecolatina, to BBC News Brasil.

According to him, the three main crops in Argentina — soy, wheat and corn — have accumulated losses of 40% compared to the last harvest, with a loss of around US$ 20 billion in the same comparison.

“The abrupt drop in the wheat crop, by around 43%, is seriously affecting the export volumes of this cereal to Brazil. In January, wheat exports from Argentina to the country fell 41% compared to the same period of 2022 “, says Manoukian.

Brazil is the biggest buyer of Argentine wheat.

In its most recent index for global food prices, the United Nations Food Organization (FAO) highlighted “worsening conditions in Argentina” as one of the elements that boosted cereal prices in February.

However, the Executive President of Abitrigo (Brazilian Wheat Association), Rubens Barbosa, considers the impact of prices on the final consumer, assessing that there should not be a significant increase in flour prices.

According to him, Brazilian importers managed to mobilize themselves to obtain the raw material from other sources, with emphasis on Russia.

“The biggest risk of the conflict (with Ukraine) at the moment has been overcome. There are no restrictions on Russian production, which is reaching record levels”, he points out.

Impact on industry

In addition to agriculture, Argentine industry is impacted by the recent crisis.

In addition to greater difficulties in production, the lower inflow of foreign currency reduced the local import capacity.

Manoukian estimates a reduction in activity in the sector of up to 40% and evaluates the relationship with Brazil “with concern”, since the two countries have a series of integrated production chains.

Around 40% of exports of manufactured goods from Argentina in the last decade were destined for Brazil, according to Ecolatina. A large part integrates the Brazilian automotive industry.

Climate changes

Christopher Callaha, professor at the Department of Geography at the University of Dartmouth, in England, points out in an article that Latin America is one of the regions potentially most economically affected by heat waves.

In an interview with BBC News Brasil, he assesses that the phenomena should be more frequent and that they are linked to climate change caused by humans.

“Rising global temperatures have made it much more likely that heat records will be broken and that heat waves will be more severe than they used to be. I believe that the recent drought and damage to infrastructure is due, at least in part, to the human emissions of greenhouse gases”, he says.

“Higher income locations are generally better suited to weathering extreme weather events. Higher incomes are associated with less reliance on vulnerable agricultural sectors of the economy. As a result, I expect emerging markets to be less resilient to these extreme events.”

Looking back over the last few decades, Callaha’s study found that losses from heat waves amount to 6.7% of Gross Domestic Product (GDP) per capita per year for regions in the bottom income decile, but only 1.5% for regions in the top income decile. GDP is an indicator that measures the sum of goods and services produced by a country.

“I expect that extreme weather events will have major effects on major food producers. Heatwaves and droughts are known to damage crops, and weather-caused losses can increase food prices around the world,” he says. Callaha, who projects negative economic effects on other South American countries from current and future heat waves in Argentina.

Another survey, from the World Climate Assignment (WWA), published last year, found that climate change has increased the likelihood of extreme temperatures in the region by 60 times in December 2022.

Rainfall levels over the last three months of 2022 were analyzed over an area that includes large parts of Argentina, all of Uruguay and a small region in southern Brazil.