Brazil is experiencing a major shift in it’s political leanings, and what happens there might have a really big impact on US farmers- especially for beef and soybeans. Their new president was elected on a platform of deregulation, and it appears that the country is positioning itself to take advantage of the trade war with China and the US. Here’s the latest from AgWeb, Successful Farming and Ag Update.
Brazil’s New President
On AgWeb, John Phipps provided some analysis on the results of Brazil’s recent presidential election. The country has voted in a new far-right, pro-gun, pro-torture president, Jair Bolsonaro. He was the winner of a runoff vote in an extremely divisive election. Bolsonaro is the first conservative Christian politician that Brazil has had in decades. The country has been plagued with political scandals, and a “drain the swamp” fever has taken over.
Bolsonaro’s victory signals that changes are ahead.
Rollback of Environmental Regulations
Throughout his campaign, Bolsonaro promised to end many environmental regulations for agriculture. He wants to speed up deforestation and transition the land for crops. As one might expect, he’s had a lot of support from the Brazilian agribusiness sector and farmers.
Bolsonaro is often referred to as a nationalist, or global populist. His views are at odds with a lot environmental regulations, and that’s a position that many US farmers can probably understand. Farmers in the US generally want a lighter touch when it comes to environmental regulations, and Brazilian farmers are no different. Under Bolsonaro, Brazil is now primed to expand range area and cropland.
Impact on Commodities
This political development will likely affect the supply curve for many commodities- but particularly for beef and soybeans. The trade war with China and the US is ramping up, and as a result, China is now buying a lot of soybeans from Brazil. The same is happening with beef. Brazil is currently the world’s second-largest beef producer at 15%. The US produces 5% more, but beef production here has been flat for years. Brazil’s beef production on the other hand, is growing.
Now, the Chinese are ready to swoop in with their money and expertise to get these Brazilian commodities flowing.
Ray Grabanski of Successful Farming reported that within days of the beginning of the tariffs between the US and China, a Brazilian delegation traveled to China to sign a long term agreement. Brazil wanted to secure the market before they went “all in” on soybeans. They’ve promised to supply China with all the soybeans they can.
Brazil is our biggest competitor on soybeans. But even still, President Trump called to congratulate Bolsonaro on his victory. Both men said that they were committed to working together.
A Few Commodity Buyers are Pushing Back
All of this is pretty terrible news for US soybean farmers. Buta glimmer of hope. Abiove, a group that represents agribusiness giants, Cargill Inc. and Bunge Ltd., says that they won’t walk back their commitment to regulations to stop deforestation. Abiove released a statement saying that the demand is greater from local and overseas customers to remain compliant with regulations.
This means that Abiove will continue to refuse to purchase soybeans from recently deforested land in the Amazon region. The ban has been in place since 2006, and has helped to slow down deforestation by 75% from it’s peak in 2004. Even with this ban in place, an area the size of Delaware is cleared each year. Brazilian land area used to grow soybeans has tripled since 2000.
Bolsonaro says that he plans to reduce the oversight powers of Ibama and ICMBio- two of the country’s environmental watchdogs. He also wants to open up more indigenous land to mining and farming, and merge the environmental and agricultural ministries. Bolsonaro’s plans will make pesticide approval easier. He also takes a harsh stance when it comes to landless movements and foreign organizations. He might even follow Trump’s example and withdraw Brazil from the Paris climate agreement.
But if Bolsonaro rolls back environmental regulations too much, he could get even more pushback from foreign buyers. For example, Carrefour SA has made a public commitment to reduce deforestation for soybean farming.
This is a situation that US farmers should monitor. What happens in Brazil could have big impacts here at home. If Bolsonaro successfully rolls bag environmental regulations in Brazil, they’ll be able to increase production, and position themselves well to cozy-up even more with China. Will global demand for environmental compliance and agribusiness giants be able to keep Brazil in check?