Thanks to China There’s Only One Way to Brazil’s Agribusiness: Up

Family agriculture in Brazil Agribusiness was the sector of the Brazilian productive chain that was least affected by the current global crisis when compared to other sectors. This information was disclosed, in Curitiba, by consultant Nathan Blanche, a director at Tendências Consultancy, during a talk he gave about the global economy and the reflexes for the Brazilian economy.

His speech happened during the Forum of Presidents promoted by the Union and Organization of Cooperatives of the State of Paraná (Sistema Ocepar).

"Agribusiness produces and sells products that are of primary need, no matter the crisis, and they will continue being consumed. Another factor that needs to be considered is that China is the most promising market for Brazilian agribusiness. Together with India, the Chinese consume 50% of global grain," he added.

In his opinion, the agribusiness sector should work with a calmer scenery in 2009, with the dollar stabilized at around 1.95 Brazilian reais to a dollar, whereas agricultural commodities, except for soy, should maintain the same levels as now or even post slight growth.

Although agribusiness is the sector least affected by the crisis, the Tendências Consultancy director believes that the companies and cooperative that already have between 15% and 20% of their investment planned should proceed with their projects. "However, before retaking or starting a new project, they should think twice and let the crisis cool down, as there is great market volatility," he recommended.

Despite the recommendation for care, Nathan Blanche said that the message he brought cooperatives from Paraná with regard to the effects is the continuation of the current global financial crisis is very optimistic.

"This moment of volatility is temporary and serious and severe adjustment is taking place all around the world. Apart from that, Brazil has done its homework and, different from what happened in previous crises, the country is more open and in better conditions, and financial institutions are stronger."

Apart from that, adds the consultant, also different from past turbulences, as happened in 1995, the world is now much more integrated, due to market globalization and is also financially more advanced.

"There has been greater income, shown by the fact that emerging nations, which make up the G20, are going to grow between 7% and 8% this year, whereas developed nations, which are part of the G7, should grow 1.5% to 2%," he exemplifies.

With regard to the reflex of the crisis in Brazil, the consultant said that forecasts are optimistic, but that they will only come true if Brazil makes some adjustment. Among the tasks for homework, Blanche mentions the need to save 25% of its GDP. He said that nowadays savings are not even 18% of GDP. To him, it is necessary to increase the volume of savings or reduce the size of the State.

In his evaluation, the GDP of Brazil should grow 3.8% in 2009, however, some conditions make analysts more confident, among them floating exchange rates and the Central Bank that, in practice, is independent. "This makes them trust in the organization's power to make decisions that will not be political but institutional, with greater responsibility," he said.

Stronger Than Adjustment

To Uilson Melo Araújo, chief economist of the Bank of Brazil, there is no doubt that the growth of the Brazilian economy will be greater than the adjustment. In his understanding, the scenery of loss of dynamism of the global economy should turn around in three years. "There will be deceleration, but Brazil is one of the most productive countries in the world and growth should take place mainly in the agricultural, civil construction and foreign trade sectors."

Even recommending care, Araújo shows optimism with regard to "preventive mechanisms" adopted by the Central Bank. "We are having liquidity problems, but at no time did we mention insolvency," he recalls. According to him, the country has taken fundamental steps in the management of its macroeconomics.

"Our institutions are stronger and there is no space in Brazil for populist measures," he said. Araújo forecasts more stable exchange rates in coming months. "When the turbulence drops, we will have a rate of around 1.90 reais to the dollar," he estimates.

Last week the Inter-American Development Bank (IDB) approved a loan of US$ 1 billion so that the Brazilian Development Bank (BNDES) may finance long-term credit to micro, small and medium companies in Brazil. According to the IDB, around 30,000 companies should be benefited by the funds, in a program in which they will include over 80 banks in the national financial system.

"Micro and small companies have always been a priority for the IDB and, now, due to their capacity to generate jobs and to increase the competitiveness of productive chains, they are fundamental in strengthening exports and the economy as a whole," explained Jose Luis Lupo, the IDB representative for Brazil.

The credit generated from the loan of the IDB project loan should finance expansion, installation and modernization projects for micro, small and medium companies.

The monthly crop report by the United States Department of Agriculture (USDA), disclosed last Friday, October 10, surprised the market on showing an increase in expected soy, maize and wheat production. North American consumption of the three commodities has also risen, despite the epicenter of the global crisis being the United States.

In the case of soy, for example, market expectations were for the North American crop to be 79.5 million tons, but the figures disclosed by the USDA are for an estimated crop of 81.2 million tons.

Anba – www.anba.com.br

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