Good morning! We’re covering today Brazil’s promising cannabis market. A drop in Brazilian soybean exports. And a move to keep Brazil within Mercosur. (This newsletter is for platinum subscribers only. Become one now!)
No monopoly in Brazil’s future cannabis market
Brazilian pharmaceutical company Prati-Donaduzzi, from the state of Paraná, tried to patent cannabis oil-based products as its own invention. Prati-Donaduzzi was the first firm to produce 100-percent Brazilian cannabis oil, but its patent request was blocked by the National Institute of Industrial Property (Inpi) for not meeting the standards of a true “invention” (cannabidiol was first isolated in the 1940s by American chemists).
Not THC. Another reason for authorities to block Prati-Donaduzzi’s request was that the company’s demand included the possibility of using THC—the chemical responsible for most of marijuana’s psychoactive effects.
Why it matters. The cannabis market in Brazil is still in its early days, but already accounts for BRL 9.6 billion, including legal and illegal imports of medicinal marijuana products. It has the potential to quickly become a BRL 45-billion market—with 1.7 million patients around the country that could benefit from such products. By blocking the patent, Inpi avoids making the Brazilian cannabidiol sector a monopoly.
Health effects. Between 1988 and 2018, the number of studies on medical marijuana shot up from 33 to 1,015. They showed positive effects on patients suffering from epilepsy, dementia, chronic pain, and the side effects of chemotherapy. However, the body of evidence remains small.
Cannabis oil has also been used for patients with microcephaly—a congenital malformation characterized by small head size. In many patients from Bahia, the use of cannabidiol has drastically reduced the number of seizures and epileptic attacks among children.
Room for regulation. In June, Brazil’s Sanitary Surveillance Agency launched a public consultation process to analyze a proposal to authorize the growing of marijuana for medical purposes. The most optimistic observers believe regulation could come early in 2020. That explains why Canada’s Canopy Growth (a company with USD 220-million in turnover) has opened a Brazilian subsidiary. VerdeMed, another Canadian company, plans to invest up to USD 80 million in Brazil by 2022.
Not recreational. Two-thirds of adults say that smoking cannabis should remain illegal by law, according to Datafolha, Brazil’s most renowned polling institute. But the number of pro-legalization Brazilians is on the rise.
Brazilian soybean exports to China down
Chinese imports of Brazilian soybeans are down 42 percent from last year, according to customs data from Beijing. Chinese firms are postponing purchase orders in the hopes that an agreement to end the trade war with the U.S. will be reached soon.
Why it matters. China is Brazil’s number one commodity importer—and the U.S. is one of the country’s main agricultural competitors. While a trade war between the two global powers is bad for overall business (as it generates much uncertainty internationally), their rapprochement could narrow Brazil’s participation in the Chinese market.
Trade war. Rounds of retaliatory tariffs between Washington and Beijing raised soybean duties as high as 33 percent for U.S. producers.
Ripple effect. Another factor is important to explain why China is importing less soybean from Brazil. A swine fever outbreak shrunk the Asian country’s hog herds by 41 percent, lowering its demand for soybean crush—a key component of the pigs’ diet.
Oil. Due to a drop in international stocks, Brazilian soybean oil exports are more expensive at USD 752 per ton, on average—a 14-percent bump from last year. Still, Brazil’s share in international exports is expected to drop from 1 million tons this year to just 300,000 tons in 2020.
Congress tries to block possibility of leaving Mercosur
Numerous times this year, the Jair Bolsonaro administration has shown contempt for Mercosur, the trade bloc Brazil shares with Argentina, Paraguay, and Uruguay. It has also threatened to abandon the union unilaterally—with the latest statements of this kind coming earlier this week, from Foreign Minister Ernesto Araújo. But opposition senators want to pass legislation requiring congressional approval for such a move.
Why it matters. Mercosur is the main destination of Brazilian manufactured goods, but has never quite blossomed into a true free-trade union. And relations are about to get worse, with Brazilian President Jair Bolsonaro and Argentina’s President-elect Alberto Fernández already trading barbs.
Murky waters. Brazil’s Congress has to approve any trade deal signed by the government. But legal precedent on the matter is complicated. In 1997, a trade union center filed a lawsuit to nullify a presidential decree denouncing a convention by the International Labor Association. The Supreme Court started analyzing the case back then, but 22 years later the trial has yet to be finished—creating a situation of legal limbo.
Uphill battle. The opposition’s plan would require passing a constitutional amendment—not an easy task by any means, especially when not in government.
What else you need to know today
Congress. The House’s Ethics Committee opened two inquiries against lawmaker Eduardo Bolsonaro, the president’s son. He could be impeached for (1) saying his father should use methods from the military dictatorship to counter protests from the left, and (2) promoting the “online lynching” of Congresswoman Joice Hasselmann. The committee will analyze whether Mr. Bolsonaro broke the House’s code of conduct—but he would only be impeached by a roll-call vote on the House floor.
Currency 1. After Economy Minister Paulo Guedes said he was “unconcerned” with hikes of the U.S. Dollar against the Brazilian Real, the American currency reached its historical nominal peak—closing the day at BRL 4.239 and forcing the Central Bank to sell off reserves to tame the fluctuation. Many analysts saw Mr. Guedes’ words as an “invitation” for auctioning off the currency and predict a volatile day for the Brazilian currency.
Currency 2. Other factors, of course, are playing a part, such as political instability in Latin America, Brazil’s low benchmark interest rates, the U.S.-China trade war, and Brazil’s deficit in foreign accounts (trade balance, services purchased abroad, and remittances of interest, profits and dividends from Brazil to other countries). That deficit is at 3 percent of the GDP—and close to the 4-percent mark—considered by analysts to be a worrisome piece of evidence that the country has a high need for overseas funding, which can scare off investors.
Education. An audit on the Education Ministry by lower house advisors shows that the government has not achieved much so far—either in terms of planning or executing public policies. The administration’s only concrete goal for education—a national literacy plan—has yet to present concrete measures to universalize and improve basic education.
Prison sentences. After former President Lula was released from prison following a Supreme Court ruling against enforcing prison convictions before all appeals are exhausted, Congress began talks of passing new legislation to allow just that. Yesterday, party leaders agreed to put that project on hold and change the rules through a constitutional amendment (which takes months to pass). Justice Minister Sergio Moro said that a lengthier, but less contestable process is better in the long run.
Slavery. A state prosecutor in Pará said, in a leaked audio clip, that “Brazil’s slavery problem happened because indigenous people don’t like to work.” He also denied that the country owes anything to populations descending from slaves—as “none of us has slave ships today.” But Brazil was the last Western country to abolish slavery, in 1888, and never offered freed people a path towards true citizenship and social integration.